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Mercantile Law (Sale of Goods Act)

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1. Contract of Sale of GoodsDEFINITIONS AND SCOPE

DEFINITIONS [2]The Sale of Goods Act, 1930 defines various terms used in the Act as given below:

goods

means every moveable property other than actionable claims and money,and includes electricity, water gas, stock and shares, growing crops,grass, and things attached to or forming part of the land which are agreedto be served before sale or contract of sale.

specificgoods

means goods identified and agreed upon at the time a contract of sale ismade.

futuregoods

means goods to be manufactured or produced or acquired by the sellerafter making the contract for sale.

delivery means voluntary transfer of possession from one person to another.deliverablestate

goods are under deliverable state when buyers would be bound to takedelivery of them under contract.

documentto title ofgoods

includes a bill of lading, dock-warrant, warehouse keepers certificate,wharfingers certificate, railway receipts, warrant or order for delivery ofgoods and any other document used in the ordinary course of business asproof of the possession or control of goods, or authorizing or purporting toauthorize, either by endorsement or by delivery, the possessor of thedocument to transfer or receive goods thereby represented.

price means the money consideration for a sale of goods.property means the general property in goods, and not merely a special property.quality ofgoods

includes their state or condition.

buyer means a person who buys or agrees to buy goods.seller means a person who sells or agrees to sell goods.

insolventmeans a person who has ceased to pay his debts in the ordinary course ofbusiness, or cannot pay his debts as they become due, whether he hascommitted an act of insolvency or not.

mercantileagent

means a mercantile agent having in the customary course of business assuch agent authority either to sell goods, or to consign goods for thepurpose of sale, or to buy goods, or to raise money on the security ofgoods.

fault means wrongful act or default.

All other expressions shall have the same meanings as defined under Contract Act, 1872.

APPLICATION OF CONTRACT ACT [3]The provisions of Contract Act, 1872 shall continue to apply to firms so far as they are notinconsistent with the provisions of Sale of Goods Act, 1930.

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FORMATION OF CONTRACT

CONTRACT OF SALE [4]It is a contract where:(a) the seller;(b) transfers or agrees to transfer;(c) the property in goods;(d) to the buyer;(e) for a price.

The term contract of sale includes both sale and agreement to sell.

The contract of sale may be absolute or conditional and there may be a contract of salebetween one part-owner and another.

SALE AND AGREEMENT TO SELL [4]The contract in which property in goods is transferred from seller to buyer is called sale.

Where the transfer of property is to take place in future or subject to some condition to befulfilled in future is called agreement to sell.

IllustrationFacts: On 1st January 2007, Anwar agrees with Babar that he will sell Babar his motorbikeon 15th January 2007 for a sum of Rs.30,000/-. Is it sale or agreement to sell?

Solution: It is agreement to sell since transfer of ownership shall take place at a future time.

DIFFERENCE SALE AGREEMENT TO SELL

1.Transfer ofproperty(ownership)

The property in goods passes tothe buyer immediately at the timeof making the contract.

The seller remains the ownerof goods until the agreementto sell becomes sale.

2. Risk of lossThe risk of loss is that of buyerbecause the risk of loss primafacie passes with property.

The risk of loss remains thatof seller as he is still theowner of goods.

3. Consequencesof breach

In case buyer makes default inpayment, the seller can sue forprice even if the goods are in his(seller) possession.

If buyer makes default inpayment, the seller can sueonly for damages and not forprice, even though thepossession has beentransferred to the buyer.

4. Right of resale

The seller in possession of goodsafter sale cannot resale the goods.If he does so, the subsequentbuyer having knowledge of theprevious sale does not acquire atitle to the goods.

The property in the goodsremains with the seller and assuch he can dispose of thegoods as he likes and theoriginal buyer can sue him forthe breach of contract only.



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5. Insolvency ofbuyer

If the buyer is adjudged insolventbefore he pays for the goods, theseller (unless he has right of lien)must deliver the goods to officialassignee. The seller is entitledonly to a ratable dividend for theprice of goods.

If the buyer is adjudgedinsolvent before he pays forthe goods, the seller mayrefuse to deliver the goods tothe official assignee unlesspaid for.

6. Insolvency ofseller

The buyer is entitled to receivegoods from official assignee if hehas paid for the goods.

If buyer has paid the price, heshall be entitled to ratabledividend as a creditor only.

An agreement to sell becomes a sale when time elapses or conditions mentioned aboveare fulfilled.

IllustrationFacts: Jazib agrees to purchase Anthonys car for Rs.500,000/- provided Anthony standssurety for him with Salman. Is it sale or agreement to sell?

Solution: It is an agreement to sell. It becomes the sale when the condition is fulfilled byAnthony.

CONTRACT OF SALE HOW MADE [5]A contract for sale is made by an offer and acceptance to buy or sell. The contract mayprovide for:(a) immediate delivery of goods or payment of price or both;(b) delivery or payments by installments; or(c) postponement of delivery or payment or both.

IllustrationFacts: A dealer in televisions gives a Sony TV to a customer on the terms that Rs.100/-should be paid by him immediately and Rs.200 more in two monthly equal installments. Itwas further agreed that if the TV is found defective the customer may return it within a weekbut not later. The customer makes default in paying the last installment. Can the TV dealertake back the TV on his default?

Solution: No, the TV dealer cannot take back the TV on default by the customer because itis contract of sale (the property in goods have been transferred) and not of hire purchase.

Subject to any other law in force, a contract may be:(a) written or oral;(b) partly written and partly oral; or(c) implied from the conduct of parties.

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SUBJECT MATTER OF CONTRACT

KINDS OF GOODSThe following are two main kinds of goods:(a) existing goods (which may be specific or unascertained); and(b) future goods (which may be certain or contingent).

EXISTING OR FUTURE GOODS [6]The goods which are subject matter of contract may be existing (owned or possessed by theseller) or future goods.

There may be a contract for the sale of goods the acquisition of which by the seller dependsupon a contingency which may or may not happen.

Where by a contract of sale the seller purports to affect the present sale of future goods, thecontract operates as an agreement to sell.

GOODS PERISHING BEFORE MAKING OF CONTRACT [7]Contract of sale of specific goods is void if at the time of making the contract without theknowledge of the seller goods perish or become so damaged as no longer to answer to theirdescription in the contract e.g. where cement is spoiled by water and becomes almost stoneand cannot be used as cement. The perishing also includes loss by theft and lawfulrequisition of goods by the government.

IllustrationFacts: Anwar agrees to sell to Babar a certain horse. It turns out that the horse was dead atthe time of bargain, though neither party was aware of the fact. Discuss the validity of thecontract.

Solution: The agreement is void.

In case part of goods is perished, the following rule applies:(a) if contract is indivisible, it shall be void; and(b) if contract is divisible, it will not be void and the part available in good condition must

be accepted by the buyer.

IllustrationFacts: There was a contract for the sale of a parcel containing 50 bags of spices of variousqualities. Unknown to the seller, 10 bags had been stolen at the time of the contract. Theseller delivered the remaining 40 bags and on refusal of buyer to take them, brought anaction for the price. Discuss the validity of the contract.

Solution: The contract, being indivisible, had become void by reason of loss of goods.However, if there had been all bags of same weight and quality for certain price per bag, thecontract would have been divisible.



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PERISHING BEFORE SALE BUT AFTER AGREEMENT TO SELL [8]When goods which are subject matter of an agreement to sell perish or damagedsubsequently before the risk passes to buyer the agreement is avoided if there is no fault ofbuyer or seller.

IllustrationFacts: A buyer took a horse on a trial for 10 days on condition that if found suitable for hispurpose the bargain would become absolute. The horse died on 5th day without any fault ofeither party. Discuss the position of both parties.

Solution: The contract, which was in the form of an agreement to sell, becomes void andthe seller shall bear the loss.

IllustrationFacts: Zafar had contracted to erect machinery on Bashers premises; the price was to bepaid on completion. During the course of work, there was a fire which completely destroyedthe premises and machinery. Discuss the rights and liabilities of both the parties.

Solution: Both the parties are excused from performance and Zafar is not entitled to anypayment as the price was payable on the completion of entire work.

If only part of goods agreed to be sold perish, the contract becomes void if it is indivisible.

THE PRICE

ASCERTAINMENT OF PRICE [9]The price may be:(a) fixed by the contract;(b) left to be fixed in an agreed manner;(c) determined by course of dealing between the parties.

Where the price is not determined as above the buyer shall pay a reasonable pricedetermined on circumstances of particular case. What is a reasonable price is a question offact dependent on the circumstances of each particular case.

AGREEMENT TO SELL AT VALUATION [10]When under agreement to sell price is to be set as per valuation by third party and suchthird party cannot or does not make such valuation, the agreement is avoided. However, thebuyer shall pay a reasonable price for the goods or part of goods received and appropriatedby him.

IllustrationFacts: Kamran agrees to sell to Jazib on the terms that the price was to be fixed by Ghalib.Jazib takes the delivery of one car immediately. Ghalib refuses to oblige Kamran and Jaziband fixes no price. Kamran asks for the return of the car already delivered whereas Jazib

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insists on the delivery of the second car to him for the reasonable price of both the cars.Decide the case.

Solution: As regards the car already delivered, Kamran cannot ask for its return and mustaccept a reasonable price for that. As regards the second car, Jazib cannot insist on itsdelivery to him since the contract has become void.

Where third party is prevented from valuation by the fault of buyer or seller, the party not indefault may maintain a suit for damages against the party in default.

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