Page 115 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes Objectives

After studying this unit, you will be able to:

Discuss the concept of conditions and warranties;
Describe the performance of contract of sale;
Explain the concern of unpaid seller and his rights;
Recognize the Doctrine of caveat emptor.

Introduction

Transactions in the nature of sale of goods form the subject matter of the Sale of Goods Act, 1930.
The Act covers topics such as the concept of sale of goods, warranties and conditions arising out
of sale, delivery of goods and passing of property and other obligations of the buyer and the
seller. It also covers the field of documents of title to goods and the transfer of ownership on the
basis of such documents. The Act came into force on 1st July, 1930. It extends to the whole of
India, except Jammu and Kashmir. The sections quoted in this unit refer to the Sale of Goods Act,
1930, unless otherwise stated.

Indian business persons, conducting their business against the backdrop of the Sale of Goods
Act, have not found it difficult to work out the several varieties of contracts of sale of goods as
resorted to in national and transnational business, such as F.O.B. (Free on Board), C.I.F. (Cost,
Insurance and Freight) and ex-ship.

5.1 Definition and Essentials of a Contract of Sale

Section 4 defines a contract of sale as ‘a contract whereby the seller transfers or agrees to transfer
the property in goods to the buyer for a price’. From the definition, the following essentials of
the contract emerge:

1. There must be at least two parties: A sale has to be bilateral because the property in goods
has to pass from one person to another. The seller and the buyer must be different persons.
A person cannot buy his own goods. However, a part-owner may sell to another
part-owner.

Example: A partnership firm was dissolved and the surplus assets, including some goods,
were divided among the partners in specie. The sales-tax officer sought to tax this transaction.
Held, this transaction did not amount to sale. The partners were themselves the joint owners of
the goods and they could not be both sellers and buyers. Moreover, no money consideration
was promised or paid by any partner to the firm as consideration for the goods allotted to him.
[State of Gujarat V. Ramanlal S. & Co. A.I.R. 1965 Guj. 60].

2. Transfer or agreement to transfer the ownership of goods: In a contract of sale, it is the
ownership that is transferred (in the case of sale), or agreed to be transferred (in the case of
agreement to sell), as against transfer of mere possession or limited interest (as in the case
of bailment or pledge).
3. The subject-matter of the contract must necessarily be goods: The sale of immovable
property is not covered under Sale of Goods Act. The expression ‘goods’ is defined in
s.2(7).

4. Price is the consideration of the contract of sale: The consideration in a contract of sale has
necessarily to be ‘money’, (i.e., the legal tender money). If for instance, goods are offered

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