Asok Nadhani
Contract
of Sale
1.1 Introduction
Initially, the
Sale of Goods Act was part of Indian Contract Act in Chapter VII (Secs. 76 to
123). Later, these sections in Contract Act were deleted, and separate Sale of
Goods Act was passed in 1930 which came into effect from 1st July, 1930 [sec. 1(3)].
The Sale of
Goods Act is complimentary to Contract Act. Basic provisions of Contract Act
apply to contract of sale of goods except the matters related to contract of
sale of service or pledge of goods, mortgage of property or barter of goods. It
extends to the whole of India Jammu and Kashmir
1.2 Scope
The Sale of
Goods Act is applicable to movable goods other than actionable claims and money
and is governed by the Transfer of Property Act, 1882. Actionable claim and
money are excluded from the goods.
The unrepealed provisions of the Indian Contract Act, 1872, except as they are inconsistent with the express provisions of Sale of Goods Act, 1930, shall continue to apply to contracts for the sale of goods. (Sec. 3)
The unrepealed provisions of the Indian Contract Act, 1872, except as they are inconsistent with the express provisions of Sale of Goods Act, 1930, shall continue to apply to contracts for the sale of goods. (Sec. 3)
1.3 Contract of Sale
A contract of
sale is made by an offer to buy or sell goods for a price and the acceptance of
such offer. The contract may provide for the immediate delivery of the goods or
immediate payment of the price or both, or for the delivery or payment by
instalments, or that the delivery or payment or both shall be postponed [sec.
5(1)]. According to sec. 4(1) of the Act, 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”. The contract of sale may be in writing, by
words or partly in writing and partly by words either expressed or implied
[sec. 5(2)]. It may be absolute or conditional [sec. 4(2)]. The parties can
freely determine the terms of delivery or mode of payment by their mutual
consent. It may be constituted between one part-owner and another [sec. 4(1)].
The contract of sale is different from the agreement to sale as in the former
case, the property in goods passes to the buyer immediately whereas in the
latter the property in goods passes at a future date.
Every contract
of sale involves transfer of property in goods from the seller to buyer. If the
property in goods is transferred immediately on formation of contract of sale,
it is called as a sale, but where the property in goods passes after formation
of contract of sale (e.g. at a future date or on fulfillment of a condition) it
is called as agreement to sell. Thus, the term ‘contract of sale’ includes both
sale as well as agreement to sell.
1.3.1 Essential elements of Contract of Sale
The following are the essential elements for a contract of sale-
1.
Contract
A contract of sale
satisfying all the requirements of a contract is considered as valid. There
must be at least two parties to constitute a contract of sale. A person cannot
trade with himself. However, in the following cases the same person can be a
seller as well as a buyer.
(a)
When the pawnee sells the goods pledged with him to
the pawnor on non-payment of his money.
(b)
A part owner can also sell his share to the part
owner to make the other part owner as the sole owner of the goods.
(c)
A partner can buy from or sell to a firm in which
he is a partner.
2.
Goods
There must be some goods
the property in which is or is to be transferred from seller to buyer. Goods
related to contract of sale must be movable. So, “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.
Example:
A hotel company provides
residence and food making a consolidated charge for both the services. No
rebate was allowed if food was not taken by the customers. Held, supply of food
was not sale of goods but simply a service as the transaction was an
indivisible contract of multiple services and did not involve any sale of food.
It was observed in this case that the “Position is akin to that of a steamship
or airline company which serves food to passengers”.
3.
Transfer of Property
The term “Property” refers
to the general property in goods and not merely a special property [Section
2(11)]. ‘Property’ means ‘ownership’ and ‘General Property’ means ‘full
ownership’. In case of contract of sale,
transfer of property in goods must move from one person to another. A mere
transfer of possession without transfer of ownership does not constitute a
sale. Thus, transfer of ‘General Property’ is required to constitute a sale. As
general property of goods is not transferred in case of hire, lease, hire
purchase or pledge, they cannot be considered as ‘sale’.
4.
Price or Money
consideration
“Price” means the money
consideration for a sale of goods [Sec. 2(10)]. In case of contract of sale of
goods, the consideration should be ‘price’ i.e. money consideration. Where
goods are exchanged for goods, it is a barter and not a sale. The consideration
may be partly in money and partly in goods also.
Example:
A agreed to exchange with B
100 quarters of barley at £ 2 per quarter for 52 bullocks valued at £ 6 per
bullock and pay the difference in cash. Held, the contract was a contract of
sale.
5.
Mutual Consent
Contract of sale must be
accompanied with mutual consent of the contracting parties. If the contracting
parties cannot agree with the terms of sale, contract of sale cannot be formed
between them.
6.
Essential
elements of a valid contract to be fulfilled
A contract of sale should
satisfy all the essential elements
of a valid contract (e.g. offer, acceptance, free consent, capacity of the
parties).
7.
Two Parties
There must be a buyer and a
seller in a contract of sale who must be competent to enter into contract to
affect a contract of sale. ‘Buyer’ means a person who buys or agrees to buy
goods [Sec. 2(1)] and ‘Seller’ means a person who sells or agrees to sell goods
[Sec. 2(13)].
Example:
A partnership firm was
dissolved and the surplus assets including the stock-in-trade were divided
among the partners, in specie (in the same form). Held, it was not a sale as
the partners themselves were the joint owners of the goods and they could not
be both sellers and buyers.
1.3.2 Formalities of a Contract of Sale
A contract of
sale is formed when an offer is made by one party and it is accepted by the
other party. The offer, acceptance or both may be express (i.e., by words
spoken or written) or implied from the conduct of the parties and circumstances
of the case. A contract of sale can be in any form as no particular form has
been specified. It need not be written or registered. However, if for any
special type of goods, a particular mode or formality is prescribed by any law,
then the contract of sale must fulfil the requirements of such law. The parties
to a contract of sale are free to decide the time for delivery of goods,
payment of price, time of passing ownership from seller to buyer, the time of
passing risk from seller to buyer etc.
The following
are the terms and conditions of a contract of sale-
(a)
Goods shall be delivered immediately at the time of
formation of contract of sale at some future date specified in the contract in
parts or installments; the time of installments being specified in the
contract.
(b)
Price shall be paid immediately at the time of
formation of contract of sale at some future date specified in the contract in parts
or installments; the time of installments being specified in the contract.
1.4 Sale
Where under a
contract of sale the property in the goods is transferred immediately from the
seller to the buyer, the contract is called a sale.
Example:
(a)
M sells to N 50 kg. of sugar for Rs.750. The
payment is to be made in cash immediately and the sugar is to be delivered
immediately.
(b)
M sells to N 50 kg. of sugar for Rs.750. The
payment is to be made after 20 days but the sugar is to be delivered
immediately.
(c)
M sells to N a sack of 50 kg. sugar for Rs.750. The
payment is to be made in cash immediately and the sugar is to be delivered
after 10 days.
(d)
M sells to N a sack of 50 kg. sugar for Rs.750. The
payment is to be made after 15 days and the sugar is to be delivered after 10
days.
In all the above
cases (a) to (d), the ‘contract of sales’ is of ‘sale’. The buyer becomes the
owner of sugar as soon as the contract is made.
1.4.1 Distinction between Sale
Basis
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Bailment
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1. Definition
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Bailment is defined under Sec. 148 of the Indian Contract Act, 1872.
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2. Transfer of
Ownership and Possession of Goods
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The ownership of goods passes immediately from the seller to the
buyer.
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The possession of goods passes from the bailer to the bailee.
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3. Cause of Transfer
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The reason for transfer of ownership is due to sale.
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The possession of goods is transferred due to safe custody usage,
carriage etc.
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4. Use of Goods
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The buyer can use the goods in the way he likes.
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The bailee can use the goods for intended purpose only according to
the directions of the bailor.
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5. Consideration
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The consideration is always in terms of money.
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The consideration may be in money or in understanding to return the
goods bailed on accomplishment of the purpose.
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6. Return of Goods
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Except in case of breach, buyer is not liable to return the goods to
the seller.
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The goods must be returned to the Bailor after the specified time or
accomplishment of the purpose.
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7. Profit accrued
in Goods
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Profit accrued in goods sold, if any, is the property of the buyer.
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Profit accrued on goods bailed is the property of the bailer.
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8. Loss of Goods
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If the goods are lost or damaged, the loss is to be borne by the
buyer.
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If the goods are lost or damaged, the loss is to be borne by the
Bailor. Bailee would be responsible only if he is guilty of negligence and
carelessness in taking care of goods bailed.
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9. Payment of Charges
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The question of payment of charges does not arise.
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The bailor has to repay the charges which the bailee has incurred in
keeping the goods safe.
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1.4.2 Distinction between Sale
Mortgage
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Price
constitutes the consideration.
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Advance of
loan and security is the consideration.
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Ownership of
goods is transferred immediately to the buyer.
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Only
possession of goods is transferred, but not the ownership of goods.
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Buyer becomes
absolute owner.
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Ownership
remains vested with the mortgagor.
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1.5 Agreement to Sell
a.
A contract of sale is an ‘agreement to sell’ if the
property in goods is transferred-
i. at a future time
specified in the contract of sale; or
ii. on fulfillment
of some conditions specified in the contract of sale.
b.
An ‘agreement to sell’ becomes a ‘sale’ when-
i. the future time
specified in the contract of sale arrives; or
ii. the condition
specified in the contract of sale is fulfilled.
In case of an
agreement to sell, the goods are at the risk of seller until the agreement to
sell becomes a sale.
Example:
X agrees with Y to sell his cycle for Rs.200 on Jan. 10. It is an
agreement to sell as the cycle is to be transferred on a future date.
1.5.1 Distinction between Sale
Basis of
distinction
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Agreement to
Sell
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1.
Transfer of Ownership
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The ownership passes from seller to buyer immediately at the time of
formation of contract of sale.
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The ownership passes from seller to buyer subsequent to formation of
contract in future or on fulfilment of some conditions specified in the
contract of sale.
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2.
Risk of Loss of Goods
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The goods are at the risk of the buyer.
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The goods are at the risk of the seller until the agreement to sell
becomes a sale.
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3.
Remedies for Breach by Seller
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The buyer has the legal right to obtain the possession of the goods.
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The buyer may claim damages for non-performance of the contract.
However, the Court may allow specific performance of the contract considering
the facts and circumstances of the case and the provisions of Specified
Relief Act, 1963.
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4.
Remedies for Breach by Buyer
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The seller has the legal right to sue the buyer for recovery of price
of goods.
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The seller cannot sue the buyer for recovery of price of goods. But,
he can claim damages.
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5.
Right of Seller to resell the Goods
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In case of sale, the ownership of goods passes on to the buyer. So,
the seller has no legal right to resell the goods. However, if the possession
of the goods remains with the seller, the seller may resell the goods to a
new buyer. If the new buyer knows that the seller has no legal right to
resell the goods, he does not become the owner of such goods, but if the new
buyer was not aware of the fact that the seller has no legal right to resell
the goods, he will become the owner of such goods.
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In case of an agreement to sell, the seller should not resell such
goods.
However, if the seller resells the goods to a new buyer, the new buyer
will become the owner of such goods even if the new buyer had knowledge of
the original agreement to sell.
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6.
Insolvency of Buyer
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On insolvency of buyer, the official assignee shall have a right over
the goods. However, the seller may exercise his right of lien, if the
possession of the goods is with him.
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On insolvency of the buyer, the official assignee shall have no right
over the goods.
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7.
Insolvency of Seller
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On insolvency of seller, the buyer, being the owner, is entitled to
recover the goods from the Official Receiver or Assignee.
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On insolvency of seller, the buyer, who has paid the price, can only
claim a rateable dividend and not the goods because property in them has not
yet passed to him.
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8.
Nature of Rights
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The buyer gets the rights against the whole world, i.e., just in rem.
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The buyer gets the rights only against the seller, i.e., just in
personam.
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9.
Performance
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Performance of sale is absolute and without any conditions.
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Performance of agreement to sell is conditional and is to be made in
future.
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10.
Type of Goods
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An agreement to sell is made basically on future and contingent goods.
Although in some cases, made on unascertained existing goods also.
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11.
Type of Contract
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It is an executed contract.
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It is an executory contract.
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1.6 Hire Purchase Agreement
Hire purchase agreements are governed by the Hire Purchase Act, 1972.
The Sale of Goods Act, 1930 does not apply to hire purchase agreements. As per
Hire Purchase Act, 1972, a hire purchase agreement to be valid must be in
writing. There are two parties in a hire purchase agreement, the hirer and hire
vendor. The person who hires (i.e., uses) the goods by paying hire purchase
installments is called the Hirer. The person, who lends the goods to the hirer
in consideration of hire purchase installments, is called Hire Vendor.
The hirer has to pay hire purchase instalments at intervals as specified
in the hire purchase agreement. If the hirer fails to pay or decides not to pay
any of the further instalments, the hire vendor can repossess the goods as per
the terms contained in the hire purchase agreement. However, the hire vendor
cannot sue the hirer for recovery of price.
A hire purchase contract creates only an option to buy, which rests with
the buyer. So, the buyer may, at anytime, decide not to exercise such option,
and the seller cannot compel him to pay the installment or any other amount.
The seller’s right is limited to the repossession of goods. The hirer becomes
the owner of such goods after payment of last instalment. So, in a hire
purchase agreement, the ownership passes only when the last instalment is paid.
1.6.1 Distinction between Sale
Basis of
distinction
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Hire Purchase
Agreement
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1.
Meaning
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‘
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Hire purchase agreement means an agreement whereby the hirer uses the
goods by paying regular installments, and having an option to purchase the goods
on payment of all the installments.
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2.
Type of Contract
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It is an executed contract.
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It is an executory contract.
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3.
Governing Act
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‘
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A hire purchase agreement is governed by the Hire Purchase Act, 1972.
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4.
Parties to the Contract
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The parties in a contract of sale are buyer and seller.
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The parties in a hire purchase agreement are hirer and hire vendor.
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5.
Form of Contract
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A contract of sale can be made orally, implied from the conduct of
parties or in writing.
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A hire purchase agreement can be made only in writing.
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6.
Transfer of Ownership
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The ownership is transferred to the buyer immediately on formation of
contract.
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The ownership is transferred to the hirer at the time of payment of
last installment. Hence, the hirer becomes a bailee but not an owner before
the full payment is made.
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7.
Risk of Goods
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The goods are at the risk of the buyer after sale.
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As the property in goods does not pass to the hirer before payment of
last instalment, he shall not be liable for any loss of goods if he has
performed his duties as bailee.
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8.
Return of Goods
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As the buyer becomes the owner after sale, he cannot return the goods.
He is duty bound to pay the price of the goods. He has no option to terminate
the contract.
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The hirer may at any stage terminate the contract and return the goods
to the hire vendor. He shall not be liable to pay the unpaid instalments,
whether due, or not yet due.
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9.
Legal effect of installments paid
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If the price is paid in installments, each instalment paid is regarded
as part payment of price. The buyer has to pay the unpaid installments only.
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The installments paid by the hirer are not regarded as part payment of
price of goods but is treated as hire charges. After payment of all the
installments thereby exercising the option to purchase the goods, the hire
charges paid by hirer shall be regarded as part payment of price of goods.
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10.
Liability of Sales Tax
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Sales tax is payable as soon as ‘sale’ is made.
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Sales tax is payable on exercising the option to purchase the goods
after paying all the instalments by the hirer.
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11.
Resale of Goods
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Buyer can immediately resell the goods.
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Hirer cannot resell until the last instalment is paid.
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12.
Insolvency of Buyer
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On insolvency of buyer, the seller gets ratable dividend only.
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On insolvency of the hirer, the hire vendor can take repossession of
goods.
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13.
Implied Conditions & Warranties
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As per the Sales of Goods Act, 1930, the sale is subject to the
implied condition and warranties.
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These agreements are not subject to such condition and warranties.
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1.7 Goods
According to sec.2(7), Goods means “Every kind of a movable property
other than actionable claims and money’, and includes stocks 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”. Hence,
from the definition it can be said that:
1.
Every movable property is goods.
2.
Stocks and shares are goods.
3.
Growing crops and grass be severed from land are
goods.
4.
Forests are not goods, but forest product when
severed from the forest for sale and purchase are considered as goods.
5.
Actionable claims are not goods because such a
claim can only be enforced by action in a Court of Law.
6.
Money in current circulation (legal tender) is not
goods but old coins or paper money out of circulation sold or purchased for
collection purpose (but not as legal tender) are considered as goods.
1.7.1 Classification of Goods
Goods may be classified as follows:
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Existing Goods
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Future Goods and
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Contingent Goods.
1.7.1.1 Existing Goods
As per sec. 6(1)
of the Act, goods owned and possessed by the seller at the time of making the
contract for sales are called Existing Goods. The goods which have been pledged
or let out for hire or are in the possession of an agent or bailee or servant
etc. are included in ‘Existing Goods’. The existing goods can be specific,
ascertained and unascertained goods as described below:
1.7.1.1.1 Specific Goods
Goods identified
and agreed upon at the time of making of the contract of sales are called Specific
Goods [sec. 2(14)]. In the case of contract for sale of specific goods, the
seller has to deliver only the agreed upon goods and not any other goods.
Example: X agrees to sell
Mr. Y a particular car bearing identification number. It will be treated as
specific goods and a contract for sale of specific goods.
1.7.1.1.2 Ascertained Goods
Ascertained Goods
means goods identified and agreed to by the parties in accordance with the
agreement after the contract is made. The identification takes place at a later
date.
1.7.1.1.3 Unascertained Goods
The goods which
are not specifically identified at the time of contract of sales are known as
Unascertained Goods. These goods are defined by description or by sample and
are not definite and specific.
Example: Mr. Kapoor has
10 cars. He agrees to sell one of these to Mr. Goenka which is to be identified
later. It is an unascertained goods. But, when Mr. Goenka goes to the showroom
and identifies one car which he wants to buy, it becomes an ascertained good.
1.7.1.2 Future Goods
According to
sec. 2(6) of the Act, future goods means goods to be manufactured or produced
or acquired by the seller after formation of the contract of sale. These goods
are neither in existence nor in possession of the seller at the time of
contract of sale. A contract of present sale of future goods, though expressed
as an actual sale is deemed to be an ‘agreement to sale’ but not a ‘sale’.
[Sec.6(3)]
1.7.1.3 Contingent Goods
Contingent Goods
are specific type of future goods. According to sec. 6(2), there may be a
contract for the sale of goods the acquisition of which by the seller depends
upon a contingency which may or may not happen. The contract of sale of
contingent goods is treated as an agreement to sell.
Example:
M agrees to sell
100 tons of Basmati rice provided the ship carrying the rice from Bangladesh
1.7.2 Distinction between Existing Goods and
Contingent Goods
Basis
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Existing Goods
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Contingent
Goods
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1.
Meaning
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The goods that physically exist at the time of formation of contract
of sale are called as Existing Goods. The seller is either the owner of such
goods or has the possession of such goods.
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If the acquisition of goods is dependent on certain event, which may
or may not happen, the goods are called as Contingent Goods.
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2.
Classification
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Existing goods may be classified as follows:
(a) Specific Goods,
(b) Unascertained
Goods,
(c) Ascertained Goods.
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Contingent goods cannot be classified as such.
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3.
Type of Agreement
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The ‘contract of sale’ related to existing goods may constitute a
‘sale’ or ‘agreement to sell’.
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The ‘contract of sale’ related to contingent goods always constitute
‘agreement to sell’. It can never be ‘sale’.
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1.7.3 Distinction between Future Goods and
Contingent Goods
Basis of
distinction
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Future Goods
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Contingent
Goods
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1.
Meaning
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The goods that do not exist at the time of formation of contract of
sale are called as Future Goods.
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If the acquisition of goods is dependent on certain event, which may
or may not happen, the goods are called as Contingent Goods.
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2.
Contingency
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The possession of future goods does not depend on any contingency.
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The possession of contingent goods is dependent upon a contingency
specified in the contract of sale.
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3.
Effect of non-acquisition of Goods
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If the seller fails to acquire the future goods, he shall be liable to
the buyer for breach of contract.
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If the seller fails to acquire the contingent goods, the contract is
discharged and the seller shall not be liable to the buyer.
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4.
Type of Agreement
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The ‘contract to sale’ related to future goods is always an agreement
to sale [sec. 6(3)].
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The ‘contract of sale’ related to contingent goods is a contract of
sale the performance of which depends on some uncertain event, which may or
may not happen.
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5.
Inclusion
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Future goods do not include contingent goods.
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Contingent goods include future goods.
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1.7.4 Destruction of Goods
1.
Destruction of
Goods before formation of Contract of Sale
Where there is a contract
for the sale of specific goods, the contract is void if the goods without the
knowledge of the seller have, at the time when the contract was made, perished
or become so damaged as no longer to answer to their description in the
contract (Sec.7). So, this section is applicable only if specific goods are
destroyed. But, it is not applicable in case of sale of unascertained goods or
future goods.
Example:
a.
M agrees to sell a horse to N for the purpose of
riding for Delhi
b.
A cargo of dates was sold. The dates were
contaminated with sea water so as to be unsaleable as dates, though they could
be used for making spirits. Held, the contract was void as the dates no longer
answered their description in the contract.
The contract of sale shall
be void only if the following conditions are satisfied (these conditions are
based on the principle of impossibility of performance):
i.
The goods are specific goods.
ii.
The goods perish before formation of contract of
sale. Where the goods are damaged to such an extent that such damaged goods do
not correspond to the description as specified in the contract of sale, it is
deemed that goods have been perished. Similarly, where damage does not result
in physical destruction of goods, but the commercial value of goods is lost, it
also amounts to perishing of goods.
Example:
A sold to B 500
bags of groundnuts identified by marks and lying in a warehouse. But, at the
time of sale, 100 bags had been stolen which was unknown to A. A tendered
delivery of 400 bags. Held, the sale was void and B could not be compelled to
take the remainder.
The provisions of sec. 7
may also be applicable if the parties agree that the contract of sale shall not
become void even in case of destruction of goods.
2.
Destruction of
Goods after Agreement to Sell but before completion of Sale
Where there is
an agreement to sell of specific goods, and subsequently the goods without any
fault on the part of the seller or buyer perish or become so damaged as no
longer to answer to their description in the agreement before the risk passes
to the buyer, the agreement is thereby avoided (Sec.8). So, sec. 8 shall apply
only in destruction of specific goods. It does not apply where the contract is
for sale of unascertained goods or future goods.
The conditions
of sec. 8 are as follows:
i.
There is an agreement to sell and not an actual
sale.
ii.
The goods are specific goods.
iii.
The goods perish after agreement to sell, but
before the sale, i.e., the goods perish before the buyer becomes the owner of
such goods or before the risk of property passes to the buyer.
iv.
The destruction of goods has taken place without
any fault of the seller and buyer.
Example:
On 5.10.2008, K
agrees to sell his Toyota
The provisions
of sec. 8 may also be applicable if the parties agree that the contract of sale
shall not become void even in case of destruction of goods.
1.8 Price
According to sec. 2(10) of the Act, ‘Price’ means the money consideration
for a sale of goods. A contract is valid if it is made by consideration. The
consideration may be in the form of money, goods, immovable property etc. But,
this Act does not recognize any other consideration other than money. If the
consideration is in the form of other than money, the agreement cannot be
considered as sale. Hence, the payment is to be made to the seller only in the
form of currency notes.
In the following transactions, since the mode of consideration is other
than that of ‘price’, they are not considered as ‘contract of sale’-
(i)
Barter or
Exchange of Goods
In case of exchange of
goods, no party pays any money to the other party. So, it does not amount to a
contract of sale. However, if goods are exchanged subject to the condition that
one party shall pay some money to the other party, it shall be a contract of
sale.
(ii)
Gift
In case of gift, no
consideration is payable by the donee. Hence, a gift of goods does not result
in a contract of sale as there is no consideration moving from the donee to
donor.
1.8.1 Fixation of Price
The parties can freely fix the price in the way they like. The manners
of fixation of price, which are provided in secs. 9 and 10 of the Act, are
described below-
(a)
By Contract
between the Parties [Sec. 9(1)]
Price in a
contract may be
i.
fixed by the contract itself,
ii.
left to be fixed by the parties in an agreed
manner,
iii.
determined by the course of dealing between the
parties. The court can never interfere in the adequacy or otherwiseness of the
price so fixed.
(b)
Manner provided
in the Contract of Sale
The contract
itself may provide for the manner of fixation of price which may be a market
price or price fixed by a third party appointed by the parties.
Example:
A is a wholesale
dealer of clothes. He agreed to supply clothes to B at the current prevailing
price in the wholesale trade. B is required to pay the wholesale price to A
fixed by him (A).
(c)
Price to be
determined by the course of dealings between the Parties
Price can be
determined by the course of dealing between the parties if it is not expressly
stated in the contract.
(d)
Reasonable Price
[Sec. 9(2)]
Where price is
not determined by any of the above methods, the buyer shall pay the seller a
reasonable price, which is a question of fact depending upon the circumstances
of each particular case, but not necessarily the market price.
Example:
S, a dealer in
ready-made garments, agrees to sell ready-made garments to T at the same price
which others are paying to him. S must mention the price to T which is being paid
by others and T also supposed to pay him.
(e)
Price fixed by
Third Parties [Sec. 10(1)]
According to
sec. 10, the parties may agree that the price shall be determined by a third
party duly appointed by them. If such third party fails to fix the price, the contract
becomes void. But, if the goods or any part thereof have been delivered to and
appropriated by the buyer, he shall pay a reasonable price thereof.
Example:
S agrees to sell
his Car to T at the price assessed by U, a property consultant. U assessed the
price as Rs.1,50,000. T is bound to tender this price to S as per the contract.
(f)
If the Third Party
is prevented from making valuation [Sec. 10(2)]
If the third party is
prevented from making valuation by the fault of the buyer or seller, the party
not in fault may maintain a suit for damages against the party in fault.
Example:
A agrees to sell certain
goods to B at a price to be fixed by C. If C refuses to value the goods and fix
the price, the agreement is avoided. If, however, C is willing to value the
goods, but is prevented from making the valuation by the wrongful act or fault
of A or B, the party in fault is liable in damages to the party not in fault.
1.8.2 Variance in price due to statutory levies
According to
sec. 64, if after making the contract, there is any variation in statutory
levies (i.e., excise duty, custom duty in respect of the goods) the seller may
add it to the contract price. On the contrary, if statutory levies are reduced,
the buyer is entitled to deduct the tax from contract price payable.
1.8.3 Earnest Money or Deposit
In a contract of
sale, the buyer may give money or other tangible item of value as a token of
good faith as a guarantee or security for the due performance of the contract.
This is known as Earnest Money. If the contract is duly performed, it is
adjusted against the purchase price and only the balance amount is to be paid
later on. But if the contract is not performed due to fault of the buyer, the
earnest money paid stand forfeited by the buyer. But if the advance money paid
is by way of part payment, the buyer is entitled to get back the earnest money
even if the contract is terminated due to fault of buyer. However, he remains
liable to seller for damages which the seller may have sustained by reasons of the
breach of contract.
1.9 Stipulation as to Time
Stipulations as
to time relating in a contract of sale may be-
1.
Stipulations
relating to Time of Payment: When a different intention appears from the
contract, stipulations relating to time of payment become the essence of a
contract of sale. (sec.11)
2.
Stipulations not
relating to Time of Payment (e.g., delivery of goods, etc.): According to
these stipulations, time may be of the essence of the contract which will
depend on the terms of the contract. In a contract of sale, stipulations other
than those relating to the time of payment are regarded as of the essence of
the contract. Hence, if a time is fixed for the delivery of goods, they must be
delivered within the fixed time, otherwise the other party is entitled to put
an end to the contract.
1.10 Document of Title to Goods
A document of
title to goods enables its possessor to deal with the goods described in it as
if he were the owner. It is used in the ordinary course of business as proof of
the possession or control of goods and authorizes its possessor to transfer or
receive goods represented by it either by endorsement or by delivery [Sec.
2(4)]. It symbolizes the goods and confers a right on the purchaser to receive
the goods or to further transfer such right to another person by mere delivery
or by proper endorsement and delivery.
The following
conditions are to be fulfilled by a document of title to goods:
1.
It must be used in the ordinary course of business.
2.
The undertaking to deliver the goods to the possessor
of the document must be unconditional.
3.
The possessor of the document, by virtue of holding
such document, must be entitled to receive the goods unconditionally.
Some instances
of documents of title to goods are given below:
1.
Bill of lading. It is a
document which acknowledges receipt of goods on board a ship and is signed by
the captain of the ship or his duty authorized representative.
2.
Dock warrant. It is a
document issued by a dock owner, giving details of the goods and certifying
that the goods are held to the order of the person named in it or endorsee. It
authorizes the person holding it to receive possession of the goods.
3.
Warehouse-keeper’s
or wharfinger’s certificate. It is a document issued by a warehouse-keeper or
a wharfinger stating that the goods specified in the document are in his
warehouse or in his wharf.
4.
Railway receipt. It is a
document issued by a railway company acknowledging receipt of goods which is to
be presented by the holder or consignee at the destination to take delivery of
the goods.
5.
Delivery order. It is a
document containing an order by the owner of the goods to the holder of the
goods on his behalf, asking him to deliver the goods to the person named in the
document.
1.10.1 Right of Holder of Document of Title to Goods
A holder of document of title to goods can exercise the following
rights:
(a)
Right to receive the goods represented by it.
(b)
Right to further transfer the document of title to
goods to some other person by mere delivery or by proper endorsement and
delivery which has the same effect as if the goods represented by the document
of title to goods were transferred, i.e., the transfer of document of title to
goods is a symbolic delivery of goods.
1.11 Savings (Sec.
66)
1.
Nothing in this Act or in any repeal effected
thereby shall affect or be deemed to affect-
(a)
any right, title interest, obligation or
liability already acquired, accrued or incurred before the commencement of this
Act,
(b)
any enactment relating to the sale of goods
which is not expressly repealed by this Act,
(c)
any rule of law not inconsistent with this
Act.
2.
The rules of insolvency relating to contracts
for the sale of goods shall continue to apply thereto, notwithstanding anything
contained in this Act.
3.
The provisions of this Act relating to
contracts of sale do not apply to a contract of sale in the natures of
mortgage, pledge, charge or other security.
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