2.

Difference between Sale and Agreement to Sale: -

A contract is a formal or verbal agreement that is enforceable by law. Every
contract must have an agreement but every agreement is not a contract. The
section 4(1) of the Sale of Goods Act, 1930 states that – ‘A contract of sale of
goods is a contract whereby the seller either transfers or agrees to transfer the
property in goods to the buyer for a decided price.’
In Section 4(4) of the Act, it is maintained that for an agreement of sale to become
a sale, the time has to elapse or the conditions have to be fulfilled subject to which
the property in the goods is to be transferred.
SALE AGREEMENT TO SELL
In the contract of sale, the exchange of In the agreement to sell, the parties
goods takes place immediately. 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 and the It is an executory contract and the
transfer of risk takes place immediately. transfer of risk doesn’t take place until
and unless the goods are transferred.
Here the seller has the right to sue for Here the seller has the right to sue for
the price. damages.
The seller has no right to resell. The seller has the right to resell the same
goods if the conditions for the sale are
not fulfilled.
The loss is borne by the buyer despite The loss falls on the seller despite the
the fact that the merchandise is in the fact that the merchandise is in the
ownership of the seller. ownership of the buyer.
The right to sell remains with the buyer. The right to sell remains with the seller.

3. Explain the conditions of sale of goods act, 1930 & discuss

the implied conditions.
The term ‘Condition’ is defined under the Section 12(2) of the Sale of Goods Act,
1930. According to this Section “a condition is 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.”
Thus, a condition is that stipulation which goes to the root of the contract and
forms the basis of the contract. It is essential to the main purpose of the contract.
It is that obligation, the non-fulfilment of which may fairly be considered as a
substantial failure to perform the contract at all. Therefore, if a condition is not
fulfilled, the buyer has a right to put an end to the contract and also recover
damages for the breach of contract.
For Example, Binod consulted Mack Automotive Ltd., a motor car dealer, for a
car suitable for touring purposes. MAL suggested a sports car and Binod
accordingly bought it. The car turned out to be unfit for the touring purpose. It
was held that the term that ‘car should be suitable for touring purposes was
condition of the contract.’ It was so vital that its non-fulfilment defeated the very
purpose for which Binod bought the car. He was, therefore, entitled to reject the
car and have refund of the price.
Implied Conditions: -
Conditions are said to be implied when the law infers their existence as implicit
in the contract even without their actually having been put in the contract.

Condition as to Title [Section 14(a)]

Section 14(a) of the Sale of Goods Act 1930 explains the implied
condition as to title as ‘in the case of a sale, he has a right to sell the goods
and that, in the case of an agreement to sell, he will have a right to sell the
goods at the time when the property is to pass’.

This means that the seller has the right to sell a good only if he is the true
owner and holds the title of the goods or is an agent of the title holder.
When a good is sold the implied condition for the good is its title, i.e. the
ownership of the good. If the seller does not own the title of the said good
himself and sells it to the buyer, it is a breach of condition. In such a
situation the buyer can return the goods to the seller and claim his money
back or refuse to accept the good before delivery or whenever he learns
about the false title of the seller.

Sale by Description [Section 15]

Section 15 of the Sale of Goods Act, 1930 explains that when a buyer
intends to buy goods by description, the goods must correspond with the
description given by the buyer at the time of formation of the contract,
failure in which the buyer can refuse to accept the goods.
 Sale by Sample [Section 17]
When the goods are to be supplied on the basis of a sample provided to the
seller by the buyer while the formation of a contract the following
conditions are implied:

 Bulk supplied should correspond with the sample in quality

 Buyer shall have a reasonable opportunity to compare the goods
with the sample
 The good shall be free from any apparent defect on reasonable
examination by the buyer.

Sale by Sample as well as Description [Section 15]

When the sale of goods is by a sample as well as a description the bulk of
the goods should correspond with both, i.e. description and sample
provided to the seller in the contract and not only sample or description.

Example: A agreed to sell to C some oil described as “Foreign refined oil”

and warranted only equal to sample. The goods supplied were equal to
sample, but contained a mixture to hemp oil. Held, C could reject the
goods.

Condition as to Quality or Fitness [Section 16]

Where the buyer, expressly or impliedly, tells the seller the particular
purpose for which he needs the goods and relies on the skill or judgment
of the seller, there is an implied condition that the goods shall be
reasonably fit for such purpose.

When the article can be used only for one particular purpose, the buyer
need not inform the seller the purpose for which the goods are required.

Example: A purchased a hot water bottle from a chemist. While the bottle
was being used by A’s wife, it burst and injured A’s wife. Held, the seller
was liable for damages as the bottle was not fit for the purpose for which
it was meant – Priest vs Last.
4. Caveat Emptor and its exceptions.
The doctrine of Caveat Emptor is an integral part of the Sale of Goods Act. It
translates to “let the buyer beware”. This means it lays the responsibility of their
choice on the buyer themselves.

It is specifically defined in Section 16 of the act “there is no implied warranty or

condition as to the quality or the fitness for any particular purpose of goods
supplied under such a contract a sale.”

The doctrine attempts to make the buyer more conscious of his choices. It is the
duty of the buyer to check the quality and the usefulness of the product he/she is
purchasing. If the product turns out to be defective or does not live up to its
potential the seller will not be responsible for this.

Exceptions: -
 Fitness of Product for the Buyer’s Purpose
When the buyer informs the seller of his purpose of buying the goods, it is
implied that he is relying on the seller’s judgment. It is the duty of the seller
then to ensure the goods match their desired usage.

Say for example A goes to B to buy a bicycle. He informs B he wants to

use the cycle for mountain trekking. If B sells him an ordinary bicycle that
is incapable of fulfilling A’s purpose the seller will be responsible.

 Goods Purchased under Brand Name

When the buyer buys a product under a trade name or a branded product the
seller cannot be held responsible for the usefulness or quality of the product.
So, there is no implied condition that the goods will be fit for the purpose
the buyer intended.

 Goods sold by Description

When the buyer buys the goods based only on the description there will be
an exception. If the goods do not match the description then in such a case
the seller will be responsible for the goods.

 Sale by Sample
If the buyer buys his goods after examining a sample then the rule of
Doctrine of Caveat Emptor will not apply. If the rest of the goods do not
resemble the sample, the buyer cannot be held responsible. In this case, the
seller will be the one responsible.
 For example, A places an order for 50 toy cars with B. He checks one
sample where the car is red. The rest of the cars turn out orange. Here the
doctrine will not apply and B will be responsible.

 Usage of Trade
There is an implied condition or warranty about the quality or the fitness of
goods/products. But if a seller deviated from this then the rules of caveat
emptor cease to apply.

For example, A bought goods from B in an auction of the contents of a ship.

But B did not inform A the contents were sea damaged, and so the rules of
the doctrine will not apply here.

5. Define Indemnity & Guarantee

A contract of indemnity basically involves one party promising the other party to
make good its losses. These losses may arise either due to the conduct of the other
party or that of somebody else.

To simplify, it means that one party will compensate the other in case it suffers
some losses.

For example, A promises to deliver certain goods to B for Rs. 2,000 every month.
C comes in and promises to indemnify B’s losses if A fails to so deliver the goods.
This is how B and C will enter into contractual obligations of indemnity.

A contract of insurance is very similar to indemnity contracts. Here, the insurer

promises to compensate the insured for his losses. In return, he
receives consideration in the form of premium. However, the Contract Act does
not strictly govern these kinds of transactions. This is because the Insurance Act
and other such laws contain specific provisions for insurance contracts.

Contract of Guarantee-
Apart from indemnity contracts, the Contract Act also governs contracts of
guarantee. These contracts might appear similar to indemnity contracts but there are
some differences between them.

Contract of Guarantee has been defined under Section 126 of the Indian Contract
Act, 1872- “A contract of guarantee is a contract to perform the promise, or
discharge the liability, of a third person in case of his default. The person who gives
the guarantee is called the surety, the person in respect of whose default the
guarantee is given is called the principal debtor, and the person to whom the
guarantee is given is called the creditor.

In guarantee contracts, one party contracts to perform a promise or discharge

a liability of a third party. This will happen in case the third party fails to discharge
its obligations and defaults. However, the burden of discharging the burden will
first lie on the defaulting third party.

6. Define types of Guarantee.

 Specific Guarantee- When a guarantee is given for a single debt or for

specific transaction is called single or specific guarantee. It come to an
end when the guaranteed debt is repaid or the promise is performed.

For example – A is a sari seller who supplies a 12 saries to B, under the

contract that if B does not pay for the saries, his friend C would make the
payment. This is a contract of specific guarantee. And C’s liability would
come to an end, the moment the price of the saries is paid to A

 Continuing guarantee- A guarantee which gives for a series of

transactions, is called a continuing guarantee (Section 129). The surety’s
liability in this case would be discharged when all the transactions are
completed or till the guarantor revoked the guarantee as to the future
transactions.
For example – On M’s recommendation S, a wealthy landlord, employs
Raju as his estate manager. It was the duty of Raju to collect rent every
month from the tenants of S and remit the same to S before the 15th of
each month. M, guarantee this arrangement and promises to make good
any default made by Raju. This is a contract of continuing guarantee.

8. Bailment and Pledge.

Bailment-
A bailment is a special contract defined under section 148 of the Indian Contract
Act, 1872. It is derived from a French word i.e. “bailer” which means “to deliver”.
The etymological meaning of bailment is “handing over” or “change of
possession of goods”. By bailment, we mean delivery of goods from one person
to another for a special purpose on the contract that they shall reimburse the goods
on the fulfilment of the purpose or dispose of them as per the direction of the
bailor. The person who delivers the goods is known as bailor. And the person to
whom the goods are given is known as Bailee. And the property bailed is known
as Bailed Property.

Essentials of Bailment

 There shall be a contract between the parties for the delivery of goods,
 The goods shall be delivered for a special purpose only,
 Bailment can only be done for movable goods and not for immovable
goods or money,
 There shall be a transfer of possession of goods,
 Ownership is not transferred to Bailee; therefore, Bailor remains the
owner,
 Bailee is duty bound to deliver the same goods back and not any other
goods.

Pledge-

Pledge is a kind of bailment. Pledge is also known as Pawn. It is defined under

section 172 of the Indian Contract Act, 1892. By pledge, we mean bailment of
goods as a security for the repayment of debt or loan advanced or performance of
an obligation or promise. The person who pledges the goods as security is known
as Pledger or Pawnor and the person in whose favour the goods are pledged is
known as Pledgee or Pawnee.

Essentials of Pledge
Since Pledge is a special kind of bailment, therefore all the essentials of bailment
are also the essentials of the pledge. Apart from that, the other essentials of the
pledge are:

 There shall be a bailment for security against payment or performance

of the promise,
 The subject matter of pledge is goods,
 Goods pledged for shall be in existence,
 There shall be the delivery of goods from pledger to pledgee,
 There is no transfer of ownership in case of the pledge
9. Rights and Duties of Bailor and Bailee.
Bailor Duties-
Section 150 of the Indian Contract Act, 1872 bound the bailor with certain duties
to disclose the latent facts specifically pertaining to defect in goods. Bailor’s duty
of disclosure is:

 Gratuitous Bailment: It is the duty of the bailor to disclose all the

defects in the goods that he is aware of to the Bailee that can interfere
with the use of goods or can expose him to extraordinary risks. And
failure to do the same will make bailor liable for damages.
 Non Gratuitous Bailment (Bailment for Reward):This duty
particularly deals with the goods given on hire. As per this provision,
when the goods are bailed for hire, then in such a situation even if the
bailor is aware of the defect in the goods or not will be held liable for
the injury that has been caused due to the existence of such defect.

In Hyman v Nye & Sons, the plaintiff took a carriage on hire from the defendant
but the carriage was not fit for the journey and subsequently, the plaintiff suffered
injuries. The court held that even though the defendant was aware of such defect
or not he shall be liable.

Bailor Rights-

 Enforcement of Bailee’s Duty: Since Right of the bailor is same as the

right of the Bailee, therefore on the fulfilment of all duties of Bailee the
bailor’s right is accomplished. For example, it is the duty of the Bailee
to give the accretions and it is the right of bailor to demand the same.
 Right to claim damages: If the Bailee fails to take care of the goods,
the bailor has the right to claim damages for such loss. (Section 151)
 Right to Termination the Contract: If the Bailee does not comply
with the terms of the contract and acts in a negligent manner in such
case the bailor has the right to rescind the contract. (Section 153)
 Right to claim compensation: If the Bailee uses the goods for an
unauthorized purpose or mixes the goods which cause loss of goods in
such case bailor has the right to claim compensation.
 Right to demand the return of goods: It is the duty of the Bailee to
return the goods and the bailor has the right to demand the same.
Bailee Duties-

Bailee has to fulfil several obligations as per Indian Contract Act, 1872. That is:

 Duty to take reasonable care: It is the duty of the Bailee to take care
of goods as his own goods. He shall ensure all safety measures that are
necessary to protect the goods. The standard of care should be such as
taken care by a prudent man. The goods shall be taken care of equally
whether they are gratuitous or non-gratuitous. The Bailee shall be held
liable for payment of compensation if he fails to take due care. But if
the Bailee has taken due care and instead of that the goods are damaged
then in such a situation Bailee will not be liable to pay compensation.
The Bailee is not liable for the loss of goods due to destruction by fire.
(Section 151-152)
 Duty not to make unauthorized use of the goods: Bailee is duty bound
to use the goods for a specific purpose only and not otherwise. If he uses
the goods for any other purpose than what is agreed for then the bailor
has the right to terminate such bailment or is entitled with compensation
for damage caused due to unauthorized use. (Section 153-154)
 Duty not to mix bailor’s goods with his own goods: It is the duty of
the Bailee not to mix bailor’s goods with his own. But if he wants to do
the same then he shall seek consent from the bailor for mixing of goods.
If the bailor agrees for the mixing of the goods then the interest in the
mixed goods shall be shared in proportion. In case, Bailee without the
consent of bailor mixes the goods with his own then two situations arise:
goods can be separated and goods can’t be separated. In the former case
the Bailee has to bear the cost of separation and in the latter case since
there is the loss of the goods, therefore, bailor shall be entitled with
damages of such loss. (Section 155-157)
 Duty to return the goods on the fulfilment of purpose: Bailee is duty
bound to return the goods once the purpose is achieved or on the expiry
of the time period for which the goods were bailed. But if the Bailee
makes default in returning the goods on proper time then he will be
responsible with the loss, destruction or deterioration of the goods if
any. (Section 160-161). In the case of Bank of India v. Grains & Gunny
Agencies the court held that if the goods are lost or destroyed due to the
negligence of servant of Bailee, then in such case as well Bailee shall be
liable.
  Duty to deliver to the bailor increase or profit if any on the goods
bailed: The Bailee has a duty to return the goods along with increase
or profit subject to contract to the contrary. Accretion that has accrued
from the bailed goods is the part of the bailed goods and therefore bailor
has the right over such accretions if any. And such accretions shall be
handed over to the bailor along with the goods bailed. For instance, A
leaves a cow in the custody of B and cow gives birth to the calf. Then B
is duty bound to hand over the bailed goods along with accretion to the
bailor. (Section 163)
Rights of Bailee-

 Right to recover expenses: In the contract of Bailment, the Bailee

incurs expenses to ensure the safety of goods. The Bailee has the right
to recover such expenses from the bailor. (Section 158)
 Right to remuneration: When the goods are bailed to the Bailee, he is
entitled to receive certain remuneration for services that he has rendered.
But in case of gratuitous bailment, the Bailee is not awarded any
remuneration.
 Right to recover compensation: At times a situation arises wherein
bailor did not have the capacity to contract for bailment. Such a contract
causing loss to the Bailee; therefore, the Bailee has the right to recover
such compensation from the bailor. (Section 168)
 Right to Lien: Bailee has the right over Lien. By this, we mean that if
the bailor fails to make payment of remuneration or does not pay the
amount due, the Bailee has the right to keep the goods bailed in his
possession till the time debtor dues are cleared. Lien is of two types:
particular lien and general lien. (Section 170-171). In the case of Surya
Investment Co. v. S.T.C, the court held that expenses incurred by Bailee
during preservation of goods under lien shall be borne by bailor.

 Right to suit against a wrongdoer: After the goods have been bailed
and any third party deprives the Bailee of use of such goods, then the
Bailee or bailor can bring an action against the third party. (Section 180)
11. Define Agency & Essentials of Agency

Contract of Agency is a two-party relationship in which one person acts as

representative to the other in business dealing in order to create contractual
relations between that other and third person.

Section of 182 of the Contract Act,1872 defines the term Agent and Principal as;
“An agent is a person employed to do any act for another or to represent another
in dealings with third persons. The person for whom such act is completed, or
who is so represented, is known the Principal.”

In a contract of agency, the principal employs agent on his own behalf to represent
him before a third person with or without the consideration to the agent. It is also
important that the agent shall act as per the directions of the principal. The act
done by the agent against the directions and instruction of the principal, the
principal shall not be responsible for such an act.

Essentials: Contract of Agency

The Special Contract of Agency has been defined under Chapter 10 (section 182-
238) of the Indian Contract Act, 1872; where beyond the general essentials
(section 10) provided for a contract, the Act also lays down certain specific
principles and essentials for the Special Contract of Agency.

The major essentials to the contract of agency include:

Competency of the Principal

The requirement for the competency of the principal has been repeated (as Sec.10
of the “act” also requires for “parties competent to contract”) and laid down in
the Indian Contract Act under sec. 183, where the requirements for a competent
principal have been listed down to;

 Majority, i.e. the principal must have attained the age of majority, under
the relevant laws.
 Sound mind, i.e. the principal must be of sound mind, at least at the
moment of appointing the agent.
The basic rule of thumb here is that the principal should be capable of performing
the tasks (in law), which he wants his agent to do for him.

Thus any appointment of an agent by a minor or a person of unsound mind is

explicitly declared to be void.

Competency of the Agent

The requirements regarding the competency of the agent have been listed down
in Sec. 184 of ICA, 1872, where it has been explicitly mentioned that anyone
between the principal and the third party may become an agent, regardless of its
age or soundness of his mind. It prescribes that any person, including a minor and
an unsound person, may become an agent. However, they (the agent) may not be
liable to the principal unless they have attained the age of majority and are of
sound mind.

From the general description provided under the section, it can be interpreted that,
any person, including ones who themselves might not be competent enough to
contract (minors and persons of unsound mind included), have the capacity to
represent and bind their principals into direct and valid contractual relationships.

Consideration not required

As per the view of the Indian Contract Act, even consideration is not an essential
element for the creation of an Agency; hence no consideration is required to be
presented while the formation of an agency.

However, these provisions do not deprive the agent of his legal and justified
remunerations unless proven to be specified otherwise in the contract.

These principles of the contract act are based upon the ideologies of Common
Law, which specify that no consideration is required to give an individual the
authority of an agent, neither does it bar any one of the parties from suing each
other, either it be for the negligence on part of the agent or for the recovery of due
compensation from the principal.
12. Rights and Duties of Pawnor and Pawnee.
RIGHTS OF PAWNEE

 Right of Retainer [Sec.173]

Pawnee may retain the goods pledged for –

(a) payment of the debt or the performance of promise,

(b) any interest due on the debt; and

(c) all necessary expenses incurred by him with respect to possession

or for preservation of goods pledged.

 Retainer for subsequent advances [Sec.174]

(a) Where the Pawnee lends money to the Pawnor subsequently, after the
date of pledge, it shall be presumed that the he has a right of retainer over
the goods already pledged in respect of the subsequent lending also.

(b) This presumption can be made invalid only by an expenses provision

to that effect.

 Reimbursement of Expenses [Sec.175]

Where the Pawnee incurs extraordinary expenses to preserve the goods

pledged with him, he is entitled to receive such amount from the Pawnor.

 Rights in case of default by Pawnor [Sec.176]

(a) Suit: Pawnee may institute a suit against Pawnor when there is a default
in payment of debt or performance of promise at the stipulated time.

(b) Retention / Sale of goods: Pawnee may –

(a) retain the goods pledged as collateral security, or

(b) sell the goods pledged by giving a reasonable notice to the

Pawnor.
 (c) Surplus / Deficit on Sale: When there is a surplus on sale, Pawnee shall
pay the excess to the Pawnor. In case of deficit, Pawnor shall be liable for
the balance amount.

(d) No Notice: Where the Pawnee does not give a reasonable notice to the
Pawnor, the sale is valid, but Pawnee is liable to pay damages to Pawnor.

DUTIES OF PAWNEE
 Not to use the goods
• The pawnee has no right to use the goods
• However, he may use the goods, if he has been so authorised by the
pawnor.

 Return the goods

The pawnee must return the goods if the pawnor pays the debt or performs
his promise.

 Take reasonable care

The pawnee must take such care of goods pledged as a man of ordinary
prudence would take care of his own goods.

 Not to mix goods

The pawnee must not mix his own goods with the goods pledged.

 Return increase in goods

The pawnee must return to the pawnor any accretion to the goods pledged
with him.

RIGHTS OF A PAWNOR
 Redeem the goods pledged
Meaning of redemption Right to recover back the goods by making
payment of the debt or performance of promise. Time for redemption
Where time of redemption is fixed, the pawnor may exercise redemption –
(a) within the time so fixed; or
(b) even after expiry of time so fixed, provided –
• the pawnee has not sold the good; and
• the pawnee pays the pawnee all expenses arising on account of his
default.
  Enforce pawnee’s duties
The pawnor has the right to enforce the duties of pawnee, if the pawnee
fails to fulfil his duties.

 Receive increase in goods

The pawnor has the right to recover from pawnee any increase in goods
pledged.

 Right to receive notice of sale

In case of default by the pawnor to pay the debt or perform his promise,
the pawnee has the right to sell the goods, after giving a reasonable notice
to the pawnor. If the pawnee fails to give notice, the pawnor has the right
to recover the loss incurred by him.

DUTIES OF A PAWNOR
 Pay the debt
The pawnor is liable to pay the debt or perform his promise as the case may
be.

 Pay deficit on sale

If the pawnee sells the goods due to default by the pawnor, the pawnor
must pay the deficit.

 Pay extra – ordinary expenses

The pawnor is liable to pay to the pawnee any extraordinary expenses
incurred by the pawnee for preservation of goods.

 Disclose faults in goods

The pawnor is liable to disclose all the faults which –
(a) are material for use of the goods; or
(b) may put the pawnee to extraordinary risks.

 Indemnify the pawnee

If loss is caused to the pawnee due to defect in pawnor’s title to the goods,
the pawnor must indemnify the pawnee.