Legal and Tax

7/29/2019 Legal and Tax

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Definition:

“A contract of sale of goods is a contract whereby the seller transfers or agrees totransfer the property in goods to the buyerfor price”

A contract to transfer property in goods i.e.legal ownership of goods from the seller tothe buyer is known as a contract of sale.



A valid Contract of sale must have the followingessentials:

1.Two Parties

2.Goods3.Price

4.Transfer of Property

5.Includes both sale and an agreement to sell6.No formalities to be observed.



Sale-“Under the contract of sale , the property in

the goods is transferred from seller to thebuyer, it is called a sale.”

Agreement to sell-“It means where under a contract of sale , the

transfer of property in goods is to take placeat a future date or subject to some conditionthereafter to be fulfilled , the contract iscalled an agreement to sell”.



Sale1.A sale is an executed

contract.

2.In a sale, since theproperty has passedto the buyer , the

seller can sue thebuyer for the priceof the goods

Agreement to sell1.An agreement to sell

is an executory contract.

2.In an agreement tosell, in case of breach, the seller

can only sue fordamages, unless theprice was payable ata stated date.



SALE

3.The property in goods

passes to the buyer

with the risk.

4.The seller cannot resell

the goods

5.In case of loss of

goods, the loss will be

borne by the buyer

3.The risk and property

does not pass to the

buyer immediately

4.The seller can resell

the goods.

5.In case of loss of

goods the loss will be

borne by the seller.

Agreement To Sell



A contract of sale of goods contains various

terms or stipulations regarding the quality

of the goods ,the price and the mode of itspayment ,the delivery of goods ,and its

time and place. some of these stipulations

may be major terms while others areminor terms In law of sales major terms

are called ‘conditions’ and minor terms

are called ‘warranties’



1.A dealer in radio gives a ‘Murphy’ radio to a

customer on the terms that Rs. 100should bepaid by him immediately and Rs.200 more Intwo monthly equal instalments.It was further

agreed that if the radio is found defective thecustomer may return it within a week but notlater. The customer makes default in paying thelast instalment.Can the radio dealer take backthe radio on his default.



A Condition has been defined by section 12(2)as“A condition is a stipulation to the mainpurpose of the contract , the breach of whichgives rise to a right to treat the contract asrepudiated.”

Thus condition is regarded as the very basis of the contract .If there is a breach of a condition,

the contract will fail and will entitle the party to put an end to the contract.



For Example-

P goes to R, a horse dealer, and says, “ I want a

horse which can run at a speed of 30kilometers per hour”. The horse dealer pointsout a particular horse and says, "This will suit

you”, P buys the horse .Later on P finds that thehorse can run only at a speed of 20 kilometersper hour. There is breach of condition, P can

repudiate the contract, return the horse to R and get back the price.



Section 12(3) defines warranty as “if thestipulation is collateral to the main purposeof the contract i.e. it is a subsidiary promise,

it is a warranty. the effect of a breach of a warranty is that the party aggrieved cannotrepudiate the contract but can only claim

damage.



In a contract of sale of goods conditions may be either expressed or implied. They are saidto be ‘express’ when the terms of the

contract expressly provide for them. They are said to be implied when the law deemstheir existence in the contract even without

their actually having put in the contract.



1. Condition as to Title- The seller has the

right to sell the goods ,if either he is theowner of the goods, as a result of thiscondition ,if the sellers title turns out to be

defective the buyer is entitled to reject thegoods and to recover his price.

2. Sale by description- where there is a

contract of sale by description ,there is animplied condition that the goods shallcorrespond with the description.



3.Condition in sale by sample- when under acontract of sale ,goods are to be supplied

according to a sample agreed upon theimplied conditions are :

ii.That the bulk shall correspond with the sample

in quality ii.That the buyer shall have a reasonableopportunity of comparing the bulk with thesample

iii. That the goods shall be free from any defect,i.e. latent defect.



4.Condition in a sale by sample as well as by description-when goods are sold by sample

as well as by description ,there is an impliedcondition that the bulk of the goods shallcorrespond both with the sample and withthe description.

5.Condition As to fitness or Quality -there isan implied condition that the goods suppliedshall be reasonably fit for the purpose for

which buyer wants them.

6.Condition as to merchantability- means it would be such that it would be sold again

etc.



There are two implied warranties:1.Warranty of quiet possession- the buyer has

a right to enjoy quiet possession of the goods

and if it is disturbed by a person having asuperior right than that of a seller, the buyercan claim damages from the seller.

2.Warranty of freedom from encumbrances-

the second implied warranty on the part of theseller is that the goods shall be free from any charge or encumbrance in favour of the third

party not declared or known to the buyer.



1.Worsted coating of quality equal to sample was

sold to tailors who could not stitch it into coatsowing to some latent defect in its texture .Thetailors had examined the cloth before effectingthe purchase .Are they entitled damages?

2.M was shopping in a self-service supermarket .He picked up a bottle of orange squash from ashelf. While h was examining it, the bottle

exploded in his hand and injured him .Can Mclaim damages for the injury .



The maxim of Caveat Emptor means “let the

buyer beware". According to the doctrine of caveat emptor it is the duty of the buyer to becareful while purchasing goods of his

requirement and in the absence of any enquiry from the buyer ,the seller is not bound todisclose every defect in goods of which he may

be unaware. The buyer must examine the goodsthoroughly and must see the goods he buys aresuitable for the purpose for which he wantsthem.



If the goods turn out to be effective or do notsuit his purpose ,the buyer cannot hold the

seller liable for the same .For Example-

A purchases a horse from B .A needed the horse

for riding but he not mention this fact to B.The horse is not suitable for riding but issuitable only for being driven in the

carrige.Caveat Emptor being the rule. A canneither reject the horse nor can he claim any compensation from B.



1.Where the seller makes a mis-representationand the buyer relies on it, the doctrine of caveatemptor does not apply.-the buyer has right torescind the contract

2.Where the seller makes a false representationamounting to fraud and the buyer relies on it,or where seller actively conceals a defect in thegoods the buyer is entitled to avoid the contract

and also claim damages for fraud.3.Where the goods are purchased by description

and they do not correspond with the

description.



4. Where the goods are bought by sample as well as

by description and the bulk does not correspond

both with the sample and with the description ,thebuyer is entitled to reject the goods.

5.Where the trade usage attaches an implied

condition or warranty as to quality or fitness andthe seller deviates from that ,the doctrine of caveat

emptor does not apply and the seller is liable in

damages.



Transfer of property in goods means transfer of

ownership of the goods. There may be situationswhere a person is the owner of certain goods but

is not in possession of the same or vice – versa.

The determination of the exact moment as to whenthe ownership pass from the seller to the buyer is

important because:

1.If the goods are lost or damaged ,who will bearthe loss shall depend upon as to whether the

ownership is with the seller or the buyer.



2.In the case of damage to the goods by third

parties, it is the owner who can take action.

3.In the event of insolvency of either seller orbuyer, whether the official assignee or

receiver can claim the goods shall depend

upon whether the property has passed to thebuyer or not.



It lays down the rules which determine when

property passes from the seller to the buyer-

1.Transfer of Property in specific or ascertained

goods.

2.Transfer of property in unascertained and future

goods.



1.Transfer of Property in Specific Or

Ascertained Goods- Where there is contract for

the sale of specific or ascertained goods theproperty in them is transferred to the buyer at

such time as the parties to the contract intend it

to be transferred. Thus in case of specific goods,the transfer of property takes place when the

parties intend to pass it.

When the intention of parties cannot be judged

from their contract or conduct of the parties, the

rules as regards intention are as follows:



1.When the goods are in a deliverable state –

where there is an unconditional for the sale of specific goods in a deliverable state, the property

in the goods passes to the buyer as soon as the

contract is made.

2.When the goods have to be put into a

deliverable state – where there is a contract for

the sale of specific goods and the seller is bound

to do something to the goods for the purpose of putting them into a deliverable state, the property

does not pass until such thing is done and the

buyer has notice thereof.



3.When the goods have to be measured etc, to

ascertain price- Where there is a contract for the

sale f specific goods in a deliverable state ,but theseller is bound to measure ,weigh, test or to do

some other act or thing with reference to the

goods for the purpose of ascertaining the price,the property does not pass until such act or thing

is done and the buyer has notice.

4.When goods are delivered on approval – when

goods are delivered to the buyer on approval or

‘on sale or return, or on other similar terms the

property therein passes to the buyer.



2.Transfer of property in Unascertained goods-

the rule relating to transfer of property in

unascertained goods is that where the goodscontracted to be sold are not ascertained the

property in goods does not pass to the buyer

unless until the goods are ascertained to the

contract so as to bring them in a deliverable

state, either by the seller with the assent of the

buyer .



Who is an unpaid seller? An unpaid seller of goods is a person who has not beenpaid the whole of the price or to whom the wholeof the price has not been tendered.

The seller of goods is deemed to be an “unpaid seller”if:

(a) The whole of the price has not been paid ortendered;

(b) When a bill of exchange or other negotiable

instrument has been received as conditionalpayment, and the condition is not fulfilled



Rights of an unpaid seller may broadly beclassified under two heads namely:

1.Rights against the goods

2.Rights against the buyer personally1.Rights against goods:

An Unpaid seller has the following right against

goods:(i) Lien on the goods - Lien is the right to retain

the possession of goods and refuse to deliverthem to the buyer until the price due in respect

of them is paid or tendered.



An unpaid seller in possession of goods sold is

entitled to exercise his lien on the goods in the

following cases:a)Where the goods have been sold without any

stipulation as to credit

b)Where the goods have been sold on credit ,butthe terms of credit has expired.

c) Where the buyer becomes insolent, even

though the period of credit may not have yetexpired.



ii)a right to stoppage of transit- means the

right of stopping further transit of the goods

while they are with a carries for the purpose of transmission to the buyer, resuming possession

of them and retaining possession until payment

or tender of the price.

(iii)a right of resale – Right to resell the goods

can be exercised in the following cases:

a. Where the goods are of a perishable nature

b. Where such a right is expressly reserved in the

contract in case the buyer should make a

default



c. Where the seller has given a notice to the buyer of his

intention to resell and the buyer does not pay or tender

the price within a reasonable time

2.Right against the buyer personally:

An Unpaid seller has following rights against the buyer

personally-a. Suit for the price

b. Suit for damages



1.Delivery of part of goods sold may amount todelivery of the whole if it is so intended and

agreed. But where the part is intended to be

severed from the whole , part deliver does notamount to be delivery of the whole.

2.Unless agreed otherwise , the seller is not bound

to deliver goods till the buyer applies for deliver .

3.Place of Delivery

4.Time of delivery.



5.Unless otherwise agreed , the expenses of and

incidental to putting the goods into a

deliverable state shall be borne by the seller.

6.Demand and tender must be at a reasonable

hour.

7.Delivery of wrong quantity.

8.Instalment deliveries.

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