LAW OF CONTRACT-II Unit III:

PAPER – I:

LAW OF CONTRACT-II

Unit III:

1. Explain the essentials for the formation of a valid contract of sale under the Sale of Goods Act, 1930.

Introduction:

The Sale of Goods Act, 1930 governs the contract relating to the sale and purchase of goods in India. A contract of sale is a special kind of contract wherein the seller transfers or agrees to transfer the ownership of goods to the buyer for a price. However, like any other contract, a sale must fulfill certain essential conditions to be valid under law.

Essentials for Formation of a Valid Contract of Sale:

1. Two Parties – Buyer and Seller (Section 2(1) & 2(13))

There must be at least two parties: one party who sells (seller) and another who buys (buyer).

A person cannot be both the buyer and the seller in the same transaction.

2. Transfer or Agreement to Transfer Ownership of Goods (Section 4)

The core of a sale is transfer of property (ownership) in goods:

If the transfer is immediate → it is a Sale.
If the transfer is to happen in the future or upon some condition → it is an Agreement to Sell.

3. Goods Must Be the Subject Matter (Section 2(7))

The contract must be for the sale of movable goods only, not immovable property or services. Goods include:

Existing Goods
Future Goods
Contingent Goods

4. Price Must Be Paid or Promised (Section 2(10) & Section 9)

Price is a monetary consideration for the sale of goods. It may be:

Fixed by contract
Left to be fixed in a manner agreed
Determined by course of dealings
If no price is fixed, the buyer must pay a reasonable price.

5. Transfer of General Property

The contract must contemplate the transfer of general ownership, not merely possession or a limited interest (like a pledge or lease).
For example:

A pledge is not a sale because only special property is transferred.

6. Valid Consent and Free Will (As per Indian Contract Act, 1872)

The contract must be entered with free consent of both parties.

Consent must not be induced by coercion, undue influence, fraud, misrepresentation, or mistake.

7. Competency of Parties

Both the seller and the buyer must be competent to contract, as per Section 11 of the Indian Contract Act, 1872.

They must be of sound mind, major, and not disqualified by law.

8. Lawful Object and Consideration

The object and consideration of the contract must be lawful.

For example, selling smuggled or banned goods is not valid.

9. Compliance with Formalities (if any)

Although a sale may be oral or written, in certain cases (like sales above a certain value), the law may require:

Written contract
Registration
Delivery of goods
However, generally, no specific form is required under the Sale of Goods Act.

Conclusion:

A valid contract of sale under the Sale of Goods Act, 1930 must satisfy the conditions laid down under both the Sale of Goods Act and the Indian Contract Act. Without these essential elements — such as valid parties, goods, price, and intention to transfer ownership — no enforceable contract of sale can arise. These principles ensure that sales are carried out in a lawful and structured manner.

2. What is the subject matter of a contract of sale? Discuss the different types of goods under the Sale of Goods Act, 1930.

Introduction:

The subject matter of a contract of sale under the Sale of Goods Act, 1930 is “goods”, which are the items that are bought and sold in a transaction. The Act provides a legal framework for the sale and purchase of movable property. Understanding the nature and types of goods is essential to determine the rights and obligations of the parties involved.

Definition of Goods (Section 2(7)):

According to Section 2(7) of the Sale of Goods Act, 1930:

“‘Goods’ means every kind of movable property other than actionable claims and money. It includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.”

Thus, only movable property (not immovable) can be the subject matter of a sale.

Subject Matter of a Contract of Sale:

The goods that form the subject matter must be movable.
There must be a transfer of ownership or an agreement to transfer.
The goods must be ascertained or capable of being ascertained.
The contract must be for lawful goods — not prohibited by law.
Goods must be deliverable, i.e., capable of being transferred from seller to buyer.

Types of Goods under the Sale of Goods Act, 1930:

The Act classifies goods into the following categories:

1. Existing Goods:

Goods that are owned or possessed by the seller at the time of the contract.
They are further divided into:

a. Specific Goods (Section 2(14)):
Goods that are identified and agreed upon at the time of the contract.
Example: A particular car with chassis number ABC123.
b. Ascertained Goods:
Goods that are identified and set aside after the contract is made. Although not defined in the Act, courts have interpreted them as goods that become specific after selection.
c. Unascertained Goods:
Goods that are not specifically identified at the time of contract.
Example: 100 bags out of a bulk of 500 bags of wheat.

2. Future Goods (Section 2(6)):

Goods that are to be manufactured, produced, or acquired by the seller after the contract is made.
Example: A tailor agrees to stitch a suit and deliver it next week.

A contract for future goods is always an agreement to sell, not an immediate sale.

3. Contingent Goods (Section 6(2)):

Goods the acquisition of which by the seller depends upon a contingency or event which may or may not happen.
Example: Sale of goods from a shipment that may arrive from abroad.

Contingent goods are a type of future goods but are dependent on uncertain events.

Conclusion:

The subject matter of a contract of sale must be goods as defined under the Sale of Goods Act, 1930. The Act categorizes goods into various types based on their existence and identification. Understanding these classifications is crucial for determining the nature of the contract — whether it is a sale or an agreement to sell — and for resolving disputes regarding ownership, risk, and delivery of goods.

3. Define and distinguish between conditions and warranties. How does the breach of a condition differ from the breach of a warranty?

Introduction:

In a contract of sale under the Sale of Goods Act, 1930, certain stipulations are included regarding the quality, quantity, or fitness of the goods sold. These stipulations are classified as conditions and warranties. Understanding the distinction between the two is important because the legal remedies available to the buyer in case of breach differ significantly.

Definition of Condition (Section 12(2)):

“A condition is a stipulation essential to the main purpose of the contract, the breach of which gives the aggrieved party a right to repudiate (cancel) the contract and claim damages.”

It is fundamental to the contract.
If breached, the buyer may reject the goods and terminate the contract.

Example:
If a customer buys a specific model of mobile phone and is delivered a different one, it amounts to a breach of condition.

Definition of Warranty (Section 12(3)):

“A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not a right to reject the goods or repudiate the contract.”

It is subsidiary or minor in nature.
If breached, the buyer can only claim damages, but cannot cancel the contract.

Example:
If a buyer is assured that the phone comes with a free headphone and it is not delivered, it amounts to a breach of warranty, not condition.

Key Differences Between Condition and Warranty:

Basis of Difference	Condition	Warranty
Definition	A major term essential to the main purpose of sale.	A minor term collateral to the main purpose.
Effect of Breach	Right to repudiate the contract + claim damages.	Only right to claim damages, no repudiation.
Importance	Fundamental to the contract.	Supplementary to the contract.
Right to Reject Goods	Yes	No
Example	Supplying wrong product.	Late delivery of accessory item.

When a Condition is Treated as a Warranty (Section 13):

In certain cases, a condition may be treated as a warranty:

Voluntary Waiver by Buyer:
If the buyer chooses to accept the goods even after the breach of a condition, he may waive the right to repudiate and treat the breach as a breach of warranty.
Non-Severable Contracts:
In contracts that are not severable, if the buyer has accepted the goods wholly or in part, he cannot reject the goods but may claim damages as if it were a warranty.

Conclusion:

Conditions and warranties are two types of contractual stipulations in a sale of goods contract. While both deal with the terms of performance, the remedies for their breach differ significantly. A breach of condition allows for rejection of goods and termination of the contract, whereas a breach of warranty only gives the right to claim damages. The classification plays a crucial role in determining the legal outcome of disputes arising from defective or non-conforming goods.

4. Discuss the various implied conditions and warranties under the Sale of Goods Act, 1930.

Introduction:

In a contract of sale, not all terms are explicitly stated. Some terms are implied by law, even if they are not written in the contract. These are called implied conditions and implied warranties. The Sale of Goods Act, 1930 lays down several such implied terms to protect the interests of the buyer and ensure fairness in commercial transactions.

A. Implied Conditions under the Sale of Goods Act, 1930:

Implied conditions are essential stipulations in the contract, the breach of which entitles the buyer to repudiate the contract and/or claim damages. The main implied conditions are:

1. Condition as to Title (Section 14(a))

There is an implied condition that the seller has the right to sell the goods.

If the seller does not have ownership or authority, the buyer can reject the goods and claim damages.

Example: Selling stolen goods violates this condition.

2. Condition as to Description (Section 15)

If goods are sold by description, they must correspond with the description.

Applies in sales where buyer relies on seller’s description.

Example: If a contract is for a “Samsung Galaxy S22” and a different model is delivered, it is a breach.

3. Condition as to Sample (Section 17)

In a sale by sample, the bulk must correspond with the sample in quality.
Also includes:

Buyer must have a reasonable opportunity to compare bulk with sample.
Goods must be free from hidden defects.

4. Condition as to Sample and Description (Section 15 – combined)

If goods are sold by both sample and description, they must match both.

It is not sufficient that goods match only one.

5. Condition as to Fitness for Purpose (Section 16(1))

When the buyer makes known the particular purpose, and relies on the seller’s skill or judgment, the goods must be fit for that purpose.

Example: If a buyer asks for paint suitable for outdoor use and it fades in rain, it is a breach.

6. Condition as to Merchantable Quality (Section 16(2))

If goods are bought by description from a seller who deals in such goods, they must be of merchantable quality – i.e., usable for the ordinary purposes of such goods.

Exception: If the buyer has examined the goods, and the defect was visible, the seller is not liable.

7. Condition as to Wholesomeness (not expressly stated but implied through judicial decisions)

In case of food and eatables, goods must be fit for consumption.

Applies to sellers of perishable goods.

B. Implied Warranties under the Sale of Goods Act, 1930:

Implied warranties are minor terms, the breach of which gives the buyer the right to claim damages only, but not to reject the goods.

1. Warranty of Quiet Possession (Section 14(b))

The buyer is entitled to enjoy possession of goods without disturbance from the seller or any third party claiming superior title.

2. Warranty of Freedom from Encumbrances (Section 14(c))

The goods must be free from any charge or encumbrance unknown to the buyer.

If any charge exists, buyer can claim compensation.

3. Warranty as to Quality or Fitness by Usage of Trade (Section 16(3))

If a warranty regarding quality or fitness is normally implied by custom or usage of a particular trade, it is applicable even if not stated explicitly.

4. Voluntary Implied Warranty (By Agreement)

Parties may include additional implied warranties by their conduct, agreement, or trade practice.

Conclusion:

The Sale of Goods Act, 1930 provides essential implied conditions and warranties to ensure that buyers receive what they were promised and are protected from unfair practices. These provisions encourage honest trade, reduce disputes, and safeguard the rights of the buyer. While implied conditions are vital to the contract and allow for rejection of goods, implied warranties only allow for monetary compensation in case of breach.

5. What are the rules relating to pricing in a contract of sale? How is the price of goods determined when it is not fixed in the contract?

Introduction:

Price is an essential element in a contract of sale under the Sale of Goods Act, 1930. Without a consideration in the form of money (price), a transaction cannot be regarded as a “sale.” The Act provides specific provisions regarding how the price is determined, especially in cases where it is not expressly fixed by the parties.

Definition of Price (Section 2(10)):

“Price means the money consideration for a sale of goods.”

Thus, price must be expressed in terms of money, and it is the monetary value agreed upon by the buyer to be paid to the seller in exchange for goods.

Rules Relating to Pricing in a Contract of Sale (Section 9):

Section 9 of the Sale of Goods Act lays down the methods of determining the price:

1. Price Fixed by the Contract (Section 9(1))

If the price is agreed upon between the seller and the buyer at the time of contract, that price will be binding.
It can be a fixed amount or decided through mutual consent.

Example: A contract to sell a book for ₹500.

2. Price to be Fixed in Manner Agreed (Section 9(1))

The contract may provide that the price shall be fixed in a particular manner, such as:
- By third party
- Based on market rate
- According to weight or measurement

Example: Price to be fixed by the manager of a warehouse or by auction.

3. Price to be Determined by Course of Dealings (Section 9(1))

If the contract does not fix the price, but the parties have a history of prior dealings, the price may be determined based on those dealings.

Example: In a long-term supply contract, if earlier supplies were billed at ₹100 per unit, the same may be presumed for the current sale.

4. Reasonable Price (Section 9(2))

“Where the price is not determined in accordance with the foregoing provisions, the buyer shall pay a reasonable price.”

Reasonable price depends on the circumstances of the case, such as:
- Prevailing market price
- Quality of goods
- Quantity and time of delivery
- Usual trade practices

Example: If a buyer purchases 100 kg of rice without agreeing on price, he is liable to pay the market rate at the time of delivery.

What if Price is to be Fixed by a Third Party? (Section 10):

If a third party is appointed to fix the price, and they fail to do so, the contract becomes void.
However, if the buyer has already taken delivery and used the goods, he must pay a reasonable price.
If the failure to fix the price is due to wrongful act of either party, the other party can claim damages.

Important Case Law:

Suleman & Bros. v. Union of India (1974)

The court held that absence of a fixed price does not render a contract void if a reasonable price can be determined by circumstances.

Conclusion:

Pricing is a fundamental component of a valid contract of sale. The Sale of Goods Act, 1930 provides flexible yet structured rules for determining the price when it is not fixed in the contract. Whether the price is explicitly agreed upon, determined by a specified method, fixed by prior dealings, or simply inferred as reasonable, the law ensures that the transaction remains valid and enforceable. These provisions protect both buyer and seller and facilitate certainty in commercial relations.

6. Explain the doctrine of “Caveat Emptor”. What are the exceptions to this rule under the Sale of Goods Act?

Introduction:

The principle of “Caveat Emptor” is a Latin phrase that means “Let the buyer beware.” It is a traditional doctrine of contract law that places the responsibility on the buyer to examine the goods before purchasing and ensures that he purchases at his own risk.

Under the Sale of Goods Act, 1930, this doctrine governs transactions unless certain exceptions apply. The law has evolved over time to balance buyer protection and seller liability.

Doctrine of Caveat Emptor (Section 16):

Under Section 16 of the Sale of Goods Act, 1930, it is stated that:

“Subject to the provisions of this Act and any other law for the time being in force, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale.“

This means that the seller is not liable for the quality or fitness of goods sold, unless:

The buyer relies on the seller’s skill or judgment, or
Certain other exceptions apply.

Rationale Behind the Doctrine:

The buyer is considered to be in the best position to judge whether the goods suit his needs.
It encourages buyers to be vigilant and cautious before entering into contracts.
Sellers cannot be held responsible for every defect, especially when the buyer had the opportunity to inspect the goods.

Exceptions to the Doctrine of Caveat Emptor (Under Section 16):

Though the general rule favors the seller, the Sale of Goods Act, 1930 lays down several important exceptions where the seller will be held liable:

1. Fitness for a Particular Purpose (Section 16(1))

If the buyer:

Makes known to the seller the particular purpose for which goods are required, and
Relies on the seller’s skill or judgment, and
The seller deals in such goods,

then it is implied that the goods shall be reasonably fit for that purpose.

Example: A buyer asks a seller for waterproof shoes for trekking. If the seller gives ordinary shoes, and they get damaged, the buyer can claim damages.

2. Merchantable Quality (Section 16(2))

If goods are bought by description from a seller who deals in those goods, there is an implied condition that the goods shall be of merchantable quality.

Merchantable quality means:

Goods should be saleable
Free from hidden defects
Fit for normal use

Exception to the exception: If the buyer has examined the goods, the seller is not liable for defects that the examination ought to have revealed.

3. Usage of Trade (Section 16(3))

An implied condition or warranty as to quality or fitness can be established by the usage of trade.

Example: In textile trade, it is implied that fabrics should not shrink beyond a certain limit. If they do, the seller is liable.

4. Sale by Sample (Section 17)

If the sale is based on a sample, then:

The bulk must correspond with the sample in quality.
The buyer must have a reasonable opportunity to compare.
The goods must be free from latent (hidden) defects not visible on reasonable examination.

5. Sale by Description (Section 15)

If the sale is made by description, the goods must correspond to that description.
Even if the buyer inspects the goods, they must still conform to the descriptive terms.

6. Fraud or Misrepresentation

If the seller conceals a defect or makes false representations, the buyer is entitled to rescind the contract and claim compensation.
In such cases, the buyer’s reliance on the seller negates the doctrine of caveat emptor.

Important Case Law:

Ward v. Hobbs (1878)
The seller sold pigs infected with disease, but made no representations. It was held that the buyer had no remedy due to Caveat Emptor.

Frost v. Aylesbury Dairy Co. (1905)
A person bought milk contaminated with germs and died. The seller was held liable, showing exception to Caveat Emptor in food sales (implied condition of wholesomeness).

Conclusion:

The doctrine of Caveat Emptor still forms a fundamental principle of sale contracts. However, the modern legal framework under the Sale of Goods Act, 1930, has carved out several exceptions to ensure consumer protection. The buyer cannot be expected to detect all defects, especially hidden ones or where he relies on the seller’s expertise. Thus, while the doctrine promotes buyer awareness, it is balanced by statutory safeguards to prevent unfair trade practices.

7. How are express conditions and warranties created in a contract of sale? Differentiate them with the implied terms.

Introduction:

In a contract of sale, the rights and obligations of the buyer and seller are governed by certain terms known as conditions and warranties. These terms may be either expressly agreed upon by the parties or implied by law (even if not stated). The Sale of Goods Act, 1930 recognizes both express and implied conditions and warranties.

A. Express Conditions and Warranties:

Definition:

Express conditions and warranties are those which are explicitly stated in the contract at the time of sale, either:

In writing
Orally
Or through any other clear communication between the parties.

These are voluntarily agreed upon and form part of the contractual terms.

Creation of Express Conditions and Warranties:

Mutual Agreement of the Parties:
When both buyer and seller agree to certain terms and include them in the contract, those become express conditions or warranties.
Written Terms:
- Product specifications
- Time of delivery
- Mode of payment
- Performance standards
Oral Representations:
- Statements made during negotiations
- Promises made by the seller (if relied upon by the buyer)
Advertisements / Labels / Catalogues:
- Any statement made through marketing material that is incorporated into the contract.

Examples:

A contract states that delivery will be made on or before 15th July – this is an express condition.
A seller promises that the product comes with a 1-year warranty – this is an express warranty.

B. Implied Conditions and Warranties (Under the Sale of Goods Act, 1930):

Definition:

Implied terms are not expressly stated, but are automatically incorporated into the contract by operation of law to ensure fairness and protect the buyer.

These include:

Implied Conditions:

Condition as to title (Section 14(a))
Condition as to description (Section 15)
Condition as to sample (Section 17)
Condition as to merchantable quality (Section 16(2))
Condition as to fitness for particular purpose (Section 16(1))

Implied Warranties:

Warranty of quiet possession (Section 14(b))
Warranty of freedom from encumbrances (Section 14(c))
Warranty arising from trade usage (Section 16(3))

C. Difference between Express and Implied Terms:

Basis of Difference	Express Terms	Implied Terms
Meaning	Terms clearly stated by the parties in contract	Terms presumed by law even if not stated
Creation	Created through agreement, writing, or oral statements	Arise automatically under the Sale of Goods Act
Source	Mutual consent of buyer and seller	Statutory provisions and trade customs
Examples	Delivery date, mode of payment, brand name, warranty card	Title, fitness for purpose, merchantable quality
Modification	Can be modified or excluded by agreement	Can be excluded only if law permits or with express notice
Legal Reference	Governed by general contract law principles	Governed specifically by Sections 14 to 17 of Sale of Goods Act

Conclusion:

In a contract of sale, express conditions and warranties provide flexibility to the parties to set specific obligations, while implied conditions and warranties ensure fairness and basic protection, especially for buyers. The distinction between the two is important because express terms are tailored by the parties, whereas implied terms apply automatically unless specifically excluded. Both types together create a comprehensive legal framework for the sale and purchase of goods.