THE SALE OF GOODS ACT

Contract of Sale
A contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a certain price. Characteristics : 1. Buyer & seller 2. Goods 3. Price 4. Transfer of ownership 5. Element of a valid contract

SALE : When the ownership of goods is transferred from the seller to the buyer under a contract of sale , a sale is said to have been made.
AGREEMENT TO SELL : when the transfer of ownership of goods under a contract of sale is to take place at a future date or on the fulfillment of a condition, its called an agreement to sell.

Difference between Sale & Agreement to Sell

1. Nature : Sale execution is complete. AOS - execution is yet to take place. 2. Transfer of ownership : Sale- ownership is transferred AOS- ownership is not transferred

3. Right of usage : Sale- buyer has the right to usage AOS buyer does not have the right to usage. 4. Consequences of Breach: Sale if the buyer defaults in making the payment, the seller can sue the buyer AOS if buyer fails to take delivery of goods & payment for the same , the seller is entitled to sue the buyer for damages only and not the cost of goods.

5. Risk of loss : Sale the buyer will bear any kind loss or damage to the goods. AOS seller will bear the loss. 6. Insolvency of seller: Sale if the seller is declared insolvent before the delivery of the goods, the buyer can claim the goods from the official representative of the seller.

AOS the buyer has no right claim the goods in event of insolvency of the seller

7. Insolvency of buyer Sale the seller is required to deliver the goods to the official representative of the buyer. AOS the seller has the right to refuse to deliver the goods.

8. Default by seller : Sale the buyer can not only claim for the damages but also file a suit against a third party . AOS the buyer can sue for damages only when the seller refuses to deliver the goods.

TYPES OF GOODS
1. Existing goods in the possession of the seller. a. ascertained (specific) goods b. unascertained (generic) goods. 2. Future goods. 3. Contingent goods (if the seller gets the goods from the 3rd party then he will deliver the goods to the buyer)

Conditions & Warranties

Condition A stipulation essential to the main purpose of the contract ,the breach of which gives rise to a right to treat the contract as repudiated. If the condition is not met , the aggrieved party is entitled to terminate the contract.

Warranty its 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 & treat the contract as repudiated.
If warranty is violated , the contract does not terminate , only the aggrieved party can file a suit for damages.

But if a condition is violated , the contract terminates .

Difference b/w Condition & Warranty :

Nature : Condition its the main object of the contract Warranty its a supportive or collateral object of the contract. Remedies : Condition if the condition is breached , the aggrieved party has the right to break the contract & claim for damages. Warranty aggrieved party can only claim for damages but cannot break the contract

When does a condition become a warranty ? 1. Waiver of conditionIf the seller fails to fulfill a condition and the buyer of his own will , decides to waive such condition i.e. does not insist on its fulfillment on the part of seller , then the seller is not bound to fulfill such condition . Later on the buyer cannot hold the seller responsible for non performance of such condition.

eg : Ram makes a contract to deliver 500 bales of cotton to Hari on 15th jan, and the latter considers the delivery by that date to be the condition & says that he will not accept the goods after that date . But the goods are delivered to Hari on 18th jan, and he accepts the delivery.
If Ram had committed a breach of condition by not delivering the goods on the appointed date , Hari had the right to break/repudiate the contract. By accepting the goods on 18th Jan , he has accepted it as a breach of warranty & can only sue for damages.

2. Compulsory treatment of breach of condition as breach of warranty

When a contract of sale is not divisible ,& the buyer has accepted the delivery of a part of the goods or when the contract relates to the goods that have been already delivered to the buyer , the breach of condition is deemed (viewed as) to be breach of warranty

Implied Conditions & Warranties

Implied Conditions : 1. 2. 3. 4. 5. Condition as to the title of goods Sale by description Quality & fitness Condition as to sale by sample Condition as to usage of trade

Implied Warranties :
1. Quite & peaceful possession. 2. Warranty as to specific care.

Transfer of Property or Ownership :

It means transfer of all rights to the property in goods from the seller to the buyer by virtue of which the buyer can use the goods as he desires & this right of the buyer cannot be restricted. 1. Time when property changes hand 2. Reservation of the right of disposal

1. Time when property changes hand :

It depends on the type of goods being transferred a. Ascertained goodsRules 1. When the goods are in a deliverable state. 2. When specific goods need to be put in a deliverable condition. b. Unascertained goods The ownership is not affected till the goods have been ascertained.

Rules 1. Goods must be ascertained 2. Goods must be appropriated 3. Goods must be delivered to the carrier. c. Goods sent on approval or on sale or returnRules 1. When the buyer communicates his acceptance of the goods , the transfer of ownership is completed.

2. When the buyer does not indicate his acceptance of goods but retains the goods without communicating his disapproval to the seller , if a time limit is specified for approval , at the expiry of the time or within a reasonable time if no limit has been fixed , the ownership is deemed to be transferred to the buyer. 2. Reservation of the right of disposal (right to use something) when the goods are sold to buyer who is far away & the goods are dispatched by public transport , in order to ensure he gets the payment , the seller reserves the right to disposal.

Exceptions:
1. 2. 3. 4. Title by estoppels. Sale by merchantile agent. Sale by co owner. Sale by a seller in possession of goods after sale. 5. Sale by a buyer in possession of goods. 6. Sale by unpaid seller.

Unpaid Seller
A person who has sold the goods to another person but has not been paid for the goods , or has been partially paid, is called an unpais seller. Rights of an unpaid seller: 1. Right against the goods. 2. Right against the buyer of goods.

Right against the goods

1. Right of lien If the seller of the goods has not been paid & the ownership has been transferred to the buyer but the goods are in the possession of the seller, the seller has the right to retain the goods till he receives the price of the goods. Conditions : 1. The goods are not sold on credit 2. When the buyer has become an insolvent.

2. Right of stoppage of goods in transit When the seller has delivered the goods to a carrier for transmission to the buyer & the goods are in transit , if he receives the information that the buyer has become insolvent , the seller has the right to stop the goods in transit & retain their possession till such time as he is not paid the price of the goods. Conditions : 1. The price of goods is partially or totally not paid 2. When the buyer has become insolvent 3. When the goods are in transit.

Rules: Delivery of goods to the carrier The buyer taking delivery before destination Holding the goods by the carrier on behalf of the buyer When the goods are rejected by the buyer. When the goods are delivered to the ship chartered by t he buyer. When the carrier refuses to deliver the goods. When partial delivery has been made to the buyer.

3. Right to re sell the goods, if ownership is not transferred to the buyer.

The unpaid seller may re sell the goods if the goods are perishable. If the unpaid seller gets the possession of the goods due to step 1 & 2 , and he as given notice to the buyer of his intention to resell the goods, and the buyer does not pay for the goods , the unpaid seller can re-sell the goods.

Right against the buyer

Suit for price Suit the damages Repudiation of contract before due date Suit for interest

The Negotiable Instruments Act, 1881

Introduction
The law relating to negotiable instruments is contained in the Negotiable Instruments Act, 1881 which applies and extends to the whole of India.

Negotiable Instruments
Definition: The word negotiable means transferable by delivery, and the word instrument means a written document by which a right is created in favour of some person. Thus, the term negotiable instrument literally means a written document which creates a right in favour of somebody and is freely transferable by delivery. A negotiable instrument is a piece of paper which entitles a person to a certain sum of money and which is transferable from one to another person by a delivery or by endorsement and delivery.

Characteristics of Negotiable Instruments

Free transferability or easy negotiability Property Title Rights Transfer Presumptions

Promissory Note
Definition: According to Section 4, A promissory note is

an instrument in writing (not being a banknote or a currency-note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument.

Specimen of a Promissory Note

Parties to a Promissory Note

There are primarily two parties involved in a promissory note. They are: (i) The Maker or Drawer: The person who makes the note and promises to pay the amount stated therein. In the above specimen, Sanjeev is the maker or drawer. (ii) The Payee the person to whom the amount is payable. In the above specimen it is Ramesh.

In course of transfer of a promissory note by payee and others, the parties involved may be (a) The Endorser the person who endorses the note in favour of another person. In the above specimen if Ramesh endorses it in favour of Ranjan and Ranjan also endorses it in favour of Puneet, then Ramesh and Ranjan both are endorsers. (b) The Endorsee the person in whose favour the note is negotiated by endorsement. In the above, it is Ranjan and then Puneet.

Essentials of Promissory Note 1. It must be in writing: A promissory note has to be in writing An oral promise to pay does not become a promissory note The writing may be on any paper or book Illustrations: A signs the instruments in the following terms:
I promise to pay B or order Rs. 500 I acknowledge myself to be indebted to B in Rs. 1, 000 to be paid on demand, for value received

Both the above instruments are valid promissory notes.

Essentials of Promissory Note

2. It must contain a promise or undertaking to pay: There must be a promise or an undertaking to pay The undertaking to pay may be gathered either from express words or by necessary implication A mere acknowledgement of indebtedness is not a promissory note, although it is valid as an agreement and may be sued upon as such Illustrations: A signs the instruments in the following terms:
Mr. B I owe you Rs. 1,000 I am liable to pay to B Rs. 500

The above instruments are not promissory notes as there is no undertaking or promise to pay. There is only an acknowledgement of indebtedness. Where A signs the instrument in the following terms:
I acknowledge myself to be indebted to B in Rs. 1, 000, to be paid on demand, for value received, there is a valid promissory note

Essentials of Promissory Note

3. The promise to pay must be unconditional:
A promissory note must contain an unconditional promise to pay The promise to pay must not depend upon the happening of some uncertain event, i.e., a contingency or the fulfillment of a condition Illustrations: A signs the instruments in the following terms: I promise to pay B Rs. 500 seven days after my marriage with C I promise to pay B Rs. 500 as soon as I can The above instruments are not valid promissory notes as the payment is made depending upon the happening of an uncertain event which may never happen and as a result the sum may never become payable

4. It must be signed by the maker: It is imperative that the promissory note should be duly authenticated by the signature of the maker Signature means the writing or otherwise affixing a persons name or a mark to represent his name, by himself or by his authority with the intention of authenticating a document

Essentials of Promissory Note

5. The maker must be a certain person: The instrument must itself indicate with certainty who is the person or are the persons engaging himself or themselves to pay Alternative promisors are not permitted in law because of the general rule that where liability lies no ambiguity must lie 6. The payee must be certain: Like the maker the payee of a pronote must also be certain on the face of the instrument A note in favour of fictitious person is illegal and void A pronote mad epayable to the maker himself is a nullity, the reason being the same person is both the promisor and the promisee

Essentials of Promissory Note

7. The sum payable must be certain:
For a valid pronote it is also essential that the sum of money promised to be payable must be certain and definite The amount payable must not be capable of contingent additions or subtractions Illustrations: A signs the instruments in the following terms:
I promise to pay B Rs. 500 and all other sums which shall be due to him I promise to pay B Rs. 500, first deducting thereout any money which he may owe me

The above instruments are invalid as promissory notes because the exact amount to be paid by A is not certain

Bill of Exchange
Definition: Section 5 of the Negotiable Instruments Act defines a Bill of Exchange as follows: A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument. Illustration: Mr. X purchases goods from Mr. Y for Rs. 1000/Mr. Y buys goods from Mr. S for Rs. 1000/Then Mr. Y may order Mr. X to pay Rs. 1000/- Mr. S which will be nothing but a bill of exchange.

Specimen of Bill of Exchange

Parties to a Bill of Exchange

There are three parties involved in a bill of exchange (i) The Drawer The person who makes the order for making payment. In the above specimen, Rajiv is the drawer. (ii) The Drawee The person to whom the order to pay is made. He is generally a debtor of the drawer. It is Sameer in this case. (iii) The Payee The person to whom the payment is to be made. In this case it is Tarun. The drawer can also draw a bill in his own name thereby he himself becomes the payee. Here the words in the bill would be Pay to us or order. In a bill where a time period is mentioned, just like the above specimen, is called a Time Bill. But a bill may be made payable on demand also. This is called a Demand Bill.

Essentials of a Bill of Exchange

1. 2. 3. 4. 5. It must be in writing It must contain an order to pay. A mere request to pay on account, will not amount to an order The order to pay must be unconditional It must be signed by the drawer The drawer, drawee and payee must be certain. A bill cannot be drawn on two or more drawees but may be made payable in the alternative to one of two or more payees The sum payable must be certain The bill must contain an order to pay money only It must comply with the formalities as regards date, consideration, stamps, etc

6. 7. 8.

Cheque
A cheque is the means by which a person who has fund in the hand of a bank withdraws the same or some part of it. A cheque is a kind of bill of exchange but it has additional qualification namely1- it is always drawn on a specified banker and 2-it is always payble on demand without any days of grace.

STANDARD FEATURES OF PERSONAL CHECKS

Maria Mills 12 River Street Pettisville, OH 43553-0177

Check Number Date Date $ Amount

801
56-25 412

Pay to the Payee order of Amount Pettisville Bank

Pettisville, Ohio

Dollars

For simulation use only

Signature
041200257 103 7943

For

Memo 000801

Identification Numbers

Account Number
Slide 46

Holder & Holder in due course

Holder means any person entitled in his own name to the possession a promissory note bill of exchange or cheque and to recover or receive the amount due thereon from the parties thereon. A holder must therefore have the possession of the instrument and also the right to recover the money in his own name.

 Holder in due course means any person who for consideration became the possessor of a promissory note, billl of exchange or cheque, if payble to the bearer or the payee or indrosee there of ,if payble to the order before the amount mentioned in it became payble , and without having sufficient cause to believe that any defect existed in the title of the person from who he derived his title

Difference between holder and holder in due course

Meaning-holder means any person entitled in his own name possession of the instrument in other hand holder in due course a holder who takes the instrument in good faith for consideration before it is overdue and without any notice of defect in the title of the who transferred it to him. Consideration Title Liability-sue to all the parties by holder in due course Maturity

Dishonour and discharge of negotiable instrument

Dishonour:- a negotiable instrument is said to be dishonoured when the drawee refuses to accept the same or make payment thereon , the instrument may be dishonour by following two modes:1. Dishonour by non-acceptance 2. Dishonour by non-payment

 The bill of exchange is dishonour by nonpayment and acceptance , whenever the other instrument the promissory not and by the non-payment.

Dishonour by non-acceptance
A bill of exchange is dishonoured by nonacceptance. When a drawee commits in accepting the bill of exchange . When the drawee is incapable to contract. When the presentment for acceptance person and cannot be found even after due search.

Dishonour by non-payment
A promissory note , bill of exchange or change is said to be dishonoured due to non-payment when the makes of the promissory note , acceptance of bill of exchange and drawee of the cheque commits a defaults in payment on the non-acceptence and non- payment.

Difference between non-acceptance and non-payment

Non-payment Non-aceeptance Dishonour by non-aceeptance occur when the bill is presented by the drawee to be drawer to the debtor for acceptance and acceptance is non granted by him. dishonour by non payment occur when the makes of the promissory note , the acceptance of a bill of exchange or the bank reuses to make payment thereof.

In case of dishonour by non in case of dishonour by non-payment, acceptance ,a suit cannot be filed the holder can file a suit if he has served against debtor, since he is not a party notice of dishonour on all other parties. to the instrument before he accepts the same. in case of dishonour by non-payment, the drawer can file a suit for recovering the noting and protesting charges, interst, etc, along the amount of the loan,

In case of dishonour by non-acceptance the creditor can file a suit only the recovery of the amount of the loan.

Notice of dishonour
Notice by whom Notice to whom mode of giving notice what is reasonable time?

Discharge of parties from liabilities

In relation to negotiable instruments the word discharge has been used in two contents, namely: 1. Discharge of the party or parties. 2. Discharge of the instrument.

Discharge of party or parties

By cancellation By release By payment in due course by operation of law by allowing the drawee more than 48 honour by making a qualified acceptance

Discharge of instrument
An instrument is said to be discharged when all the rights contained therein are the instrument ceases to be negotiable .even the holder in due course does not get any the instrument in such a situation.