Dr. Tabbassum Chaudhry
Dept. of Law
Amu
Study Material
B.A.LL.B. (HONS.) IV SEMESTER BUSINESS LAW SPECIAL CONTRACTS (SALE
OF GOODS AND PARTNERSHIP)
Unit 1
SOURCES OF SALE OF GOODS LAW AND HISTORY OF CODIFICATION
Mercantile law or commercial law is the law that regulates commercial activities of the
economy. It is a very wide term and all the laws that regulate commercial transaction in India
are covered under its ambit. The pre-requisite of such transaction is a valid agreement between
the parties to the contract. It can either be express or implied.
It is concerned with the rights and obligations of traders arising out of the commercial
transaction. The trader can be an individual, partnership firm or a company. All the Acts in
India that govern trade or commerce are part of Mercantile Law of India. For example, Indian
Contract Act, 1872; Sale of Goods Act, 1930; Companies Act, 2013, etc.
Origin
The Mercantile Law in India developed with the enactment of the Indian Contract Act, 1872.
Before this, all the commercials transactions were governed by the personal laws of the party
to contract. For example, Hindu Law, Mohammedan Law, etc. The first attempt to codify
Mercantile Law in India was made by the Britishers in 1872 by the enactment of Indian
Contract Act. Since then, numerous laws have been enacted in India to regulate commercial
transactions, such as Partnership Act, Negotiable Instruments Act, etc.
Sources of Indian Mercantile Law
The Indian Mercantile Law has developed from many sources. The following are the main
sources of Indian Mercantile Law:
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English Mercantile Law:
The Indian Mercantile Law owes its origin to the English Mercantile Law. For a very long
time, India was under the control of Britishers. Therefore, it has a direct influence on Indian
law, and Indian Mercantile Law is no exception to it. The dependence of Indian Law on English
Law is so high that, in the absence of any provision related to the issue in question, the direct
recourse is to refer to the English Mercantile Law. The sources of English Mercantile Law are
Common Law, Equity, Law Merchant, and Statute Law. The Common law of England or the
judge made law is the preliminary source of Indian Law. It is the unwritten law of England that
consists of judicial decisions and customs. With the passage of time, this law became rigid.
This rigidity led to the development of Equity in England.
The remedy under Common Law was available by obtaining writs, but the writs were very
specific and less than required. This led to dissatisfaction among people. And in many cases,
the remedy under Common Law was not adequate. So, the people would appeal to the King.
The King transferred the cases to the Chancellor, who would decide those cases by his common
sense, natural justice, and conscience. This led to the development of Equity Courts. Law
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Dr. Tabbassum Chaudhry
Dept. of Law
Amu
Merchant is the law that consists of the principles developed out of the principles of customs
and usages. This ultimately became a part of Common Law of England.
Statute law is the written law of England enacted by the Parliament of England. This written
law always overrides the unwritten law i.e. Common Law and Equity. It is one of the very vital
sources of Mercantile Law of England. For example, English Partnership Act, 1890, Sale of
Goods Act, 2015, etc.
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Acts enacted by Indian Legislature:
The greater part of Indian Mercantile law is Legislature enacted. The Acts enacted by the Indian
Parliament are that source of law which makes it possible to bring uniformity in Indian Law.
Changes can be brought in Indian Law effectively by legislative enactments.
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Judicial Decisions:
Judges interpret the law and put life into the black and white letters of law for its effective
implementation. The decision of judges is binding on all subsequent decisions unless overruled
by a higher court or a larger bench. For example, the decision of a High Court is binding on all
the lower courts under its jurisdiction, and the decision of a Supreme Court is binding on all
the courts of India except for the Supreme Court itself. The decision of the Supreme Court has
persuasive value for the same bench, but it has binding value in the case, a larger bench gave
the earlier ruling.
The doctrine of the binding value of earlier judicial decisions i.e. the precedent is followed to
maintain uniformity in delivering justice. Whenever the law is silent on a certain issue, then
the judges interpret the law in such a way that the yawning gaps in the law are filled to ensure
justice. The precedents have binding value to ensure that no two alike cases are decided on two
different principles as this will result in injustice to some. This principle ensures justice for
each and every individual along with a measure of certainty for the law itself.
Before independence, the decisions of Privy Council were binding on all the lower courts as it
was the highest court of Appeal for Indians. At present, the Supreme Court of India is the
highest court of Appeal, and its decisions are binding on all the courts of India. But even today,
the decisions of Privy Council and House of Lords are referred to as precedents in deciding
certain cases and in interpreting certain statutes in India.
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Customs and Trade Usages:
Customs and Usages had played a very vital role in regulating the commercial transactions in
India when there was no codified law. In fact, the codified law of India has given superseding
powers to the customs and usages. For example, Section 1 of Indian Contract Act states,
“Nothing herein contained shall affect any usage or custom of trade not inconsistent with the
Act.” A custom becomes binding when certain pre-requisites are fulfilled. For example,
antique, reasonable, consistent with law, not against public policy. Then, the custom is
recognized by courts, and it becomes a legal obligation. Hundi is the best example of this, and
it has been recognized by the Negotiable Instruments Act as well.
The need for mercantile law is felt when a dispute arises between the two parties to the contract.
Awareness about the law of the land is essential as ignorance of law is no excuse. Therefore,
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Dr. Tabbassum Chaudhry
Dept. of Law
Amu
each and every individual should have knowledge of the mercantile law of their country. In the
absence of knowledge, no rights can be enjoyed, and no obligations can be met.
DEFINITION AND CONCEPT OF SALE
The contract of the sale of goods is governed by The Sale of Goods Act, 1930. The Act extends
to the whole of India except the state of Jammu & Kashmir. Till 1930, all the transactions
related to the sale of goods was regulated by The Indian Contract Act, 1872. In 1930, Sections
76-123 were replaced by the Act of 1930. A contract for the sale of goods has certain unusual
features such as transfer of ownership of the goods, delivery of goods, rights and duties of the
buyer and seller, remedies for breach of contract, conditions and warranties implied under a
contract for the sale of goods, etc. These unusual ties are subjected to the provisions of the Sale
of Goods Act, 1930.
The Act deals with the subject-matter of movable property. This Act does not deal with the
sale of immovable property. The transaction relating to immovable properties, e.g., the sale,
lease, gifts, etc., are governed by a separate Act known as the Transfer of Property Act, 1882.
What is Contract of Sale: meaning & concept
Contract of the sale is an agreement between the buyer and the seller intending to exchange
property. Section 4(1) defines the contract of the sale as – a contract of the sale of goods is a
contract whereby the seller transfers or agrees to transfer the property in goods to a buyer for
a price.
In other words, the essentials to constitute a contract of the sale are as follows:
Two parties
There must be 2 distinct parties i.e. a buyer and a seller, to affect a contract of the sale and they
must be competent to contract. ‘Buyer’ as defined under Section 2(1) means a person who buys
or agrees to buy goods. ‘Seller’ has been defined under Section 13 which states that a person
who sells or agrees to sell goods.
Goods
There must be some goods, the property which is or is to be transferred from the seller to the
buyer. The subject-matter as to the goods under the Contract of Sale must be movable property.
This Act does not concern the immovable property as its subject-matter.
Price
The most important essential for the enforceability of the Contract of Sale of goods is the price.
The price can be termed equivalent to the consideration. In the absence of such price or
consideration, the transfer cannot be termed as a sale. The transfer by way of the sale must be
in exchange for a price. The payment of the price can be made in two modes:
1. Paid fully in cash; or
2. Paid partly and rest promised to be paid partly in future.
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Dr. Tabbassum Chaudhry
Dept. of Law
Amu
The price can be determined through an instrument of agreement between the parties before
the conveyance (transfer) of the property.
Transfer of general property
There are two types of property on the basis of its nature, i.e., general property and special
property. The subject-matter of the contract of Sale of Goods deals with the special property.
For the enforceability of such a contract, there must be a transfer of special property from the
seller to the buyer. For e.g., if A owns certain goods, he has general property in the goods. If
he pledges them with B, B has a special property in the goods.
Essential elements of a valid contract
All essential elements of a valid contract must be present in the contract of the sale, i.e.,
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An offer,
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An acceptance,
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An intention to create a legal relationship, and
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A consideration
Formalities of the contract of sale of goods
Except where specifically mentioned by the law, there is no prescribed form required to draft
a contract of the sale of goods. The agreement between the parties, i.e., the buyer and the seller
may be implied or may be expressed acknowledged by the conduct of the parties. Section 5 of
the Sale of Goods Act, 1930 describes as to how the contract of the sale of goods can be framed.
Therefore, the contract of the sale of goods can be made1. By an offer from the buyer to buy and seller to sell goods for a fixed consideration
mentioned in the agreement. Such an offer of buying or selling must have an acceptance
of the opposite party. The delivery of the goods can be executed in the following
manner:
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immediate delivery of the goods; or
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immediate payment of the price or both; or
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by delivery or payment in instalments; or
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the delivery or payment or both to be postponed.
2. Subject to the provisions of any law for the time being in force, a contract of the sale
may be made in writing or by word of mouth, or partly in writing and partly by word of
mouth or may be implied by the conduct of the parties.
In nutshell, a contract of the sale may be made in any of the following modes:
1. There may be an immediate delivery of the goods; or
2. There may be an immediate payment of a price, but it may be agreed that the delivery
is to be made at some future date; or
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Dr. Tabbassum Chaudhry
Dept. of Law
Amu
3. There may be an immediate delivery of the goods and an immediate payment of the
price; or
4. It may be agreed that the delivery or the payment or both are to be made in instalments;
or
5. It may be agreed that the delivery or the payment or both are to be made at some future
date.
Important clauses in a contract of sale of goods
There are some important clauses that are pre-requisite conditions to constitute an agreement
for the contract of the sale of goods. These are as follows:
Title of documents
Title to a document differentiates it from the other documents. It makes it more specific as to
what and which subject-matter it deals with. It gives an identity to a document. Title the
document as ‘Contract for the Sales of Goods’. Titling the document proves as to whom the
document belongs to and who owns it or has the right to take control over it.
Name the parties to the contract
The name of the buyer and seller must be mentioned in the contract. Besides to this, the
addresses of the parties must be mentioned therein to have the accountability and transparency
for future contingencies. For example, “This contract of the sale of goods made and entered
into (date) between (name of the seller) located at (address of the seller) and (name of the
buyer) located at (address of the buyer).
Include the recitals
We generally came across the ‘Whereas’ clauses in almost every contract. These are known as
recitals. The whereas clauses are added to define the party’s purpose for entering into the
contract. Recitals act as elementary statements for the effective enforceability of the written
agreement or deed. They customarily appear at the beginning, and acts similar to the preamble,
i.e., setting out the aims and objectives. They set out the party’s intention; what the contract is
for, who the parties are and so on. Recitals are the clauses states after the words “whereas”
introducing the main conditions and compliances to be fulfilled for the enforceability of the
contract.
Describe the goods
The Sale of Goods Act,1930 only deals with the movable property. The goods must be
described clearly and definite. It must be defined as in quality and quantity both. Goods are
defined under the Section 2(7) of the said Act. Thus, to call an element to be goods, it must
have the following essentials:
1. it must be a movable property;
2. it includes stock, shares, growing crops, grass, things attached to or forming part of the
land;
3. Such a good must be agreed to be severed before the sale or under the contract of sale;
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Dr. Tabbassum Chaudhry
Dept. of Law
Amu
4. It does not include actionable claims and money.
State the time of delivery
There must be certain specific attributes as to the time and date of the delivery of the goods in
the contract of the sale of goods. Such a clause in the contract must be provided with a deadline
as to change in the delivery date or change of address.
For example, Seller shall deliver the goods to the buyer by (date) at location (address of
delivery). Buyer shall have the right to change the delivery date by providing written notice
within 10 days in advance.
Insert Warranties and Conditions
Section 12 of The Sale of Goods Act,1930 defines condition and warranty. A stipulation in a
contract of the sale with reference to goods may be a condition or a warranty. A condition is
an arrangement which is essential to achieve the main purpose of the contract. The breach of a
condition must give the right to abandon the contract which results in claiming the damages.
Contrarily, a warranty is an arrangement which is corroborative to the main purpose of the
contract. The breach of such a warranty must give rise to a claim for damages but such warranty
cannot take away the right from the parties to reject and deny the acceptance of the goods.
Warranties and Conditions can either be expressed or implied.
Explain Buyer’s Obligations
The obligations of the buyer must be specified in the contract of the sale of goods as to the
payment, mode of payment, and provisions as to when goods are received. The provisions as
to the mode of payment can be:
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The buyer can pay in full upon receipt.
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The buyer can pay in instalments.
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The buyer can pay half upon receipt and the rest within 30 days of receiving the goods.
Sometimes disputes may arise related to the receiving of the goods. The contract of the sale of
goods must specify that what qualifies as the ‘receipt’ of the delivery of goods.
Include Boilerplate Provisions
The provisions or the clauses customarily added at the end of a contract are known as
boilerplates. They are also known as miscellaneous provisions. These provisions play a vital
role because they affect the legal rights under the contract as well as all other clauses.
These boilerplate provisions include:
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Rules on how the agreement will be interpreted
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Law governing the subject-matter of the contract
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The consequences of the invalid provisions in the contract
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Whether third parties are deemed to be third party beneficiaries of the agreement
Dr. Tabbassum Chaudhry
Dept. of Law
Amu
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It includes notice provisions, merger provisions, severability clause, waiver provision,
and so on.
Add an arbitration clause
Arbitration is outside court dispute resolving resolution. In the case of differences in opinion
or disputes, one must have an arbitration clause enacted to its contract of sale of goods as a
solution to resolve the future contingencies. Arbitration is cheaper and requires less red-tapism.
The arbitration clause might read “All disputes arising under this Contract shall be settled by
binding arbitration in the state of (name of state) or another location agreeable to both parties.
An Arbitration award may be confirmed in a court of competent jurisdiction”.
Finalizing of the agreement
Finalization of the agreement results in the enforceability of the clauses of the agreement. Once
an agreement is final, it becomes a contract. It binds the buyer and seller. An agreement is
finalized when signed by the parties to the contract. An agreement is finalized by signing the
authorized signatures of both the parties. For this purpose, an agreement must have lines on
either side of the last page of the document for the official and dated signature of the parties.
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The agreement of the sale of goods must undergo certain stages and procedure to
become a valid contract.
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Before entering into the contract or finalizing the contract, the parties must check the
credibility of the document and finalize it then.
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There is no strict format as to the drafting of the contract of sale, it can be moulded as
per the needs and requirements of the parties.
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But there are certain clauses mentioned in this article which lays down paramount
structure for the important clauses of the contract of sale of goods.
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There is no legal framework as to the contents of a contract of sale of goods but the
mentioning of certain clauses makes the contract stronger.
Dr. Tabbassum Chaudhry
Dept. of Law
Amu
DIFFERENCE BETWEEN SALE AND AGREEMENT TO SELL
The sale takes place immediately, while an agreement to sell takes place in the future depending
upon the fulfilment of certain terms and conditions. Thus, at the time of the sale, an actual
transfer takes place whereas at the time of the agreement to sell future transfer takes place.
Risks are transferred immediately in sale whereas in the agreement of sale risks are attached to
the seller till the goods are being transferred in the future. The sale is an executed contract
whereas agreement to sell is an executory contract.
As per section 6(1) the sale deed mostly comprises of the existing goods owned or possessed
by the seller or future goods. Whereas in the agreement to sell, the seller indicates to impact a
present offer of future merchandise, thus it entirely depends upon the contingency of the event
which may or may not happen.
However, section 8 of the said act, deals with the goods perishing before the sale but after the
agreement to sell, thus this section again highlights the goods which damage or perishes
without any fault of the seller or the buyer. Thus, this also happens to be an instance of an
agreement to sell.
Further, section 9 deals with the ascertainment of the price of the goods. Hence, when a sale is
made, immediately a transfer takes place, and therefore the price is certain and fixed, whereas
in specific conditions the price is determined, depending upon the circumstances of a certain
particular case, thus an agreement to sell is completed but the sale is not.
Therefore, the price of the goods itself falls and thereby the risk being attached to the seller, he
suffers the loss. However, if the goods or a part thereof is delivered and appropriated by the
buyer, the buyer is bound to pay a reasonable price to the seller. Thus, it could be concluded
that one is an instant action while other is a future action.
In the sale and agreement to sell the condition and warranty as being defined under section
12 of the act which also plays an important role. Section 12(2), defines the condition as a
stipulation essential to the main purpose of the contract. While section 12 (3) defines warranty
as stipulation collateral to the main purpose of the contract and a breach of it may give rise to
claim for damages but not to right to reject the goods and to treat the contract as denied.
Thus, the term “condition” could be related more to the immediate sale, whereas the term
“warranty” could be more associated with the agreement to sell. Subsequently, we also find
that section 13 of the said act is also inclined towards the agreement to sell as it states that when
a condition could be treated as a warranty.
When an immediate sale happens, all the rights which are attached to the goods to the seller
are impliedly transferred immediately to the buyer, whereas, in the agreement to sell, this is
not the case. In certain cases the sale also happens as per the descriptions hence it is applicable
to both to sale and agreement to sell as per section 15 of the Sale of Goods Act, 1930.
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Dr. Tabbassum Chaudhry
Dept. of Law
Amu
CHART SHOWING THE DIFFERENCES BETWEEN SALE AND AGREEMENT TO SELL
SALE
AGREEMENT TO SELL
In the contract of sale, the exchange of goods takes
place immediately.
In the agreement to sell the parties agree to exchange
the goods for a price depending on the fulfilment of
certain conditions at a future specified date.
The nature in the sale is absolute.
The nature of the agreement to sell is conditional.
It is an executed contract.
It is an executory contract.
Transfer of risk takes place immediately.
Transfer of risk doesn’t take place, until and unless
the goods are transferred.
The right to sell remains with the buyer
The right to sell remains with the seller.
Here the seller has the right to sue for the price.
Here the seller has the right to sue for damages.
It creates a right in rem.
It creates a right in personam.
The seller has no right to resell.
The seller has the right to resell the same goods if
the conditions are not fulfilled.
On the off chance that the products are annihilated,
the misfortune is borne by the buyer despite the fact
that the merchandise is in the ownership of the
seller.
The loss falls on the seller despite the fact that the
merchandise is in the ownership of the buyer.
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Dr. Tabbassum Chaudhry
Dept. of Law
Amu
Difference between Sale and Hire Purchase
The basic difference between two is established in case of (Helby V Mathews), where, Helby
let a piano on hire to Brewster at the rate of 10s d6 every month for 36 months to claim the
piano as his property, if he wants to terminate the contract he can return the piano anytime.
After few instalments, Brewster pledged the instrument with Mathews and Helby sued
Mathews to recover the instrument. It was held that he could do so because Brewster was not
in the possession but merely under the hire-purchase agreement under which he has no right to
pledge.
Further Lord Herschell, LC said that, an agreement to buy imports a legal obligation to buy. If
there was no such obligation, there cannot properly be said to have been an agreement. In this
case, Brewster might buy or not he did not agree to pay 36 instalments, he only agrees to pay
monthly instalments as long as keeps the piano. So, under these circumstances, he neither
bought or agrees to buy. Thus, it the presence of the option on the hirer to buy or to terminate
the hiring marks the distinction.
Basis
difference
of
Sale
Hire-purchase
Party’s
position
The position of the buyer is that of The position of the hirer is that of bailee of goods
the owner of goods
till he pays the last instalment.
Time
Property is transferred immediately
at the time of contract
Property in goods is passed after paying last
instalments
Termination of Buyer is bound to pay price; he
cannot terminate the contract
contract
Hirer has a right to terminate the contract by
returning the goods to its owner without any
liability to pay remaining instalments.
Seller takes the risk of any loss if the
buyer turns out to be insolvent
The seller has no such risk, if hirer turns out to
be insolvent, the seller can simply take back the
goods.
Burden of risk
Buyer can pass good title
Hirer cannot pass the title
Resale
Buyer can resell the goods
Hire-purchase can resell the goods only if he had
paid all the instalments.
Transfer
title
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of
Dr. Tabbassum Chaudhry
Dept. of Law
Amu
Suggested Readings
1. Atiyah’s Sale of Goods by P.S. Atiyah, John N. Adams and Hector Macqueen
2. The Sale of Goods Act by Pollock &Mulla
3. Law of Sale of Goods by Akhileshwar Pathak (Oxford University Press)
4. Principles of Mercantile Law by R. K. Bangia
5. Principles of Mercantile Law by Avtar Singh
6. The Indian Sale of Goods & Partnership Act by Pollock &Mulla
7. Partnership Act by H. P. Gupta
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