SALE OF GOODS ACT AND RELATED PROVISIONS FOR ENTREPRENEURS by : DR. T.K. JAIN AFTERSCHO☺OL centre for social entrepreneurship sivakamu veterinary hospital road bikaner 334001 rajasthan, india FOR – PGPSE – PGPSE / CSE PARTICIPANTS
[email protected] mobile : 91+9414430763 5 DECEMBER 09
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My words.... Ours is a great country with immense entrepreneurial potential. However, our legal system and taxation system is so cumbersome that our creativity and talent is wasted / unnecessarily diverted in these sectors. I wish that these are simplified so that an ordinary entrepreneur can understand these without help from from any expert. I wish that more people should become entrepreneurs, rather than becoming an expert in avoiding taxation. Let us wish that some likeminded person is able to reach policy making level and is able ab le to change these. I have tried to simplifySale of goods act here for Indian In dian entrepreneurs – but it is so complicated that even if you simplify it, it will remain complicated. An ordinary Indian entrepreneur wishes to remain an honest entrepreneur and contribute to the development of nation, but our systems and processes force him to adopt unfair means ...
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What is sale ?
Read sec. (4) : when seller transfers or agrees to transfer the property in goods, to the buyer, for money / consideration / price.
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What are the essentials of a sale ? Bilateral contract: there must be 2 parties Transfer of property: The object of a contract of sale must
be the transfer of property (meaning ownership) in goods from one person to another. Goods: The subject matter must be some goods. Price / money / consideration: The goods must be sold for some price, where the goods are exchanged for goods it is barter, not sale. All essential elements of a valid contract must be present in a contract of sale. 5 DECEMBER 09
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What is the difference between sale and agreement to sell ? • SALE
• AGREEMENT TO SELL
• the property in the goods
• Property passes only when
sold passes to the buyer at the time of contract •
Executed contract • contract plus conveyance. • Buyer has many remedies against seller in case of breach of sale by seller •
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it becomes sale on the expiry of certain time or the fulfilment of some conditions • executory contract • Only contract • only a personal remedy against the seller in case of breach
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What is goods ?
Section 2(7) of the Sale of Goods Act: “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. 5 DECEMBER 09
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In the case of sale or return, when will the sale complete ? When buyer intimates to the seller that he has accepted the goods; or when he retains the goods, after the lapse of a reasonable time without intimating to the seller that he has rejected them; or when buyer does any act on the goods which is inconsistent with the ownership of the seller, e.g., pledges the goods 5 DECEMBER 09
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What are the rights of an unpaid seller ?
A lien or right of retention (to stop goods till payment is received) The right of stoppage in transit. The right of resale. The right to withhold delivery. 5 DECEMBER 09
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When can an unpaid seller re-sell the goods ? (sec. 54) where the goods are perishable (they will deteriorate if not re-sold); where the right to re-sell is expressly reserved in the contract; where in exercise of right of lien or stoppage in transit, the seller gives notice to the buyer of his intention to re-sell, and the buyer, does not pay or tender the price within a reasonable time. 5 DECEMBER 09
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What is auction sale ?
A sale by auction is a public sale where goods are offered to be taken by bidders. It is a proceeding at which people are invited to complete for the purchase of property by successive offer of advancing sums. (sec. 64)
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When does an auction sale complete ?
The auction is complete when the auctioneer announces its completion by the fall of the hammer or in other customary manner. Until such announcement is made, any bidder may retract his bid.
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Can seller also bid in auction ?
Depends, A right to bid may be reserved expressly by or on behalf of the seller. Where such right is expressly so reserved, the seller or any other person on his behalf may bid at the auction. Where the sale is not notified to be subject to a right to bid on behalf of the seller, it would be illegal. 5 DECEMBER 09
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When does property transfers to buyer in F.O.B. Sale ? Under an F.O.B. (free on board) contract, it is the duty of the seller to put the goods on o n board a ship at his own expenses. The property in goods passes to the buyer only after the goods have been put on board the ship, and they are at buyer’s risk as soon as they are put on board bo ard the ship 5 DECEMBER 09
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What is sale ex-ship ?
Here the seller is bound to arrange the shipment of the goods to the port of destination, and to such further inland destination as the buyer may stipulate. . The goods travel at the seller’s risk
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What is sale in CIF ? In such types of contracts, the seller not only bears all the expenses of putting the goods on board the ship as in an F.O.B. contract, but also to bear the freight and insurance charges. He will arrange for an insurance of the goods for the benefit of the buyer. On the tender of documents, the buyer will check the goods (reject the goods if they are not as per order), and pay for the goods and take the delivery. 5 DECEMBER 09
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When can an unpaid seller stop the goods in transit ? When the buyer becomes insolvent and the goods are in transit. The buyer is insolvent if he has ceased to pay his debts in the ordinary course of business, or cannot pay his debts as they become due. It is not necessary that he has actually been declared insolvent by the court. 5 DECEMBER 09
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Can sale of unfinished goods be done ?
Yes when such sale takes place, the property passes to buyer, when goods are ready and buyer is aware of this. (sec. 21)
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What is Merchantable quality ?
the goods must be such as would be acceptable to a reasonable person, having regard to prevailing prevailing conditions. They are not merchantable if they have defects which make them unfit for ordinary use, or are such that a reasonable person knowing of their condition would not buy them.
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Who bears the risk in goods?
The general rule is that risk follows f ollows the ownership, whether the delivery has been made or not. If the goods are lost or damaged by accident or otherwise, then, subject to certain exceptions, the loss falls on the t he owner of the goods at the time they are lost or damaged. When there is a danger of the goods being damaged by the action of third parties, it is generally the owner who can take action.
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What are the rights of third party – when buyer sells them goods ?
if the buyer resells the goods to a third-party, the thirdparty will only obtain a good title if the property in the goods has passed to the buyer before or at the time of the resale.
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What are the rights of third party – when seller again sells the goods to them ?
if the seller, in breach of his contract with the first buyer, attempts to sell the goods to a third party, property will transfer only if the property has not passed to the buyer. For example, in the case of agreement to sell, s ell, the unpaid seller can sell the goods to a new buyer.
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What happens if the buyer / seller turns insolvent and he has not made payment of goods ? In case of insolvency of either the seller or the buyer, it is necessary to know whether the goods can be taken over by the official assignee or the official receiver. It will depend upon whether the property in the goods was with the party adjudged insolvent. If the buyer had taken possession of the goods and had made part payment, the official receiver will take the goods and give payment to seller. Here the payment to seller may be only a fraction of the total amount due (depends on how much money is recovered) 5 DECEMBER 09
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When does property pass to buyer in specific goods ? Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made. Deliverable state means such a state that the buyer would be bound to take delivery of the goods. The fact that the time of delivery or the time of payment is postponed does not prevent the property from passing at once. (Section 20) 5 DECEMBER 09
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When does property passes to buyer in specific but semifinished goods ? Where there is a contract for the sale of specific goods not in a deliverable state, i.e., the seller has to do something to the goods to put them in a deliverable state, the property does not pass until that thing is done and the buyer has notice of it. (Section 21)
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A buys goods from B, and makes payment but goods are yet to be identified. When does the property pass to A ? The property in unascertained or future goods does not pass until the goods are ascertained.
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if the seller reserves the right of disposal of the goods, can this be called proper pro per sale and when does property in goods transfer to buyer ? No, it is not proper sale The property in goods, whether specific or unascertained, does not pass if the seller reserves the right of disposal of the goods 5 DECEMBER 09
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A a seller makes delivery of the goods to a carrier for the purpose of transmission to the buyer as per contract. When does property transfers to buyer? At the time of delivery. Delivery by the seller of the goods to a carrier or other buyer for the purpose of transmission to the buyer in pursuance of the contact is an appropriation sufficient to pass the property in the goods. 5 DECEMBER 09
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Can there be a situation when risk and property passes to buyer at different stages ? Yes, In Consolidated Coffee Ltd. v. Coffee Board, (1980 3 SCC 358), one of the terms adopted by coffee board for auction of coffee was the property in the coffee knocked down to a bidder would not pass until the payment of price and in the meantime the goods would remain with the seller but at the risk of the buyer, In such cases, risk and property passes on at different stages.
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Can there be a sale, where the seller transfers the risk before the buyer makes the payment? Yes, In Multanmal Champalal v. Shah & Co., AIR (1970) Mysore 106, goods were despatched by the seller from Bombay to Bellary through a public carrier. According to the terms of the contract, the goods were to remain the property of the seller till the price was paid though the risk was to pass to the buyer when they were delivered to public carrier for despatch. In this case buyer had to bear the loss of goods in transit (although he had not made the payment for goods). 5 DECEMBER 09
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A, the hirer of goods under a hire purchase agreement, sells them to B, can B,a bona fide purchaser get good title to goods ?
No A is not the owner, how can he sell the goods ?
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A finds a ring of B and sells it to D, a third person who purchases it for value and in good faith. Can B recover the ring from D
Yes, A didnt have authority to sell the ring.
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A buys goods from B, who is coowner of property. A thinks that B has the authority to sell. Will A get the property? Yes, A buyer who buys in good faith from one of the several joint owners who is in sole possession of the goods with the permission of his co-owners will get good title to the goods. 5 DECEMBER 09
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A buys a sofa from a furniture showroom. The same sofa was sold earlier also by the seller (although the delivery was not made). Will A get title ? Yes,
Where a seller, after having sold the goods, continues or is in possession of the goods or of the documents of title to the goods and again sells them by himself or through his mercantile agent to a person who buys in good faith and without notice of the previous sale, such a buyer gets a good title to the goods. 5 DECEMBER 09
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Anil, a buyer buys in good faith from a person in possession of goods under a contract which is voidable, but has not been rescinded at the time of the sale. Can Anil get proporty ?
Yes
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Ravi buys one tonne of rice from a mercantile agent, but the owner says that he wants to get it back. Will Ravi get it ? Yes
A buyer will get a good title if he buys in good faith from a mercantile agent who is in possession either of the goods or documents of title to the t he goods with the consent of the owner, and who sells the goods in the ordinary course of his business.
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Ajay buys Ram's laptop from Hari. Ram was standing there. Now Ram wants to recover his laptop from fro m Ajay, will he succeed ?
No
If the true owner stands by and allows an innocent buyer to pay over money to a third-party, who professes to have the right to sell an article, the true owner will be estopped from denying the third-party’s right to sell. 5 DECEMBER 09
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Ram an unpaid seller, collects his goods back from transporter and sells these goods to Ravi. Will Ravi get good title ? Yes
Where an unpaid seller has exercised his right of lien or stoppage in transit and is in possession of the goods, he may resell them and the second buyer will get absolute right to the goods.
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What are the duties of buyer and seller in a contract of sale ?
The duty of the seller is to deliver the goods and that of the buyer to accept the goods and pay for them in accordance with the contract of sale.
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What are the various types of deliveries in sale of goods act ?
Delivery is the voluntary transfer of possession from one person to another. Delivery may be actual, constructive or symbolic.
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Can you give example of symbolic delivery ?
Delivery of a key of the car
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What is constructive delivery ?
Where the seller, after having sold the goods, may hold them as bailee for the buyer, there is constructive delivery.
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Who will bear the cost of delivery ? The seller has to bear the cost of delivery unless the contract otherwise provides. But the cost of obtaining delivery is to be borne by the buyer, the cost of the putting the goods into deliverable state must be borne by the seller. In the absence of an an agreement agreement to the contrary, the expenses of making delivery of the goods must be borne by the seller, the expenses of receiving delivery must be borne by the buyer. 5 DECEMBER 09
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Can a seller deliver goods in instalments (there is no agreement on this matter) ?
No
the buyer is not bound to accept delivery in instalments.
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Ravi a seller (in Shimla) S himla) sells Tomatoes to Raj. Raj asks Ravi to deliver goods from Shimla to Bikaner. Who will bear transit loss (there is no agreement)?
Raj, If the goods are to be delivered at a place other than where they are, the risk of deterioration in transit will be borne by the buyer.
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What are implied conditions ? 1. title is clear 2. if sale is by sample, it must be as per sample 3. if sale is by description, it must be as per description 4. if sale is for a particular purpose, the goods must be fit for that purpose 5 DECEMBER 09
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What are implied warranties ?
1. quiet possession 2.
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What is caveat emptor ?
Buyer must inquire about goods before buying. The buyer must check out the quality of goods for fitness and tell the purpose for which the goods will be used to ensure fitment of products for the purpose
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Who is a merchantile agent ?
The person who can on behalf of some other person, buy / sell / consign / borrow agaist goods / or do other such activities in regular business dealings
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What are the various types of mercantile agents ? 1. factor 2. broker 3. auctioneer 4. commission agent 5. del credere agent 6. banker agent 5 DECEMBER 09
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Who is a factor ?
His prime duty is with regard to cllect payments from customer. He also undertakes selling on behalf of some other person He sells and collects payment and send it back to the original owner 5 DECEMBER 09
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Who is a Del Credere agent ?
This agent takes resonsibility for payment of debtors. If debtors dont pay, this agent will pay from his pocket. He charges del credere commission for this addtional services 5 DECEMBER 09
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Who is commission agent ?
This person buys and sells goods on behalf of some other person.
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What is the difference between void and voidable contracts? Void contract cannot be a legally binding contract. It is an agreement which cannot be enforced in any case. Voidable contract can be enforced at the desire of one of the party. If that party wants, contract can be enforced and if that part wants, the contract will be nullified and will become a void contract. 5 DECEMBER 09
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Give examples of void contracts ? Agreement to restrict trade, business, marriage, legal proceedings, or for unlawful object agreement based on mutual mistake of fact, agreement without consideration wagering agreement impossible agreement 5 DECEMBER 09
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A makes a contract with B to sell some commodity after 6 months. He doesnt want to have any physical delivery of goods. He just want to take benefit of price difference . Is it a contract?
Yes it is speculation, it is allowed gambling is not allowed (sec. 30 of Indian contract act)
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What are the cases, when consideration is not valid ? 1. illegal consideration 2. consideration agains any rule / law / govt policy 3. against public policy 4. consideration which is agains morality 5. injury to other persons 6. faudulant consideration 5 DECEMBER 09
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What are the damages / remedies in case of breach of contract? Quantum merit (as much as deserved / meritted) suit for specific performance (force the other party to perform the contract). Rescind the contract (means cancel the complete contract) go for injunction (stop him from doing what he is doing). 5 DECEMBER 09
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WHAT IS CONSIDERATION?
SEC. 2(D) OF CONTRACT ACT: WHAT IS OFFERED TO THE OTHER PERSON AGAINST THE PERFORMANCE OF CONTRACT CONSIDERATION MUST BE AT THE DESIRE OF PROMISOR 5 DECEMBER 09
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WHO IS COMPETENT TO CONTRACT?
1. who is major (above 18 years of age) 2. a person of sound mind 3. not disqualified under law (all the three conditions must be fulfilled)
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Is free consent necessary for a contract ?
Yes (read sec. 13 of contract act )
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Is consideration necessary for a contract? Yes exceptions : AGENCY NATURAL LOVE AGAINST PAST VOLUNTARY SERVICES TIME BARRED DEBT COMPLETED GIFT 5 DECEMBER 09
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Case : Carlill v. Carbolic Smoke Ball Co: . The
company offered by advertisement, a reward of $100 to anyone who contacted influenza after using their smoke ball in the specified manner. Mrs. Carlill did use smoke ball in the specified manner, but was attacked by influenza. Can she claim reward ?
Yes
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a person attended an advertised place of auction but the auction was cancelled, can that person sue for damages ?
No, Advertisement for auction is not an offer. It is just an invitation to offer. Read : (Harris v. Nickerson (1873) L.R. 8 QB 286).
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Rav went to a reta store. T ere was a display of priced goods in a self- service counter. He saw price of Rs. 100 for a plate. He wanted to buy it, but he h e was refused. Can he file a suit under contract act?
No display is just an invitation to offer it is not an offer
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Raja offers to sell his car for Rs. 30000, but Ravi, the offeree makes a counter offer of Rs. 20000. But later Ravi wants to buy @ 30000. But now Raja refuses. Can Ravi get it ?
No original offer lapsed when counter offer was made
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Can an illiterate person be forced to follow rules of journey which are printed on the back of a ticket? Yes, the conditions are deemed to be communicated and the traveller is bound by them whether or not he has read them. He is bound even if he is illiterate and unable to read them 5 DECEMBER 09
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What is the the doctrine of privity of contract
a stranger to a contract cannot sue on the contract.
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What is Executory consideration
Future consideration
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Can a minor be an agent ?
Yes
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Can a minor be a principal ?
No
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Can a minor be adjudged an insolvent ?
No he cannot be adjudicated as an insolvent.
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When wife purchases from market, is she agent of her husband? Yes, Where a husband and wife are living together, the wife is presumed to have her husbands authority to pledge his credit for the purchase of necessaries of life suitable to their standard of living. But the husband will not be liable if he shows that (i) he had expressly warned the trademan not to supply goods on credit to his wife; or (ii) he had expressly forbidden the wife to pledge his credit; or (iii) his wife was already sufficiently supplied with the articles in question; or (iv) she was supplied with a sufficient allowance. 5 DECEMBER 09
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Can a wife, who is deserted by her husband, still work as an agent for her husband? Yes, A wife deserted by her husband and thus forced to live separate from him, can pledge her husbands credit to buy all necessaries of life according to the position of the husband even against his wishes 5 DECEMBER 09
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Download links for basic preparation http://www.scribd.com/doc/6681094/1-Augusthttp://www.scribd.com/doc/23393512/11-July-B http://www.scribd.com/doc/23393829/18-July-B http://www.scribd.com/doc/6583876/4-July-Bus http://www.scribd.com/doc/6683819/Business-L http://www.scribd.com/doc/14646886/Businesshttp://www.scribd.com/doc/18276825/Indian-Co http://www.scribd.com/doc/13132546/Indian-Co http://www.scribd.com/doc/13065925/Sale-of-G 5 DECEMBER 09
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Download links... http://www.scribd.com/doc/13065899/Negotiabl http://www.scribd.com/doc/25295622/Company http://www.scribd.com/doc/11765249/Company http://www.scribd.com/doc/25885860/Company http://www.scribd.com/doc/25950024/E-govern
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Enumerate the different modes of discharge of a contract. Lapse of time refusal to perform by both the parties by operation of law (when it becomes impossible) ' performance breach of contract mutual consent 5 DECEMBER 09
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Liquidated and unliquidated damages; -- - differentiate these When the amount of damages can be ascertained in advance, the parties may fix this amount in advance and therefore it is called liquidated damage. But when the amount of damage cannot be ascertained in advance, it is called unliquidated damage. Liquidated damanges are decided in advance. 5 DECEMBER 09
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A sells by auction, to B a horse which A knows to be unsound. A says nothing to B about the horses unsoundness. Is A guilty of fraud.
No – it is the duty of B to inquire about the horse..
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A and B are traders and enter into some contract. A has private information of a change in price which would effect B’s willingness to proceed with the contract. Is A bound to inform B.
No
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A intending to deceive B falsely represents that five hundred paunds of indigo are made annually at A’s factory and thereby induces B to buy the factory. What is the remedy available to B. It is a contract based on fraud. So B can sue A for damages and rescind the contract. (sec. 17)
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WHAT IS THE
Doctrine of
Caveat Emptor
Sec 16 of contract act : the buyer should satisfy himself about the goods before buying. Thus buyer should be alert and careful while buying the goods.
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X by way of undue influence buys a car from Y at a very low price and sells it to Z, an innocent purchaser. Here this is a case of voidable contract contract between between X and Y. However, Z purchased from X without any knowledge of this. As per sec. s ec. 27 of Sale of Goods act, the buyer gets a good title, if he buys innocently and after fulfilling regular checkups. Thus Z cant be forced to return car. X can recover his remaining money from Y. 5 DECEMBER 09
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Why it is important to know the time of passing of property? If the goods are damaged after that time, the responsibility is that of buyer, if the goods are destroyed before that time, the responsibility will be that of the seller. The time is important, as if there is some special circumstances, it may lead the contract to a null / void contract. 5 DECEMBER 09
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What are implied conditions and warranties? These conditions are assumed to be there in every sale contract. 1. condition to the title of the goods : it is assumed that the seller has title to the goods. 2. quite possession / freedom from encumbrances (nobody should disturb the enjoyment of the goods). 3. in case of sale by description, d escription, the goods must be similar to description, and in case of sale by sample, the goods goo ds should be similar to the sample 4. quality / fitness : the goods must be fit for use for the purpose for which they have been bought. 5. the seller has to disclose dangerous nature of goods. 6. as per business practices. ... .. 5 DECEMBER 09
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In a contact through sea, where the seller has to put the goods on board ship at his own expenses, the contract is known as :
There is are three popular types : .1 FOB 2 CIF 3. EX-FACTORY this is the case of FOB – free on board – because here the seller is responsible to put the goods on board. In the case of CIF, the seller bears carriage, insurance and freight (all the three expenses). In ex-factor or ex-godown, the seller gives the delivery of goods at factory and is not responsible thereafter.
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What is Stale cheque. A cheque which is out of date is called stale cheque. A chaque has life of 6 months from the date which it bears. In some cases, the life of cheque is only 3 months. (for example in the cae of banker's cheque)
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What is banker's cheque?
A cheque drawn by one bank on another bank. It is used for transfer of money to another person within the same city. It is similar to bank draft. 5 DECEMBER 09
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What is hundi? It is a traditional financial instrument, which has been in use for hundreds of years. It was used by Marwari traders to undertake financial transactions. Suppose Y is your debtor (you have sold him some goods on credit) by Rs. 3000 and you have to pay Rs. 3000 to Z. You can draw a hundi on Y payable to Z. Thus on due date, Z will collect Rs. 3000 from Y on your behalf and thus your account will be settled. It is like bill billwww.afterschool.tk of exchange. exchange. 5 DECEMBER 09 90
What is an Accommodation Bill It is a means of financing. Example : I need Rs. 9 Lakh urgently urgently. I draw a bill on you for 6 months and get the bill accepted by you for Rs. 9 lakhs. I go to the bank and get the bill discounted. The bank gives me some 8.9 lakhs. On due date (after 6 months), the bank will collect Rs. 9 lakhs from you. (by that time I will also give you Rs. 9 lakhs, so that you may pay to the bank). 5 DECEMBER 09
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Who is a Holder-in-due course
As per sec. 9 of Negotiable Instrument Ins trument : A holder in due course is a person who obtains possession of a negotiable instrument for consideration and without any cause to t o believe that any defect exists in the title of the person from whom he derives his title. title. The instrument must be obtained before the the date of expiry of the instrument and with proper endorsement (in case of to order instrument). Sometimes, holder in due course gets better title than a holder.
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