Sale and Quality of Goods

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

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

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)

ESSENTIALS.contd
Payment by installments: in the case of
sale of goods, the parties may agree that
the price will be payable by installments

 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

 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

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.

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.

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

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

 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.

 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.

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.

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.

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.

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.

Can the buyer insist on visiting the manufacturer to

inspect the goods under manufacture or at the
stage of packing?

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.

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.

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.

Summary
1. If the buyer has not seen or examined the
goods, the supplied goods must meet the
description.
2. 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.
3. 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.

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)

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.

 warranty limits the rights of the buyer

Claim damages
Cannot terminate the contract

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 ?

 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?

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?

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.

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.

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.

Variation of the Case

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

Variation of the Case

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

Variation of the Case

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

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.

Summary of Principles
Sr.
1 If the contract is by sale of sample is it
implied that the bulk correspond will be
of same quality.

Yes/No

Yes

Sale of unascertained or future goods

has to be by description.

All communications between the parties

to a contract of sale gives rise to a sale
by description.

Implied conditions in a contract gives

protection to the buyer.

Yes

Warranty grants right to terminate the

contract itself.

No

Yes
No

Summary of Principles
Sr.
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
No
Yes

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.

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

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.

 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.

Sale and Transfer of Ownership:

Cases

 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.

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.

 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.

 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.

 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.

 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.

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.

Dennant v. Skinner

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:

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.

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.

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.

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.

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.

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,

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.

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.

Ms. Marwar Tent Factory v. Union

of India

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.

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.

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