Page 142 - DMGT407Corporate and Business Laws

Unit 5: Law of Sale of Goods

Notes
Example: Certain pigs are sold ‘subject to all faults’. These pigs, being infected, cause
typhoid to other healthy pigs of the buyer. The rule of caveat emptor will apply.
Exceptions to the doctrine of caveat emptor. The doctrine is subject to the following exceptions:
1. Where the seller makes a false representation and buyer relies on that representation, the
buyer is entitled to the goods according to that representation.
2. Where the consent of the buyer, in a contract of sale, is obtained by the seller by fraud or
where the seller actively conceals a defect in the goods, so that on a reasonable examination
the same could not be discovered.
3. Where the buyer makes known to the seller the purpose for which he is buying the goods
and the seller happens to be a person whose business is to sell goods of that description,
then there is an implied condition that the goods shall be reasonably fit for such purpose
(s.6(1)).
4. In case of sale by description, there is an implied condition as to goods being of merchantable
quality. However, if the buyer has examined the goods, then this implied condition extends
only to hidden or latent defects. The rule of caveat emptor is not applicable to the defects
which such examination ought to have revealed.
5. Proof of a reasonable usage or custom of trade may also establish an implied condition as
to quality or fitness of the goods for a particular purpose.

Application of implied conditions in the case of private sale. The rules as to fitness for a
particular purpose and merchantable quality do not apply to private sales. In other words,
the maxim of caveat emptor would apply. However, the implied condition that the goods
must correspond with the description does apply to private sales also. Further the implied
condition that the goods must correspond with the sample, in the case of sale by sample,
even in the case of private sales, would be applicable.

Task Raman sold 100 quintals of rice to Suman, who paid by cheque. The cheque was
dishonoured upon presentation. Raman had given a delivery order to Suman. Suman
resold it to Gagan, a buyer in good faith, for consideration, endorsing the delivery order
to him. Raman refuses to deliver the goods to Gagan, on the plea of non-payment. Advice
Gagan.

Liability of manufacturers in negligence: When goods are purchased by a person from a dealer,
then there is a privity of contract between them. Therefore, the implied conditions and warranties,
as explained above, can be read as a part and parcel of the contract. But, there is no privity of
contract between the buyer and the manufacturer under the Sale of Goods Act, 1930. However,
a buyer may have an action in negligence against the manufacturer in respect of physical injuries
caused by defects in the goods. [Donoghue v. Stevenson (1932) A. C. 562]. Mr. D did not buy the
goods from the seller, it is his friend who had purchased them. Thus, though D did not have a
privity of contract with the seller, he could get the manufacturer held liable for the physical
injuries, caused to him. D is a stranger to the contract, therefore he could not file a suit against the
seller under the Indian Contract Act, 1872, or the Sale of Goods Act, 1930.

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