SOBS

1
Sale and Quality of Goods
2
DEFINITION OF A CONTRACT OF SALE

• Section 4 defines a contract of sale as a
  contract whereby a seller transfers or agrees to
  transfer the property in goods to the buyer for a
  price

3
ESSENTIALS OF A CONTRACT OF SALE

• From the definition, the following essentials of
  the contract emerge
• 1) There must be at least two parties
• 2) Transfer or agreement to transfer the
  ownership of goods
• 3) The subject matter of the contract must
  necessarily be goods
• 4) Price is the consideration of the contract of
  sale
• 5)All other essentials of a valid contract as per
  the Indian Contract Act, 1872 must be present

4
ESSENTIALS.contd

• If for instance, goods are offered as the
  consideration for goods, it will not amount to
  sale. It will be called a barter.
• Where goods are sold for a definite sum and the
  price is paid partly in terms of valued up of
  goods and partly in cash, that is sale. These are
  known as part-exchange contracts.
• To sum-up the Act applies only when the buyer
  pays by cash (or by cheque, credit card, etc)

5
ESSENTIALS.contd

• Payment by installments in the case of sale of
  goods, the parties may agree that the price will
  be payable by installments

6

• Goods
• Includes Movable property
• Stock and shares, growing crops, things attached
  to the land, grass, etc.
• Actionable claims and money (currency) not
  included
• In general, it is only the movables that form
  goods

7

• Does electricity, water and gas also comes under
  the definition of goods?
• Transmitted, transferred , delivered, stored
  possessed and sold.
• Why money not considered as goods?
• It is in circulation, forms consideration.
• Whereas, rare coins, old currency can be sold and
  can be considered as goods

8
What are actionable claims?

• The actionable claims are things which a person
  cannot make use of, but which can be claimed by
  him by means of a legal action
• Ex A borrows Rs. 5000/- from B at 12 per annum
  interest on 1st April, 2006 and promises to pay
  back the amount with interest on 1st July, 2006.
   Till 1st July, 2006, the debt is an accruing
  debt and is an actionable claim.

9
Conditions and Warranties

• Express conditions and warranties are which, are
  expressly provided in the contract.
• Implied conditions and warranties are those which
  are implied by law or custom these shall prevail
  in a contract of sale unless the parties agree to
  the contrary.

10
Implied Conditions warranty

• Implied conditions
• Condition as to title-implied condition on seller
  to sell.
• Sale by description--goods shall correspond the
  description.
• Condition as to quality or fitness
• Condition as to merchantability
• Condition implied by custom -- fitness for a
  particular purpose may be annexed by the usage of
  trade
• Sale by sample
• Condition as to wholesomeness

11
Implied Conditions warranty

• Implied warranties
• A condition may reach to the level of a warranty
  in cases where the buyer accepts the goods or a
  part thereof, or is not in a position to reject
  the goods.
• 1.Warranty of quiet possession or undistributed
  possession
• 2.Warranty of freedom from encumbrances

12

• Warranty of quiet possession
• X purchased a second hand typewriter from Y. X
  thereafter spent some money on its repairs and
  used it for months. Unknown to the parties the
  typewriter was stolen one and X was compelled to
  return to its true owner.
• X was held entitled to recover from the seller
  for the breach of his warranty damages not only
  the price but also the cost of repair.

13

• Warranty of freedom from encumbrances
• A pledges his car with C for a loan of Rs 15,000
  and promises him to give its possession the next
  day.
• A, then sells the car immediately to B who
  purchased it on good faith without knowing the
  fact.
• B may either ask A to clear the loan or himself
  may pay the money and then, file a suit against A
  for recovery of the money with interest.

14
Sale by description

• Condition as to Description -- In a contract of
  sale by description, there is an implied
  condition that the goods shall correspond with
  the description. The term ' sale by description'
  includes the following situation
• Where the buyer has not seen the goods and buys
  them relying on the description given by the
  seller.
• Where the buyer has seen the goods but he relies
  not on what he has seen but what was stated to
  him and the deviation of the goods from the
  description is not apparent.
• Packing of goods may sometimes be a part of the
  description. Where the goods do not conform to be
  method of packing described (by the buyer or the
  seller) in the contract, the buyer can reject the
  goods.

15
Sale by quality or fitness

• DOCTRINE OF CAVEAT EMPTOR- let the buyer beware
• In a contract of sale of goods the seller is
  under no duty to reveal unflattering truths about
  the goods sold. Therefore, when a person buys
  some goods, he must examine them thoroughly. If
  the goods turn out to be defective or do not suit
  his purpose, he cannot blame anybody except
  himself.

16
Rule of Buyer Bewares exceptions 1. Goods
should confirm with description. 2. Goods should
be of merchantable quality. 3. Goods should be
fit for the described purpose if the buyer relies
on the skill and judgement of the seller.
17
Sale by Description

• A hotel was buying 5000 telephone hand sets for
  putting it in the hotel rooms from a
  manufacturer. The product description mentioned
• Shape Square
• Colour Metal Pearl
• Components Original, made in Japan
• Length of spiral cord 30 cm
• The goods were to be delivered on a fixed date.

18

• Can the buyer insist on visiting the manufacturer
  to inspect the goods under manufacture or at the
  stage of packing?

19

• Inspection was a part of the contract. The buyer
  inspected the goods and the goods were delivered.
  The shape of the phone unit was not square. The
  buyer claims to terminate the contract.

20

• Inspection was a part of the contract. The buyer
  inspected the goods and the goods were delivered.
  A handset had to be opened to fix a loose
  connection. On opening, it was realised that the
  parts were made in Korea and not Japan.

21

• Inspection was a part of the contract. The buyer
  was given the hand set in a box. The buyer,
  however, did not open the box and check the piece
  inside. On receiving the goods, it was noticed
  that the unit was not square in shape.

22
Summary

• If the buyer has not seen or examined the goods,
  the supplied goods must meet the description.
• If the buyer has seen or examined the goods but
  the deviations from description would not be
  apparent on an ordinary examination, the goods
  must meet the description.
• If the buyer has seen or examined the goods and
  the deviations from description would be apparent
  on an ordinary examination, the description would
  be modified to the extent of the deviations.

23
Defective Washing Machine

• A buyer bought a washing machine. It worked for a
  day. Thereafter, the washing machine stopped
  working completely. The buyer had not signed on
  any contract document.
• What are the remedies available for the buyer?
• Goods must be of merchantable quality.
• Consumer goods are expected to last for a period
  of time (atleast what is specified in the
  warranty)

24
Compressor Under Warranty

• Saini purchased an air compressor from a seller.
  In the first week itself smoke and burning smell
  came out from the compressor and the unit stopped
  functioning. The buyer is agitated and wants to
  return the compressor and get his money back.
• (12) Warranty The equipment is warranted for a
  period of 6 months from the date of purchase. We
  will at our option repair it, or replace parts.
  The limited one-year warranty and remedy set
  forth above are in lieu of all implied or express
  condition and warranty.

25

• warranty limits the rights of the buyer
• Claim damages
• Cannot terminate the contract

26

• Dhruv purchased hair drier from a shop. His
  wife was using the hair drier. In the first use
  itself, the hair drier machine burnt and gave
  Dhruvs wife burns on her face and hair.
• Can Dhruv return the drier ?
• Can he claim his money back?
• Can he demand compensation for his wifes injury
  ?

27

• Deepika asked for a particular brand of biscuits.
  On reaching home, she realized that it was a
  different brand of pack of biscuits. The packet
  was identically similar to the one Deepika
  wanted. She wants to return the packet and claim
  her money.
• Does she have remedy?

28
Case Defective Photocopier

• Monex Limited bought 100 photocopiers from a
  seller of photocopiers. The following description
  was given in the invoice and other documents.
• Photocopier Machine - 100 pieces
• 16 Ppm(A4) Or More
• Scan Resolution 1200 Dpi Or More
• Speed 3 Sec Per Page at 33.6 Kbps
• The goods supplied were of the above description.
  However, two of the photocopiers, on every use,
  got heated quickly, stopped working, and the
  paper perpetually got stuck in the rollers. Is
  there a remedy for the Monex Limited?

29
Cooling Solutions

• The buyer asked for a cooling system for storing
  cheese in its retail store. If the temperature
  became very low, cheese would freeze and its
  taste and texture change. If the temperature
  became high, cheese could deteriorate. The
  freezer system, being in a retail store, would be
  opened frequently by the customers.
• The manufacturer-seller recommended and supplied
  a model. The cooling system did not serve the
  purpose.

30
Constant George v. Dixon Store

• George bought a computer and printer for a
  purchase price of some 3,500. The computer
  comprised of a computer unit, mouse, keyboard,
  monitor and a remote control. The computer worked
  fine with the mouse and the keyboard. However,
  the remote control, which could do some of the
  functions of mouse, was not working. Another
  software for the remote control needed to be
  loaded in the computer.
• George insists on returning the set and getting
  back his money.

31
Case Imitation Pearls

• Ranjani bought synthetic pearls from a shop
  Aesthetics A womans Shop thinking that they
  were natural pearls. The pearls were hung on
  stands with prices written on them. You could
  choose what you wanted. She wants to return back
  the pearls and claim her money back.

32
Variation of the Case

• The shop had a board saying Aesthetics A
  womans Shop for Authentic Jewellery.

33
Variation of the Case

• The section in the shop, from where Ranjani
  picked up her purchase, had the word pearls
  written on the shelf.

34
Variation of the Case

• Ranjani had asked the shopkeeper if the pearls
  were natural and he had said yes.

35
Variation of the Case

• The law required that the sale of imitation
  jewellery should carry a declaration that the
  items were imitations. The shop had made no
  declaration to this effect.

36
Summary of Principles
Sr. Yes/No
1 If the contract is by sale of sample is it implied that the bulk correspond will be of same quality.
2 Sale of unascertained or future goods has to be by description.
3 All communications between the parties to a contract of sale gives rise to a sale by description.
4 Implied conditions in a contract gives protection to the buyer.
5 Warranty grants right to terminate the contract itself.
Yes
Yes
No
Yes
No
37
Summary of Principles
Sr. Yes/No
6 Warranty limits the rights of the buyer.
7 Is it compulsory for courts to enforce all terms and conditions in the contract.
8 If goods on examining defects have been bought out, does it become part of the description?


Yes
No
Yes
38
TRG Industries

• Buyer- TRG Industries
• Manufacturer- Chzk-Dormash Services
• Mr. Khemka
• Machine delivered on March 23 but could not be
  commissioned till June end despite several visits
  by technicians.

39
cond

• Warranty The equipment will be warranted for a
  period of 12 months from the date of
  commissioning at site for any manufacturing
  defects.

40
Judgement

• Hiring charges cannot be claimed as damages.
• The buyer could have bought another machine but
  not hired.
• Manufacturer and Mr. Khemka are the responsible
  parties.
• There is no privity between the procurer and the
  buyer.

41
cond

• The transaction between the parties is a
  commercial transaction. The money remained
  blocked and the machinery never served the
  purpose for which it was purchased. (The buyer)
  must be paid interest on the amount paid towards
  the price of the machinery. The (buyer) has
  claimed interest at the rate of eighteen per cent
  per annum, but taking into consideration the
  market rate of interest, I deem it appropriate to
  grant simple interest at the rate of fifteen per
  cent per annum on the said amount of Rs.42, 08,
  469/-. Such an interest would be payable from
  02.03.2002 till date of payment.

42
Sale and Transfer of Ownership Cases
43

• Ownership significant for the buyer as well as
  seller.
• Ownership furnish exclusive rights to the owner.
• Ownership possession are separate. A person can
  posses a thing at the same time may not own it.

44
Ownership can transfer only in specific goods or
ascertained goods. Ownership passes as agreed
between the parties in express or implied
terms If the contract does not provide on the
time of passing in express or implied terms, it
passes when the contract is made.
45

• Instances of ownership and possession
• A car in a garage for repairing.
• Transport company carrying goods from one place
  to another.
• Jewellery lying in the Bank locker.

46

• Kamal purchases clothes worth Rs.50,000 from a
  store for his daughters wedding. After purchasing
  the clothes he remembers that he had to pick up
  one more outfit for his daughter and requests
  cashier to keep the purchased clothes with him
  for 10 minutes. As soon as he goes there is a
  fire in the store and unfortunately his purchased
  clothes get destroyed.
• Kamal demanding same clothes back from the store
  stock or money back.

47

• Principles
• Owner is entitled to an exclusive enjoyment of
  the goods as well as for the loss of the goods or
  damage.
• Risk also passes with ownership.
• Contract of sale which do not provide time of the
  transfer of ownership in express or implied terms
  are called unconditional contracts
• In case of specific goods, if the contract does
  not provide in either express or implied terms on
  the passing of ownership, the ownership is
  transferred to the buyer when the contract is
  made.

48

• Josh was selling and installing a LCD TV for Tia.
  Tia had to pay for the TV in advance.
• The terms of the contract were that property in
  the TV would pass when Josh installed the machine
  to the satisfaction of Tia. During the course of
  installing TV got damaged. Tia is insisting that
  she should be given a new TV while Josh says that
  Tia must bear the loss of the damage.
• Decide.

49
Legal Provision

• S-47 Sellers lien
• (1) Subject to the provisions of this Act, the
  unpaid seller of goods who is in possession of
  them is entitled to retain possession of them
  until payment or tender of the price in the
  following cases, namely-
• (a) where the goods have been sold without any
  stipulation as to credit
• (b) where the goods have been sold on credit, but
  the term of credit has expired
• (c) where the buyer becomes insolvent.
• (2) The seller may exercise his right of lien
  notwithstanding that he is in possession of the
  goods as agent or bailee for the buyer.

50
Dennant v. Skinner
51
Car Auction

• Dennant carries on business as the South London
  Motor Auctions. Highest bidder, to whom cars were
  knocked down, was George Albert King. King
  represented that he was the son of Kings Motors,
  a well known motor car dealer in Oxford. By
  showing counterfoils of several large payments to
  motor car dealers, he persuaded Dennant to accept
  payment by cheque. As a protection, Dennant took
  the following written undertaking from King

52
Undertaking by King

• I hereby certify my cheque No. will be met on
  presentation at my bank. Furthermore, I agree
  that the ownership of the vehicles will not pass
  to me until such time as the proceeds of my
  cheque have been credited to South London Motor
  Auction account at Lloyds Bank.

53
The Cheque is Dishonoured

• Assured with the above protection, Dennant let
  King take away the vehicles. The cheque, however,
  was dishonoured on presentation and it
  transpired that King had no connection with the
  King's Motors. In this while, King had sold the
  car to a person, who in turn sold it to Skinner,
  another motor car company.
• The police was informed of the matter. King
  pleaded guilty and was convicted. Dennant sought
  to recover the car, claiming to be his property,
  from Skinner. Skinner and Dennant had a dispute
  as to the ownership of the car.

54
Legal Provision

• Section 18 of the British Sale of Goods Act,
  1893. (Section 19 of the Indian Sale of Goods
  Act) provides
• 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, and it is immaterial
  whether the time of payment or the time of
  delivery or both be postponed.

55
Judgement

• A contract of sale is concluded in an auction
  sale on the fall of the hammer, and, indeed, the
  Sale of Goods Act, 1893, s. 58 (2), so provides.
  Accordingly, on the fall of the hammer the
  property of this car passed to King unless that
  prima facie rule is excluded from applying
  because of a different intention appearing or
  because there was some condition in the contract
  which prevented the rule from applying.

56
Judgement

• The court constructed the subsequent signing of
  the document on ownership
• The document contemplates that the ownership of
  the vehicle has not passed to the bidder, but, as
  I have already said, in my judgment, it had
  passed on the fall of the hammer, and, if
  subsequently the bidder executed the document
  acknowledging that the ownership of the vehicle
  would not pass to him, that could not have any
  effect on what had already taken place.

57
Judgement

• the property had passed on the fall of the
  hammer, but still the plaintiff had a right to
  retain possession of the goods until payment was
  made. If, when he was ready to deliver the goods,
  payment was not made, he could have sued for the
  price, or he could have exercised powers of
  re-sale, and he could have secured himself by way
  of lien on the goods for the price, but once he
  chose, for reasons good, bad, or indifferent, as
  a result of statements fraudulent or honest, to
  part with the possession of the vehicle by giving
  delivery of it,

58
Judgement

• he then lost his seller's lien and he no longer
  had a right to possession of the vehicle. He had
  a right until it was delivered, but as the right
  of retainer was not exercised he had no right in
  the vehicle. The property in the vehicle had
  passed to King. His right to the property had
  gone and his right to possession had gone.

59
Judgement

• The Court concluded
• In my view, the property had passed on the
  falling of the hammer. The right to possession
  had passed when the plaintiff, persuaded and
  misled by King's lies, parted with his seller's
  lien, and there was nothing left on which he
  could found a claim against some third person, in
  this case the defendant, who was thus put in
  possession of the vehicle.

60
Ms. Marwar Tent Factory v. Union of India
61
Loss in Transit

• After the tents were passed by the inspector, the
  tents were to be despatched to Commandant,
  C.O.D., Kanpur. Tents were to be put on rails at
  Jodhpur under the terms of f.o.r. Jodhpur.
  Delivery note was to be sent to C.O.D. Kanpur by
  registered post. On receipt of the delivery note,
  C.O.D. was to pay 95 of the price to the Marwar
  Tent Company. The remaining 5 was to be paid
  after receipt of the goods in good condition by
  the C.O.D., Kanpur. A consignment of 1500 tents
  was despatched by the Marwar Tent Company. As a
  result of pilferage in transit, C.O.D. Kanpur
  received only 1276 tents. It, thus, deducted for
  the loss of 224 tents from the payment to Marwar
  Tent Company.

62
Judgement

• Under a free on rail contract (F.O.R.) the seller
  undertakes to deliver the goods into railway
  wagons or at the station (depending on the
  practice of the railway) at his own expense, and
  (commonly) to make such contract with the railway
  on behalf of the buyer as is reasonable in the
  circumstances. Prima facie the time of delivery
  f.o.r. fixes the point at which- property and
  risk pass to the buyer and the price becomes
  payable.

63
Judgement

• The words f.o.r. are well known words in
  commercial contracts. In my judgment they mean
  when used to qualify the place of delivery, that
  the seller's liability is to place the goods free
  on the rail as the place of delivery. Once that
  is done the risk belongs to the buyer.
• in view of the terms and conditions of the
  contract regarding the place of delivery
  'F.O.R. Jodhpur', the property in the goods
  passed immediately on to the seller after
  delivering the goods and loading the same in the
  railway wagons at Jodhpur for transmission to the
  buyer