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CHAPTER OUTLINE
Introduction and Interpretation Performance of the Contract
Formation of the Contract Rights of Unpaid Seller Against
(Agreement to Sell) the Goods
GoodsThe Subject Matter of Suits of Breach of the Contract
Contract of Sale Implied Terms, Time, Auction,
Price Tax, and Other Matters
Conditions and Warranties Case Study: Less for More
Effects of the Contract Legal Luminary: Shirish Despande
Principle: Tantum bona valent quantum vendi possunt.
Things are worth what they will sell for.
5.1 INTRODUCTION AND INTERPRETATION
(1) This Act may be called the Sale of Goods Act, 1930.
(2) It extends to the whole of India (except the State of Jammu and Kashmir).
(3) It shall come into force on the 1st day of July, 1930.
Sec. 1, (1)(3), The Sale of Goods Act, 1930
You introduce yourself as a manager and people immediately ask what you sell. The very
concept of business will cease if there is no sale. Sales involve commercial relationship.
There is exchange of goods and services for money or other assets. Property, ownership,
transfer of ownership, rights and duties of buyers and sellers
what they
are and what they are not.
What they are
Every kind of movable property is goods: shares, stocks, crops, trees, goodwill, patents, trade
marks, electricity, water, gas, etc.
so to speak. In the ordinary course of business, you may receive a voucher, bill,
document, receipt, cash memo, bill of lading, lorry receipt, railway receipt, dock warrant,
and several such acknowledgements with which you can prove
that you, and you alone, are the owner of such goods. With these you have a title
to goods.
Examples with explanation
(a) Bill of loading: Acknowledgement receipt of goods on board of a ship which is signed
by the captain of the ship or his authorized representative.
(b) Dock warrant: Document issued by the dock owner.
(c) Warehouse-keepers or wharfngers certifcate: Document issued by warehouse
keeper.
(d) Railway receipt: Document issued by railways acknowledging receipt of goods.
(e) Delivery order: Document of the owner of the goods to the holder of the goods asking
the latter to deliver the goods to the person named in the document.
Criteria
(a) Must be used in the ordinary course of business.
(b) The undertaking to deliver the goods to the possessor of the document should be
unconditional.
(c) The possessor of document, by virtue of holding such document, must be entitled to
receive the goods unconditionally.
5.4 PRICE
(1) The price in a contract of sale may be fxed by the contract or may be left to be fxed in manner
thereby agreed or may be determined by the course of dealing between the parties.
(2) Where the price is not determined in accordance with the foregoing provisions, the buyer shall pay
the seller a reasonable price. What is a reasonable price is a question of fact dependent on the
circumstances of each particular case.
Sec. 9, The Sale of Goods Act, 1930
Price is what you pay for the value of goods; what you have seen in the Contract Act as
consideration. It is the consideration for the transfer or agreement to transfer the property in
T
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148 Legal Aspects of Business
goods from the seller to the buyer. It is not essential that it should be fxed at the time of
sale, but you know that it is always payable.
Modes of Fixing the Price
(a) Express statement in the contract.
(b) To be fxed at a later period of time.
(c) Ascertained in the course of dealings. For example, percentage-based commission or
discount.
(d) None of the above, but to be fxed reasonably; court may also do such reasonable
valuation.
(e) Parties to the contract agree upon a third party
a valuator
which did not bespeak the description of goods, i.e., being defective over a certain
limit. The case was judged on the laws governing conditions and warranties. However, if
the counsel to the respondent were to direct his arguments and made the judge to consider
it from the point of view of the principle of caveat emptor, he could have easily succeeded.
Caveat emptor
buyer beware
the description
corresponds to the goods. Thus, the seller must supply goods that are ft for the buyers
purpose.
Sale under a trade or patent name
a trainee manager!).
Web resource
http://www.vakilno1.com/bareacts/saleofgoods/
saleofgoods.htm.
FURTHER READI NG
Introduction
The Indian bazaar is a battleground where the buyers
fght losing battles. The consumers are wounded and most
of them succumb to their miseries. There are only a few
who keep on fghting with the help of consumer fora
and consumer courts. From buying a home appliance to
buying an apartment, from buying stationary to buying
manufacturing machineryno buyer is saved from the
problems of defects in quality and defciency quantity.
The image of Indian goods and services is suspect in the
international markets. They are often considered sub-
standard, cheap, and produced illegally and unethically.
There is also a very sensitive ethical dimension to buying
and selling. The buyers are made conscious about the ethical
responsibilities as to buying goods made by child workers
and bonded labourers. Indian carpets, fabrics, handicrafts,
freworks, etc., fall in such category.
The laws, too, are very stringent against sweat shops,
products from bonded workers, and child workers.
There are laws for quality control, e.g., obtaining the ISI
mark. There are also laws for pollution control, emission
standards, effuents, and toxins. The laws of weights and
measures control the quantity.
For a short moment you might feel elated for being
a manager and hence on the winning side of the sellers.
However, upon refection you will realise that in the bazaar,
whatever your station in life, you have the opportunity
both to buy and sell. As a manager you may be responsible
for selling your companys goods and services; but as an
individual you are just a normal consumer. You do not have
LESS FOR MORE
There is no implied warranty or condition as to the quality or ftness for any particular
purpose of goods supplied under a contract of sale.
Sec. 16, The Sale of Goods Act, 1930
The buyer needs a hundred eyes, the seller not one.
George Herbert
3
CASE STUDY
3
George Herbert, Jacula Prudentum, 1651.
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The Sale of Goods Act, 1930 173
to refect much furtheryour company too is a buyer
most of the time. Imagine your company to be dealing in
the manufacture of tractors. The list of vendors from whom
you have to buy would almost seem inexhaustible.
The case of M.S. Padmanabha Iyer vs Devadasan Slylus and
Others
4
(see Exhibit A) deals with the transfer of property
where the judge in his judgement applies the principle of
caveat emptor. Let the buyer be beware has been an age-old
principle which has been diligently applied. However, in our
contemporary world, this principle has come under the
scanner in multiple ways and has demanded that the onus
should not be only on the buyer but also on the seller or
vendor. In the analysis you will be shown this buyerseller
contradiction and the dilemma that each party faces.
4
M.S. Padmanabha Iyer vs Devadasans Sylus and Others, on 31 1969; also see http://www.indiankanoon.org/doc/1590845/ (17 December October 2010).
Date of judgement 31 October 1969
Matter whether the principles laid down in the
Transfer of Property Act in respect of the covenants
for the sale of property are applicable to the facts of
the present case inasmuch as the Transfer of Property
Actcaveat emptor.
Appellant Padmanabha Iyer executed a sale deed
of the properties in favour of the grandfather of
Devadasan in 1949 for `2,000. He received `2,000 and
gave possession of the two items to Devadasan. Suit for
recovery of `2,318.
The Respondents Devdasan Sylus and Others, in the
meantime lost two suits concerning the same property
with a third and a fourth party as you will fnd out here
below. Their contention was that the consideration for
the sale deed in favour of Devadasan executed by Iyer
had completely failed and that heIyerwas liable to
compensate Devadasan for the
Depositions before the High Court
Appellant: The counsel for Iyer, the appellants
lawyer, presented the following argument: There was no
representation in respect of the title made by him to
Devadasan and that at that time the rule of caveat emptor
applied. Devadasan, the respondent, was put to proof of
the assignment of the others in favour of Jayalakshmi
Ammal, to whom the property was made a gift. There
was no failure of consideration and there was no cause
of action against Iyer. There was no breach of contract
or warranty of title. He was not a party to the gift deed
of 1951. If full evidence had been given in that suit, it
would not have been decided against Devadasan. failure of
consideration and for loss and damage caused on account
of the breach of contract and warranty of title with six
per cent interest from 1 June 1960.
Background Iyer was an auction-purchaser who
in execution of a decree obtained by the defendant
against a third party, Subbiah Mooppanar who claimed
title to the two items independently of the judgement.
After purchase, a fourth party, Jayalakshmi Ammal, to
whom was handed over possession, sued Devadasan
alleging that the property was his, and not that of the
judgement-debtor and got a decree. The appellant, Iyer,
then sued the defendant, Devadasan, to recover the
purchase money. The defendant, among other things
contended that there was no fraud on his part and that
the plaintiff was not entitled to the purchase money as
there was no agreement on defendants part to refund
the purchase money if the title failed. The munsif gave
judgement in favour of the plaintiff, but the zilla court
on appeal reversed the same.
The gift was a sham one and there was no acceptance
of the same. It was alienation in fraud of creditors.
The rights of the respondent, if any, had been lost
by adverse possession even before the delivery of
the gift deed. The respondent, being transferee of
only one of the items, could not claim the whole
amount as damages.
Respondent The counsel to Devadasan argued
that in the absence of positive law, we have to apply
the principles of good conscience and equity. (He
sidestepped or ignored completely the caveat emptor.)
The sale includes a contract and hence it is to be
Exhibit A The Case
The Suit before Travancore High Court
Contd
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174 Legal Aspects of Business
Analysis of caveat emptor in the contemporary
Indian legal environment
The above case despite being complicated due to the
transfer of property three times, upheld the principle of
caveat emptor to its frst principals. Presently, we are a
decade ahead in the twenty frst century in a free market
economy
such an
association is defnitely the king of all the markets
that it surveys. Mumbai Grahak Panchayat (MGP)
*
is
in the third decade of its foundation and has been
considered by the International Consumer Forum
as an organization whose paradigm is replicable
anywhere in the world. It is highly respected among
the public and feared by the traders. Its only wea pon
is the law of the land.
The 1980s were a period of shortages. One had
to book a two-wheeler at least a decade in advance.
LEGAL LUMINARY
MGPEMPOWERED CONSUMER ASSOCIATION
*
See blog, http://mumbaigrahakpanchayat.blogspot.com/ (21 December 2010).
Contd
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The Sale of Goods Act, 1930 177
The Chetak scooter of Bajaj was a
status symbol. The rich and the top
bureaucrats could bend rules and use
infuenceto lay their hands on it earlier
than others. There came to the fore a
two-wheeler manufactur ing company
called Lohia Machines Limited (LML).
It had collaboration with the Italian frm
Piaggio. The LML scooter was called
LML Vespa as in Italy.
In 1983, LML advertised mak ing
an offer to put down deposit `500 to
book the scooter.
For more information of this NGO see http://www.goodnewsindia.com/Pages/content/institutions/mgp.html (21 December 2010).
Advocate Shirish Deshpande,
Chairman, MGP
**
Legal Luminary Contd
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