Define Business Law.
Ans: Business Law can
be defined as that branch of legal system that regulates business activities and guarantees an orderly conduct of business
affairs and settlement of legitimate disputes in a just manner.
LAW OF SALE OF GOODS
Define the Sale of Goods Act ?
The Sale of Goods Act is an Act to define and amend the law relating to the sale of
goods. It also governs the contracts relating to sale of goods. This Act applies to the whole of India except the State of
Jammu & Kashmir. It came into force on 1st July 1930.
The contracts for sale of goods are subject to the general
principles of the law relating to contracts i.e. the Indian Contact Act. A contract for sale of goods has, however, certain
specific 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 sale of goods.
2. Define a)
Buyer; b) Seller; c) Delivery; d) Deliverable State; e) Bill of lading; f) Fault; g) Insolvent; h) Property; i.) Quality of
a)Buyer: means a person who buys or agrees to buy goods.
b)Seller: means a person who sells or agrees
to sell goods.
c)Delivery: means a voluntary transfer of possession from one person to another.
State: Goods are said to be in deliverable state when the buyer would under contract be bound to take delivery of them.
of lading: is a receipt of goods shipped on board of a ship, signed by the person who contracts to carry them and states the
terms on which the goods are delivered to and received by the ship.
f)Fault: is a wrongful act or default.
A person is said to be insolvent if he has ceased to pay his debts in the ordinary course of business or can not pay his debts
as they become due.
h)Property: means general property in goods and not merely a special property. For example: A
owns goods and pledges them to B. A has a general property in the goods, whereas B has a special property (or interest) in
i)Quality of goods: includes the condition or state of the goods.
1. Define goods?
Ans: 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; and includes stocks, 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 we can define goods as every
kind of movable property except actionable claims and money.
2. Mention any four items not included in the term-goods
as defined by the Act.
Ans: a) Actionable claims
c) Sale of immovable property. [Sale of
immovable property is governed by Transfer of Property Act]
e) Stocks, shares and securities.
What is meant by the term-price?
Ans: Price means the money consideration for a sale of goods. If goods are given
without any consideration, the transaction amounts to a gift but not a sale of goods. Similarly, exchange of goods for others
without any consideration amounts to a barter or exchange. Thus money is the only consideration for sale of goods.
What is Document of title to goods?
Ans: This includes a bill of lading, dock warrant, ware-house keepers certificate,
wharfingers certificate, railway receipt, warrant or order for delivery of goods and any other document used in the ordinary
course of business as proof of the possession or control of goods thereby represented.
5. Define a) Specific Goods,
b) Future goods and c) Generic Goods
Ans: a) Specific Goods: means goods identified and agreed upon at the time of
a contract of sale is made. They are also called existing goods or ascertained goods.
b) Future goods: means goods
to be manufactured or produced or acquired by the seller after making the contract of sale.
d) Generic Goods are unascertained
goods that are not specifically identified at the time of a contract of sale is made. E.g. 50 kg of rice out of 500 kg of
6. What are perishing goods?
Ans: Goods such as vegetables, fruits, meat products, flowers etc are perishable
goods, prone to early spoilage.
7. Who is a Mercantile Agent?
Ans: Mercantile agent: means an agent having
authority to sell goods, to consign goods for purpose of sale, to buy goods and raise money on the security of the goods.
III. CONTRACT OF SALE & AGREEMENT TO SELL:
1. Define a contract of sale.
Ans: According to Sec.
4 of the Sale of Goods Act, a contract of sale is a contract whereby the seller transfers or agrees to transfer the property
in goods to the buyer for a price.
Explain the contracts of a contract of sale.
Ans: a. Bilateral contract.
b. Money consideration.
c. Transfer of property.
e. Work & Labour. (painting,
f. Essentials of a valid contract.
2. Mention 4 essential elements of a contract of sale.
a)The parties must be competent to contract.
b)There must be mutual consent
be transfer of property i.e. there must be transfer of general property in goods and not merely specific property
buyer must pay or promise to pay, a price in money.
Thus, a sale must be the result of a contract, in pursuance, whereof,
a transfer of property takes place on payment of a price. The contract may be oral or in writing. It may even be inferred
from the conduct of the parties. It must however, originate in an offer and its acceptance
3. State the effect of
perishing of goods before making of a contract.
Ans: The Sale of Goods Act states that for the sale of specific goods,
the contract is void if the goods, without the knowledge of the seller, have at the time when the contract was made, perished
or damaged and no longer answer to their description in the contract. Example: A agrees to buy a horse from B. The horse is
dead at the time of the bargain. The contract is void.
4. Define a) Contract of sale of goods; b) Sale c) Agreement
a)A contract of sale of goods: is a contract whereby the seller transfers or agrees to transfer the property
in goods to the buyer for a price. Such a contract may be absolute or conditional.
b)Sale: When under a contract of
sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale.
to sell: The transfer of property in the goods that is to take place at a future time, or subject to some conditions, thereafter
to be fulfilled, it is called an agreement to sell. An agreement to sell becomes a sale when the time elapses or the conditions
are fulfilled subject to which the property in the goods is to be transferred.
5. Differentiate between Sale and Barter.
a) Under this the property or ownership is of goods is transferred immediately to the
a) Barter involves exchange of goods.
b) Sale involves price or money as consideration for sale of goods.
b) Barter does not involve money as consideration.
c) A sale is an executed contract
c) This may or
may not require a contract.
6. Distinguish between Sale and Works Contract (Contract for work & labour)
Sale Works Contract
i) Sale of goods does not include labour.
i) Works Contract includes labour.
Sale of goods involves only movable properties.
ii) Works contract involves movable and immovable properties.
Tax is levied upon sale of goods.
iii) Tax is levied upon the goods excluding the labour.
between a sale and an agreement to sell.
Sale Agreement to sell
1. Property or ownership is of goods 1. Ownership
is to be transferred at a
is transferred immediately to the future time or subject to certain
to be fulfilled.
2. If the buyer fails to pay for the 2. The seller can sue only for the
goods the seller
may sue for price. damages and not for the price.
3. If the goods are destroyed the 3. If the goods are destroyed
loss falls upon the buyer. falls upon the seller unless otherwise agreed.
4. The seller cannot resell
the goods. 4. The seller can resell the goods.
5. A sale is an executed contract. 5. Agreement to sell is an executing
8. Distinguish between Agreement to sell and Hire-Purchase Agreement.
Ans: Agreement to sell Hire purchase
a) An agreement to sell can be in writing or oral
a) Hire purchase agreement must be in writing.
b) Possession: the buyer may or may not get the possession of the goods.
b) Possession: The buyer gets the
possession of the goods and enjoys it.
c) Generally businessmen and consumers may enter into an agreement to sell
with the purpose of resale of goods or to enjoy them.
c) Consumers without sufficient money, but interested in the
goods, enter into hire-purchase agreement for the purpose of enjoying the goods.
d) Under this, if a person buys any
goods and subsequently sells them to a third party, the third party acquires a good title.
d) A hire-purchaser is
not entitled to sell the goods until all the installments are paid because until then the ownership lies with the vendor.
e) Under this, a buyer is entitled to claim implied conditions and warranties.
e) A hire-purchaser cannot
claim the benefits of implied conditions and warranties given by the law as sale is not completed.
f) An agreement
to sell imposes a legal obligation on the buyer to purchase it.
f) A hire-purchaser has liberty to opt whether to
continue to pay the installments or put an end to it.
IV. Condition and Warranties:
1. Distinguish between
conditions and warranties.
Ans: Condition Warranty
a) A condition is a stipulation essential to the main purpose
of the contract, the breach of which gives a right to treat the contract as repudiated.
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 and treat the contract as repudiated.
b) Condition is essential to the main purpose.
is incidental or collateral to the main purpose.
c) Breach of a condition may be treated as breach of warranty.
Breach of warranty cannot be treated as breach of condition.
2. Explain the difference between condition and warranty
with an example.
Ans: X sells food-stuff to Y. The contract between X and Y states that the food to be sold should
be fit for consumption and this is the essential term in the contract. So, if it contains any poisonous substance, Y is entitled
to reject the food-stuff and to repudiate the contract This essential term is called a condition.
On the other hand,
if the contract stipulates that the food-stuff should be packed in 1 kilo box but the seller packs it in half-kilo box, only
an auxiliary or minor term of the contract is broken, Y may be able to claim compensation in respect of its breach, but not
avoid the contract. Such an auxiliary term is called warranty.
3. When is condition treated as a warranty?
In certain circumstances, a condition may be treated as a warranty:
a)Election in the hands of the buyer-Where a seller
failed to fulfill a condition in a contract of sale; the buyer has a right to waive such condition or elect to treat the breach
of condition as a breach of warranty. It depends upon the consent of the buyer, not the seller.
b)If a contract of
sale is not severable and the buyer has accepted the goods partly, this is called part-performance. In such a case, it cannot
be treated as a breach of condition by the seller but it can be treated as a breach of warranty.
However, if the parties
have an express contract, the seller is liable for the breach of condition and not for breach of warranty.
of performance: If the seller is unable to perform his contract due to impossibility, then also a condition is treated as
4. Explain the various implied conditions and warranties governing the transaction of sale of goods.
The implied warranties in a sale are:
a) Undertaking as to the title: In every contract of sale, there is-
implied condition on the part of the seller that-
i)In the case of a sale, he has a right to sell the goods;
the case of agreement to sell, he will have the right to sell the goods as the time when the property is to pass.
implied warranty that the buyer shall have and enjoy quiet possession of the goods.
An implied warranty that the goods
shall be free from any charge or encumbrance, not known or declared to the buyer.
Or State the implied conditions
and warranties in the contract of sale.
Ans: Implied conditions:
a.Condition as to title. (Sec. 14)
by description. (Sec. 15)
c.Sale by sample as well as description.
d.Sale by sample. (Sec. 17).
as to wholesomeness.
a.Quiet possession. [Sec. 14(b)].
b.Free from encumbrances.
[Sec. 14(c)] .
c.Sale of dangerous goods.
5. What is sale by description?
Ans: Sale by description:
In a sale by description, there is an implied condition that the goods shall correspond with the description. If such a sale
is also by sample, the goods must correspond to both description and sample.
In a contract for the sale of goods by
- the buyer does not see the goods physically, he trusts the description;
- the goods supplied
by the seller must correspond to the description;
- the law implies a condition precedent that the goods which the
seller has offered to deliver or delivered, should answer to the description
-an undertaking by the seller to supply
the goods on description is an implied condition, It is not an implied warranty.
6. What is sale by inspection?
Sale by inspection is one where the seller himself inspects the goods before transferring the property to the buyer. In this
case, the seller is responsible for inspecting the goods before delivering and can be sued for delivery of erroneous and low-quality
7. What is sale by sample?
Ans: A sale by sample is a contract for sale where there is a term in the
contract, express or implied, to that effect that:
ii)the bulk shall correspond with the sample in quality.
buyer shall have a reasonable opportunity of comparing the bulk with the sample.
iv)The goods shall be free from any
defect that would not be apparent on examination of the sample.
v)If the seller supplies the bulk that does not correspond
with the sample in quality, it is a clear breach of condition.
8. A seller undertakes to supply 100 tons of Jawa sugar
warranted equal only to the sample. The sugar supplied corresponds to the sample but it is not Jawa sugar. Has the buyer any
remedy against the seller?
Ans: Any sale of goods must correspond to both the description and sample. If the goods
correspond to the sample and not to the description, the condition is breached and the buyer is entitled to reject the goods.
9. What happens if the seller delivers wrong quantity of goods to the buyer?
Followings are the consequences
in cases where the seller delivers wrong quantity of goods to the buyer:
Where the seller delivers to the buyer, a
quantity of goods less than he contracted to sell, the buyer has the option to reject the goods or, to accept them. If the
buyer accepts the goods, so delivered, he is bound to pay for them at the contract price.
E.g. Mr. A. orders 100 boxes
of pens from Mr. B, at the rate of Rs. 2000/- per box. Mr. B delivers only 60 boxes. Now, Mr. A has the option to reject the
entire delivery of 60 boxes or, he may accept the 60 boxes. If, Mr. A, accepts the boxes, he must pay for them at the contract
price, i.e. Rs. 2000/- per box.
Where the seller delivers to the buyer a quantity of goods, greater than he contracted
to sell, the buyer may accept the goods, included in the contract and, reject the rest or, he may reject the whole. If the
buyer accepts the whole of the goods, so delivered, he shall pay for them at the contract rate.
Where the seller delivers
to the buyer the goods, he contracted to sell, mixed with goods of a different description, not included in the contract,
the buyer may accept the goods, which are in accordance with the contract, and, reject the rest, or, may reject the whole.
V. Caveat Emptor:
1. What do you mean by Caveat Emptor?
Ans: Section 16 of the Indian Sale of Goods
Act begins with the enunciation of the principle involved in the maxim caveat emptor. It states that subject to the provisions
of the Act and any other law for the time being in force, there is no implied warranty or condition as to the quality of fitness
for any particular purpose of the goods supplied under the contract of sale. The principle of Caveat Emptor (let the buyer
beware) lays down that it is the duty of the buyer to satisfy himself before purchasing the article, that the article which
he buys, is the one he wants.
2. State the exceptions to the principle of Caveat Emptor.
Ans: The two important
exceptions to the principle are-
a.Where the buyer-
i)expressly or by implication makes known to the seller
the particular purpose for which the goods are required so as to show that the buyer relies on the sellers skill or judgement;
ii)the goods are of a description which the seller supplies in the course of his business (whether he himself
manufactures them or not).
V. Effects of Contracts
A. Transfer of Property between Buyer and Seller:
What is transfer of property? State the rules in respect of transfer of property under the Sale of Goods Act.
Transfer of property is the process of transferring the property in goods to the buyer for a price. It is the essence of a
contract of sale.
a.Sale of specific goods:
i)Passing of property at the time of contract.
ii)Goods to be weighed or measured for ascertaining price.
b.Sale of unascertained goods:
must be ascertained.
ii)Goods must be appropriated.
c.Sale of approval:
B. Goods Delivered on Approval or Sale on return basis:
2. What is the meaning of 'sale on approval
basis' or, 'sale on return basis'?
Ans: As the name itself suggests, this is a sale of goods, where the buyer has
the option of either, accepting the goods or, rejecting them and returning them. The sale would be complete, only, if and
when the buyer accepts the goods. The parties to such a sale may agree that the buyer shall, temporarily, take the goods in
his possession to see whether they are satisfactory to him. If they are not, he may decline to purchase them
Prima Facie passes with property:
3. Risk Prima Facie passes with property. Explain the statement.
means that risk and property are inseparable. The owner of property shall bear the risk also.
Exceptions to the above
a)Express terms in agreement- If the parties I contract agree that one of them shall bear the risk, such a person
is liable to bear the risk.
b)In auction sales-The bidders participate in auction by paying earnest money deposit.
The successful bidder has to pay the remaining amount and take the delivery of such goods. Auctioneers lay down a condition
that goods shall not be delivered to the successful bidder until the full price is paid and the goods will remain with the
seller but at the risk and responsibility, of the successful bidder or buyer.
D. Transfer of Title/Nemo Dot Quod Non
1. What do you mean by Nemo Dot Quod Non Habet ?
Ans: This means No person can pass a better title than
what he has.
The object of the maxim Nemo Dot Quod Non Habet is to protect the property from mishandling. The owner
of the property is entitled to transfer his title. A person, who is not the owner of the property, is not entitled to sell
2. A seller cannot convey a better title to a buyer than what he himself has. Discuss the rule, pointing out the
Ans: As per Sec. 27, no one can sell the goods and convey a better title thereof unless he is the owner.
Therefore when the goods are sold by a person who is not the owner thereof and who does not sell them under the authority
or without the consent of the owner, the buyer acquires no better title than the seller had.
The exceptions are:
by owner: - This states that unless the owner of the goods is by his conduct precluded from denying the sellers authority
to sell gives the right to a third person to sell a property not of his own by estoppel of the owner.
E.g. A son sells
his mothers jewellery in presence of his mother who does not object to the sale. The buyer gets a good title due to estoppel
b)Sale by mercantile agent:-provides that where a sale by a mercantile agent on behalf of the owner is
E.g. A share broker obtains the signature of the share-holder on original share certificates and sells them
on behalf of the share-holder. Here the broker is the mercantile agent.
c)Sale by one of joint owners:- The third
exception to the maxim, Nemo Dot Quod Non Habet lays down that if one of the several joint owners of goods has the sole possession
of them by permission of the co-owners, the property in the goods is transferred to any person to any person who buys them
of such joint owners in good faith and has not at the time of the contract of sale notice that the seller has no authority
E.g. A, B and C are joint owners of a horse. A who is in sole possession of it, sells it to X who purchases
it in good faith. The sale is valid. B and C cannot claim the horse back.
d)Sale by a person in possession under voidable
contract:- When the seller of the goods has obtained possession thereof under a voidable contract (a contract involving coercion
or undue influence or fraud results in a voidable contract) but the contract has not been rescinded at the time of sale, the
buyer acquires a good title to the goods, provided he buys them in good faith and without notice of the sellers defect of
e)Seller in possession after sale: A person having sold the goods, continues to be in possession of the goods
or document of title to the goods, the delivery or transfer by that person of the goods or document of title under any sale
or pledge to any person receiving the same in good faith and without notice of previous sale shall have the same effect as
if the person making the delivery or transfer were expressly authorized by the owner of the goods to make the same.
A, a seller sells some goods to Z, a buyer. Z keeps the stock of goods with A for some time due to lack of warehouse facility.
A sells the same goods to another buyer, X. The buyer, X gets a good title. Z has a legal remedy against A for the recovery
of the price paid and damages if any.
f)Buyer in possession: Under a contract of sale of goods, a buyer is allowed
to take the possession of the goods even though he has to pay theprice for it.
Eg. A purchases certain goods from
B by issuing a cheque and takes the delivery of the goods from B. A, thereafter sells the goods to C. B has a right to claim
for the price of the goods and damages from A. However, C gets a bona fide title on the goods.
g)Sale by an unpaid
3. Mention the instances of sale by non-owners.
Ans: 1. Mercantile Agent.
2. Joint Owner.
4. Sale by person in possession under voidable contracts.
5. Seller in possession after sale.
Buyer in possession.
7. Sale by an unpaid seller.
4. What are the consequences in cases where the seller delivers
wrong quantity of goods to the buyer?
Ans: Followings are the consequences in cases where the seller delivers wrong
quantity of goods to the buyer:
4.Where the seller delivers to the buyer, a quantity of goods less than he contracted
to sell, the buyer has the option to reject the goods or, to accept them. If the buyer accepts the goods, so delivered, he
is bound to pay for them at the contract price.
E.g. Mr. A. orders 100 boxes of pens from Mr. B, at the rate of Rs.
2000/- per box. Mr. B delivers only 60 boxes. Now, Mr. A has the option to reject the entire delivery of 60 boxes or, he may
accept the 60 boxes. If, Mr. A, accepts the boxes, he must pay for them at the contract price, i.e. Rs. 2000/- per box.
the seller delivers to the buyer a quantity of goods, larger than he contracted to sell, the buyer may accept the goods, included
in the contract and, reject the rest or, he may reject the whole. If the buyer accepts the whole of the goods, so delivered,
he shall pay for them at the contract rate.
6.Where the seller delivers to the buyer the goods, he contracted to sell,
mixed with goods of a different description, not included in the contract, the buyer may accept the goods, which are in accordance
with the contract, and, reject the rest, or,
VI. Rights of an unpaid seller against goods:
1. Who is an unpaid
seller? What are his rights against goods?
Ans: An unpaid seller is one who is not paid for the goods sold by him.
Any seller would be deemed to be an unpaid seller if:
b.The whole price is not paid or tendered.
period allowed has passed and the payment is due.
d.The negotiable instrument issued against payment has been dishonoured.
e.The buyer is declared insolvent.
His rights against goods are:
a.Rights when the property is passed
to the buyer:
i)Right of lien.
ii)Right of stoppage in transit.
iii)Right of resale.
when the property has not passed to the buyer
i)Right of withholding delivery.
ii)Right of stoppage in transit.
2. What are the rights of an unpaid seller against the buyer?
Ans: If the goods are delivered to the buyer,
the unpaid seller has a right to sue the buyer for recovery of price, including costs of suit, customary interest and damages,
If the buyer takes the delivery of the goods from the seller, by issuing a cheque and later the cheque gets
bounced, the unpaid seller can sue the buyer under the Negotiable Instruments Act, 1881. Such a buyer is liable for punishment
with imprisonment or a fine.
3. What is sellers lien?
Ans: Sellers lien refers to the sellers right to retain
the possession of goods until certain charges due in respect of them are paid. The unpaid seller of goods who is in possession
of them is entitled to retain possession of them until payment or tender of the price in the following cases:
the goods have been sold without any stipulation as to credit;
Where the goods have been sold on credit but the term
of credit has expired;
Where the buyer becomes insolvent.
4. What is meant by stoppage in transit?
Stoppage in transit is one of the rights of an unpaid seller. This right consists of stopping the goods while they are in
the possession of a carrier or lodged at any place in the course of transmission to the buyer. The seller can resume the possession
of the goods and retain until the price is tendered or paid.
5. Describe the rights of an unpaid seller to stop the
goods in transit.
Ans: They are:
a)The buyer of goods must have become insolvent.
b)The goods should
be in possession of a middleman or some person intervening between the vendor who has parted with the goods and a buyer who
has not received them.
c)The goods must be in transit or in possession of a middleman for the purpose of transit.
d)The sellers right of stoppage in transit can be exercised as long as the goods are in transit and not yet delivered
to the buyer.
e)The seller may retain the goods until price is tendered or paid.
6. What is right of resale
by a seller?
Ans: When a seller exercises his right of lien or right of stoppage in transit over goods, he cannot
resale them as he wishes because of the existence of the original contract between the seller and buyer. The buyer has the
right to pay for the goods and have them. If the seller resells them without notice of the buyer, he has to give the profit
accrued on the resale to the buyer. Therefore the seller has limited right to resell the goods.
The seller can resell
the goods that are under his lien or stopped in transit in the following cases:
If the goods are perishable in nature;
The seller has given a notice to the defaulting buyer granting reasonable time for the payment. The buyer fails to
pay the price within the specified time, the seller can sell the goods and also retain the profits, if any.
contract can provide the right to resale in case the buyer fails to pay the price and in such a case the seller need not send
a notice to the buyer.
17. What is Auction Sale?
Ans: Auction Sales are a special type of sale of goods. Sec.
64of the Act covers such sales. An auction sale is complete when the bidder when the auctioneer announces it by the fall of
the hammer or any other customary manner. Until then a bidder can retract his offer.
In a sale by auction-
advertisement of the auction is not an offer, but only an invitation to offer.
b.It is the bidder who makes an offer,
which is accepted by the auctioneer by the fall of his hammer.
c.The bidder can withdraw his offer before its acceptance
is announced by the fall of the hammer or any other manner.
d.In view of the above, a condition of an auction that
‘biddings once made shall not be withdrawn is not enforceable.
e.When goods are sold in lots each lot is
prima facie deemed to be the subject matter of a separate contract of sale.
f.A right to bid may be reserved expressly
by, or on behalf of the seller, if it is not so expressly reserved, it is unlawful for the seller to bid, either himself or
through any other person. Even when such a right is expressly so reserved, the seller can employ only one, and not more than
one person to bid at the auction on his behalf.
g.Where the sale is not notified to be subject to a right to bid on
behalf of the seller, it is not lawful for the seller to bid himself, or employ any person to bid, and if does so, the buyer
may treat the sale as fraudulent.
h.The sale may be notified to be subject to a reserve or upset price.
the seller makes use of any pretended bidding to raise the price, the sale is voidable at the option of the buyer.