UNIT I

COMMERCIAL LAW
THE INDIAN CONTRACT ACT 1872
THE SALE OF GOODS ACT 1930

LAW
Law

is a system of rules, usually

enforced through a set of institutions.
It shapes politics, economics and
society in numerous ways and serves
as the foremost social mediator in
relations between people.
Law governs a wide variety of social
activities.

Contract

law regulates everything from

buying a bus ticket to trading on derivatives
markets.
Property law defines rights and obligations
related to the transfer and title of personal
and real property.
Criminal law offers means by which the
state can prosecute the perpetrator

LAW
System of
rules
Civil law Deals with
disputes between
individuals &
organisations

Criminal law Deals with

crime harmful acts
against the public/
society.

CONTRACT ACT
Before 1872, English common law was

applied in India.
Disputes between a Hindu and another
Hindu
Hindu law
Disputes between a Muslim and another
Muslim
Muslim law
Disputes between a Hindu and a Muslim
Law of the defendant.
Only in disputes where both the Hindu and
Muslim laws were silent, English common
law, was applied.

CONTRACT

An agreement enforceable by law.

Enforceable
by law

Performance

Certainty

Legal
relationship

Proposal
and
acceptance

ELEMENTS
OF A
VALID
CONTRACT

Writing
and
registration

Consideration

Competent
parties

Free
consent
No
expressly
Void
agreement

CONTRACT
Proposal and acceptance :
Proposal = Willingness to do or abstain

from doing + Willingness to obtain

assent from the other party to such act/
abstinence.

Acceptance = Assent to proposal.

Promise = Proposal + Acceptance.

CONTRACT
Consideration :
The promise for a promise in return.
Competent parties :
A person should be a major. He should be
of sound mind. He should not possess
any
other
disqualification
from
something by any law.
Free consent :
Parties to a contract must given their
free consent.
Mere consent is not
enough.
Consent of parties must
be
free.

CONTRACT
No expressly void agreement :
The contract should not be declared
invalid, in writing.
Writing and registration :
Oral contracts accepted.
However,
certain contracts like Gift contracts
etc. must be in writing and registered.
Legal relationship :
The contract should promote/ be
capable
of
promoting
a
legal
relationship between the parties.

CONTRACT
Certainty :
The contract should be clear, not
vague or unambiguous.
Performance :
The performance of the contract
must be possible, not impossible.
Enforceable by law :
It should be in line with the laws
of the country and must be
enforceable by law.

PROPOSAL / OFFER
Parties to the proposal
Offeror / Promisor,

Offeree/ Promisee.
Requirements of a valid
proposal
Willingness plus request
Proposer cannot dictate

conditions
Intended / capable of creating a
legal relationship
Not mere intention, but, binding
promise, also.

PROPOSAL / OFFER
Requirements of a valid proposal
Clear and unambiguous
Express or implied
Must be communicated
Can be conditional, but, conditions

must be communicated.
Intent to be bound by the offer.
Test of a valid proposal
Intention, to be legal bound
Actual communication.

ACCEPTANCE
Must be absolute and unqualified
Expressed
in a usual, reasonable

manner
Mental acceptance not sufficient
complete acceptance which must be
communicated.
Acceptance of the proposal
Not always expressed
By a definite person
Reasonable time frame
Not done in ignorance of the proposal
Made
before
lapse/
revocation/
withdrawal.

CONSIDERATION
A right, interest, profit or benefit
accruing to one party.
Loss, detriment or responsibility
assumed by the other party to the
contract.
Requirement of a valid contract.
Basic reason for a contract a
person gives up something of value
in exchange for something of value,
through a contract.

Types of Contracts
In connection with contracts, there are four types of
classifications.
Types of contracts in contract law are as follows;
On the basis of Formation,
On the basis of Nature of Consideration,
On the basis of Execution and
On the basis of Validity.

Types of Contracts on the basis of Formation

On this base Contracts can be classified into three groups,
namely
Express
Implied
Quasi Contracts

Express Contracts:

The Contracts where there is expression or

conversation are called Express Contracts.
For example: A has offered to sell his house and B
has given acceptance. It is Express Contract.

Implied Contract:

The Contracts where there is no expression are called

implied contracts.
Sitting in a Bus can be taken as example to implied
contract
between
passenger
and
owner
of the bus.

 Quasi Contract:

In case of Quasi Contract there will be no offer and acceptance so,

Actually there will be no Contractual relations between the partners.
Such a Contract which is created by Virtue of law is called Quasi
Contract.
Sections 68 to 72 of Contract Act read about the situations where court can
create Quasi Contract.
Sec. 68: When necessaries are supplied
Sec. 69: When expenses of one person are paid by another person.
Sec. 70: When one party is benefited by the activity of another party.
Sec. 71: In case of finder of lost tools.
Sec. 72: When payment is made by mistake or goods are delivered by mistake.

Example:
A case on this occasion is Chowal Vs Cooper.
In this case A`s husband becomes no more. She is very poor
and therefore not capable of meeting even cost of cremation.
B, one of her relatives, understands her position and spends
his own money for cremation.
It is done so without A`s request. Afterwards B claims his
amount from A where A refuses to pay.
Here court applies Sec. 68 and creates a Quasi Contract
between them

Types of Contracts on the basis of Nature of

Consideration :
On this base, Contracts are of two types.
Namely Bilateral Contracts and Unilateral
Contracts
Bilateral Contracts
Unilateral Contracts

Bilateral Contracts:
If considerations in both directions are to be
moved after the contract, it is called Bilateral
Contract.
Example:A Contract has got formed between

X and Y on 1st Jan, According to which X has

to deliver goods to Y on 3rd Jan and Y has to
pay amount on 3rd Jan. It is bilateral contract.

Unilateral Contract:If considerations is to

be moved in one direction only after the
Contract, it is called Unilateral Contract.
Example:A has lost his purse and B is its

finder. There after B searches for A and hands

it over to A. Then A offers to pay Rs. 1000/- to
B to which B gives his acceptance. Here, after
the Contract consideration moves from A to B
only. It is Unilateral Contract.

Types of Contracts
Execution

on

the

basis

of

On this base Contracts can be classified into

two groups. namely,
Executed Contracts and
Executor Contracts.
If performance is completed, it is called
Executed Contract.
In case where contractual obligations are to
be performed in future, it is called Executor
Contract.

Types of Contracts On the basis of Validity

On this base Contracts can be classified into 5
groups.
namely
Valid,
Void,
Voidable,
Illegal and
Unenforceable Contracts.

Valid:
The Contracts which are enforceable in a
court of law are called Valid Contracts.
To attain Validity the Contract should have
certain features like consensus ad idem,
Certainty, free consent, two directional
consideration, fulfillment of legal formalities,
legal obligations, lawful object, capacity of
parties, possibility of performance, etc.
Example:there is a Contract between X and Y

and let us assume that their contract has all

those above said features. It is Valid Contract.

Void:
A Contract which is not enforceable in a
court of law is called Void Contract.
If a Contract is deficient in any one or more of
the above features (Except free consent and
legal formalities). It is called Void Contract.
Example:there is a Contract between X and Y

where Y is a minor who has no capacity to

contract. It is Void Contract.

Voidable:
A Contract which is deficient in only free
consent, is called Voidable Contract.
That means it is a Contract which is made
under certain pressure either physical or
mental. At the option of suffering party, a
voidable contract may become either Valid or
Void in future.
For example: there is a Contract between A and
B where B has forcibly made A involved in the
Contract. It is voidable at the option of A.

Illegal:
If the contract has unlawful object it is called
Illegal Contract.
Example:There is a contract between X and Z
according to which Z has to murder Y for a
consideration of Rs. 10000/- from X. It is illegal
contract.

Unenforceable:
A contract which has not properly fulfilled
legal formalities is called unenforceable
contract.
That means unenforceable contract suffers
from some technical defect like insufficient
stamp etc. After rectification of that technical
defect, it becomes enforceable or valid
contract.
Example:A and B have drafted their
agreement on Rs. 10/- stamp where it is to be
written actually on Rs. 100/- stamp. It is
unenforceable contract.

Void Contracts and Illegal Contracts

All illegal Contracts are void, but all void
contracts are not illegal:
An illegal Contract will not be implemented by
court. So, illegal contract is Void. A void contract
may not be illegal because its object may be lawful.
The Contracts which are collateral to illegal
contract are void, But the contracts which are
collateral to Void contract may be Valid:
An illegal makes not only itself Void but also the
contracts connected to it. But a contract collateral to
void contract may attain Validity because object of
main contract is lawful.

Void Contracts and Voidable Contracts

Becoming Valid:A Voidable Contract may
become Valid at the option of suffering party.
But a Void Contract can never and never
become Valid.
Third Party Rights:In case of Voidable
Contracts third party may attain rights on
concerned property, If the third party gets the
property before the Voidable Contracts gets
declared as Void. But in case of Void Contract
third party cannot get any right.

Statutory

Voidable

Void

Simple
Specialty
Contracts
of
record

Unenforceable

KINDS
OF
CONTRACTS

Executed

Executory

Contingent

Express
Quasi

Implied

KINDS OF CONTRACTS
Contingent contract :
A contract which is conditional.
Contracts of record :
A contract taken to the records of a
court.
Specialty contract :
A contract which is written, signed,
sealed and delivered to the parties.
Also, contract under seal.
Simple contract :
A contract not under seal.

KINDS OF CONTRACTS
Statutory contract :
A contract required by law or the
statues of a country.

Formation of Contract
performance of contracts

To Explore
How to make an effective contract?
Relation between offer and declaration of intention
Distinction between an offer and an invitation to make

an offer
Binding effect of an offer
What is the binding effect of an offer?
What is the differences between an binding effect of an

offer and the effect of a contract made by this offer?

Can offeror withdraw or revoke an offer made by him?
When does the binding effect start and extinguish?

The manner to make a

contract
A contract is mutual assent resulting from an

exchange

of

reciprocal

declarations

of

intention by two or more persons for the purpose

of creating certain legal effects.
When the parties have reciprocally declared

their concordant intent, either expressly or

impliedly, a contract shall be constituted.(RCC153I)
A contract is concluded by the exchange of an

offer and an acceptance.(PCL13)

Exchange of reciprocal
declarations of intention
An offer and an acceptance
Offer:
Express or implied declarations of

intention
Real offer: declarations of intention
accompanied with a thing.
Acceptance:
Express or implied declarations of
intention
Accomplishment of intention:
performance, acceptance of the
other partys tender

Invitation to make an offer

An invitation to offer is a party's manifestation of intention to

invite the other party to make an offer thereto. (PCL art.15I)

A delivered price list (PCL15I); the sending of pricelists is not

deemed to be an offer.(RCC154II)
Exposing goods for sale with their selling price shall be

deemed to be an offer. (RCC154II)

Announcement of auction
Call for tender
Prospectus
Commercial advertisement
A commercial advertisement is deemed an offer if its

contents meet the requirements of an offer. (PCL

Definition of Offer
An offer is a party's manifestation of intention

to enter into a contract with the other party,

which shall comply with the following:
(i) Its terms are specific and definite;
(ii) It indicates that upon acceptance by the

offeree, the offeror will be bound thereby.

(PCL art14)
Binding

effect of contract, not binding

effect offer.
Binding Effect - This Agreement shall be
binding upon and inure to the benefit of the

Can an offer be
withdrawn?
An offer may be withdrawn. (PCL17)
The notice of withdrawal shall reach the offeree before

or at the same time as the offer. (PCL17)

If a notice of withdrawing an offer arrives after the

arrival of the offer itself, though it should usually

arrive before or simultaneously with the arrival of the
offer within a reasonable time by its transmitting
manner, and this might be known to the other party,
the other party so notified should notify the offeror

immediately of such delay. (RCC162I)

If such other party delays the notice specified in the

preceding paragraph, the notice of withdrawing

the offer shall be deemed to have arrived

Withdrawal
arrived
Effective offer
Offer on the way to the offeree
after offer
effected
withdrawal

Withdrawal
Offer on the way to the offeree
arrived before
offer effected
withdrawal

Ineffective offer

Delayed
Effective offer
Offer on the way to the offereeIneffective offer
withdrawal
arrived after it
Notice of Dela
should have
withdrawal
arrived
Offer dispatched

Offer arrived

DISCHARGE OF A
CONTRACT

DISCHARGE OF A CONTRACT
DISCHARGE BY PERFORMANCE
DISCHARGE BY AGREEMENT OR CONSENT
DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE
DISCHARGE BY LAPSE OF TIME
DISCHARGE BY OPERATION OF LAW
DISHARGE BY BREACH OF CONTRACT

DISCHARGE BY PERFORMANCE
ACTUAL PERFORMANCE
When both parties perform their promises & there is
nothing remaining to perform

ATTEMPTED PERFORMANCE
When
the promisor offers to perform his
obligation ,but promisee refuses to accept the performance.
It is also known as tender

DISCHARGE BY
AGREEMENT OR CONSENT

NOVATION (Sec 62): New contract substituted for old contract with the

same or different parties

RESCISSION (Sec 62) : When some or all terms of a contract are

cancelled
ALTERATION (Sec 62): When one or more terms of a contract is/are

altered by the mutual consent of the parties to the contract

REMISSION (Sec 63) : Acceptance of a lesser fulfilment of the promise

made.
WAIVER : Mutual abandonment of the right by the parties to contract
MERGER : When an inferior

right accruing to a party to contract

merges into a superior right accruing to the same party

DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE

KNOWN TO PARTIES
UNKNOWN TO PARTIES
SUBSEQUENT IMPOSSIBILITY
SUPERVENNING IMPOSSIBILITY (Sec 56)

Destruction of subject matter

Non-existance of state of things
Death or incapacity of personal services
Change of law
Outbreak of war

DISCHARGE BY LAPSE OF
TIME
THE

LIMITATION
ACT
1963,
CLEARLY
STATES
THAT
A
CONTRACT
SHOULD
BE
PERFORMED
WITHIN
A
SPECIFIED TIME CALLED PERIOD
OF LIMITATION

IF IT IS NOT PERFORMED AND IF

THE
PROMISEE
TAKES
NO
ACTION WITHIN THE LIMITATION
TIME, THEN HE IS DEPRIVED OF
HIS REMEDY AT LAW

DISCHARGE BY OPERATION
OF LAW
Death
Merger
Insolvency
Unauthorised alteration

of the terms

of a written agreement
Rights & liabilities vesting in the same
person

DISCHARGE BY BREACH OF
CONTRACT
ACTUAL BREACH :

At the time of performance

During the performance

ANTICIPATORY BREACH

By the act of promisor

(implied repudation)
By renunciation of obligation
(express repudation)

REMEDIES FOR BREACH OF

CONTRACT

REMEDIES OF INJURED PARTY

A remedy is a means given by law for the

enforcement of a right
Following are the remedies
[1] Rescission of damages.
[2] Suit upon quantum meruit.
[3] Suit for specific performance.
[4] Suit for injunction.

RESCISSION
When a contract is broken by one party, the other party may sue to
treat the contract as rescinded and refuse further performance. In
such a case, he is absolved of all his obligations under the contract.
The court may give rescission due to
1)contract is voidable.
2)contract is unlawful
The court may refuse to rescind if
1)Plaintiff has ratified the contract.
2)Parties cannot be restored to the original position.
3)The third party has acquired for value.
4)When only a part is sought to be rescinded.(sec 27 of specific relief
act 1937)

DAMAGES
Damages are a monetary compensation allowed
to the injured party by the court for the loss or injury
suffered by him by the breech of the contract.
The objective of awarding damages for the breech of
contract is to put the injured party in the same
position as if he had not been injured.
This

is

called

the

doctrine

of

restitution.

The

fundamental basis is awarding damages for the

pecuniary loss.

QUANTUM MERUIT
The phrase quantum meruit literally means
as much as earned.
A right to sue on a quantum meruit arises
when a contract, partly performed by one
party, has been discharged by breach of
contract by the other party.
This right is performed not on original
contract but on implied promise by other

SPECIFIC PERFORMANCE
In certain cases of breach of contract damages are not

an adequate remedy. The court may, in such cases,

direct the party in breach to carry out his promise
according to terms of the contract. This is a direction
by the court for specific performance of the contract at
the suit of the party not in breach
Cases for specific performance to be enforced
1)when the act agreed to be done is such that
compensation is not adequate relief.
2)when there is no standard for ascertaining the actual

INJUNCTION
When a party is in breech of a negative term
of contract the court may, by issuing an
order,

restrain

him

by

doing

what

he

promised him not to do. Such an order of

the court is called injunction.
Court refuses grant of injunction
[1] whereby a promisor undertakes not to do
something

Contract Of Agency

Definition of Agent & Principal

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 acts are done or who

is represented is called the principal.

The contract which

creates relationship of

principal & agent is called an agency.

Essentials and legal rules

1.

There should be an agreement between the principal

and the agent :Agreement may be: Express or implied.

2.

The agent must act in the representative capacity.

3.

The principal must be knowledgeable to contract.

4.

The agent need not be knowledgeable to contract.

Why? But in the interest of the principal.

5.

The consideration is not necessary.

General rules of agency

1.

Whatever a person can lawfully do himself, he

may also do the same through an agent

2.

He who acts through another, does by himself

Conti
Who may employ an agent?

Any person who is of the age of majority

according to the law to which he is subject, and
who is of sound mind, may employ an agent.
Who may be an agent?

As between the principal and third persons any

person may become an agent

Agent

Servant

He has the authority to

create commercial
relationship between the
principal & the third party

He ordinarily has no such

authority.

He may work for several He ordinarily work for

principal at a time.
only one master at a
time.
He usually get
commission

He usually get salary or

wages.

TEST OF AGENCY
The question as to whether a particular persons

is an agent can be verified by finding out if his

acts bind the principal or not.

Creation of agency
1.
2.
3.

Agency by express agreement

Agency by implied agreement
Agency by ratification

A. Agency by express agreement

Appointment in writing or by words of mouth
Usual form of a written agreement : Power of attorney
General power of attorney

B. Agency by implied agreement

Due to the conduct of the parties or the course of
dealing between the parties or the situation of
a particular case.
Agencies by an implied agreement includes:
1.

Agency by estoppel

2.

Agency by holding out

3.

Agency by necessity

Conti
Agency by estoppels :

Where a person by his words or conduct has

willfully led another to believe that certain set of
circumstances or facts exist, and the other person
has acted on that belief, he is estopped from
denying the truth of such statements although
such a state of things did not in fact exist.

Conti
Agency by holding out:

More than estoppel positive or affirmative conduct of the principal

is required.
Agency by necessity:

Due to extraordinary circumstances, person may

be compelled to act without requiring the consent
or authority.

Conti

Conditions:
There must be real emergency to act on behalf of

the Principal.
Agent not in a position to obtain instructions
Acting honestly and in the interest of the Principal
Adopting reasonable and practicable course of

action

Conti
Cases:

1.Where the agent exceeds his authority bonafide in

an emergency
2.Where the carrier of goods acting as a bailee,
does anything to protect or preserve the goods.
3.Where husband improperly leaves his wife without
providing proper means for her sustenance.

C. Agency by ratification
A person does some acts on behalf of another person
without his knowledge or authority
Another person subsequently accepts the acts Then:
Agency by ratification
Also known as ex-post facto agency (agency arising
after the event)

1.

The agent must act on behalf of the principal

2.

The principal must be competent to contract

Conditions for va lid ra tifica tion

and in existence at the time of contract by the

agent
3.

There should be an act capable of ratification

4.

The principal must have full knowledge of the

material facts.

5.

Whole transaction must be ratified

6.

Within a reasonable time.

7.

Ratification must not injure a third party.

Kinds of agents
I. From the point of view of the extent of their authority :
1.General Agent- Is one employed to do all the acts
connected with a particular business or employment
Eg: manager of a firm.
2. Special Agent employed to do some particular act or
represent his principal in some particular transaction.
Eg: agent employed to sell a motor car.
3.Universal Agent Whose authority is unlimited. He
enjoys extensive powers to transact every kind of
business on behalf of principal.

Conti
II. From the point of view of the nature of work performed by
them:

I. Mercantile agent An agent dealing in the buying and selling of the goods
An agent who has the authority either to sell the goods, or
to consign the goods for the purpose of sale, or to buy the
goods or to raise the money on the security of the goods on
behalf of his principal

Types of Mercantile Agents

Factor: Possession of the goods is given for the purpose of selling

the same sells in his own name

Broker: Appointed to negotiate and make contracts for the sale and
purchase on behalf of the principal not given possession not in
his own name

Commission agent: Buys and sells and receives commission

Del credere agent: One who in consideration of an extra

commission, guarantees his principal that the third persons with
whom he enters into contracts on behalf of the principal shall
perform their financial obligations i.e. if the buyer does not pay , he
will pay.

Conti
II. Non- mercantile agents :
Does not usually deal in the buying or selling of
the goods. They include Insurance agents
,Counsels or advocates, wife,etc.

Duties of an agent
1.

Duty to follow the instructions of the principal if not..

2.

Duty to carry out the work with care and skill

3.

Duty to render accounts to the principal

4.

Duty to communicate with principal if no time

5.

Duty not to deal on his own account

6.

Duty not to make secret profits from agency

7.

Duty to pay the amount received for the principal

8.

Duty not to use the information, received in the course of agency,

against the principal

9.

Duty to protect the interest of the principal in case of his death or

insanity

10. Duty not to delegate authority

Rights of an agent

7.

Rights to retain money due from the principal

Right to receive remuneration
Right of lien The agent has the right to retain
goods, papers and other propertyonly
particular lien
Right to be indemnified against consequences
of lawful acts.
Right to compensation
Right to be indemnified against consequences
of acts done in good faith
Right of stoppage of goods in transit.

(a)

Principal becomes insolvent

(b)

Agent has bought goods out of his own money

1.
2.
3.

4.
5.
6.

Rights of principal
Recover damages from agent if he disregards

directions of Principal
Obtain accounts from Agent
Recover moneys collected by Agenton behalf
of Principal
Obtain details of secret profit made by agent
and recover it from him
Forfeit remuneration of Agent if he
misconducts the business

Duties of principal
Pay remuneration to agent as agreed
Indemnify agent for lawful acts done by him

as agent
Indemnify Agent for all acts done byhim in

good faith
Indemnify agent if he suffers loss due to

neglect or lack of skill of Principal.

Delegation of authority by an
agent
General rule:
Delegatus non-protest delegare i.e. a delegate
cannot further delegate
But in exceptional cases sub-agent can be
appointed
Cases:
1. Express authority from the principal
2. Where the principal has impliedly, by his
conduct allowed such delegation of authority.
3. Ordinary Custom of a particular trade
4. Nature of the work
5. Acts which do not require personal
or
professional skill
6. Due to unforeseen emergencies

Relations of principal with third parties

1.
2.

Scope and extent of agents authority

Principal and the third party
Personal liability of the agent
Agents authority
Power or capacity to bind the principal with the
third party
Two types of authority
Actual or real authority
Ostensible or apparent authority

1.Actual or real authority

Authority conferred upon the agent by his
principal
Two kinds:
1. Express authority
2. Implied authority: conferred upon the agent by
the conduct of the principal
2.Ostensible or apparent authority
The act is in excess of the actual authority
Authority due to the appearance created by the
principal
Authority in necessity

Relationship between principal and sub-agent

Discussed under two heads:
1. Where the sub-agent is properly appointed
2. Where the sub-agent is improperly appointed
1.Where the sub-agent is properly appointed
(a)The principal is bound and is liable to third
parties for the acts of the sub-agent
(b) Where the agent is responsible to the principal
for the acts of sub-agent.
(c )The Sub-agent is responsible for his acts to
original agent not to principal except in fraud or
willful wrong

2. Where the sub-agent is improperly

appointed
(a) The principal is not represented by sub-agent

and hence he is not liable for acts of the subagent

(b) The agent is responsible for the acts of the sub-

agent to the principal as well as to the third

parties
(c) The sub-agent is not responsible to principal at

all.

Personal Liability of agent

1. When contract expressly provides
2. Agent acts for foreign principal
3. Agent acts for undisclosed principal
4. When principal can not be sued
5. Where agent signs contract in his name
6. Principal is not in existence
7. Liable for breach of warranty of authority
8. When he pays or receives money by mistake

9. Authority is coupled with interest

10. Trade makes agent personally liable

Termination of agency

End of the relationship of a principal and his agent

Studied under:
1. Termination of agency by act of the parties
2. Termination of agency by operation of law
1.Termination of agency by act of the parties
3. Agreement -between the principal and agent
4. Revocation by the principal : Revocation may be
express or implied There are conditions
(i) In case of continuous agency
(ii) Where an agency has been created for a fixed
period of time.
3. Revocation of agency by the agent

II.Termination of agency by operation

of law
1.
2.
3.
4.
5.
6.
7.
8.

Completion of agency business

Expiry of time
Death of the principal or the agent
Insanity of the principal or the agent
Insolvency of the principal
Destruction of the subject-matter of the agency
Dissolution of a company
Principal or agent becomes alien enemy

Effectiveness of termination:
As between the principal and agent, termination of
agency is effective only when it becomes known
to the agent.
- Third parties- when it is known to them.
Irrevocable agency
1. Where the agency is coupled with interest- where
the agent has some interest over the subject
matter
2. When revocation would cause the agent personal
loss
3. When the authority has been partly exercised by
the agent.

SALE OF GOODS ACT 1930

Contents
INTRODUCTION
ESSENTIALS OF CONTRACT OF SALE
DISTINGUISH BETWEEN SALE AND

AGREEMENT TO SELL
DOCUMENTS OF TITLE TO GOODS`
CONDITIONS AND WARRANTIES
DOCTRINE OF CAVEAT EMPTOR
RIGHTS OF UNPAID SELLER
DELIVERY RULES REGARDING DELIVERY
SALE BY AUCTION

Introduction
Originally, the law relating to sale of goods

was contained in Chapter VII of the Indian

Contract Act, 1872. The same was repealed
and re-enacted by the Sale of Goods Act, III of
1930.

Definition

(Section 4)
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
price".

ESSENTIALS OF CONTRACT OF SALE

From the above definition, the following essentials of

a contract of sale may by noted:
1. There must be at least two parties
2. Transfer or Agreement to transfer the
ownership of goods.
3. The subject matter of the contract must
necessarily be 'goods'.
4. The consideration is Price.
5.A Contract of sale may be in writing or by words
6. All other essentials of a valid contract must
be present

Sale:

SALE` AND 'AGREEMENT TO SELL' DISTINGUISHED

It is a contract where the ownership in the goods is

transferred by seller to the buyer immediately at the

conclusion contract. Thus, strictly speaking, sale takes
place when there is a transfer of property in goods
from the seller to the buyer. A sale is an executed
contract.
It must be noted here that the payment of price is
immaterial to the transfer of property in goods.
Ex A sells his Yamaha Motor Bicycle to B for Rs. 10,000. It
is a sale since the ownership of the motorcycle has
been transferred from A to B.

Agreement to sell
It is a contract of sale where the transfer of property

in goods is to take place at a future date or subject

to some condition thereafter to be fulfilled.
ExA agreed to buy from B a certain quantity of nitrate
of soda. The ship carrying the nitrate of soda was
yet to arrive. This is `an agreement to sale`. In this
case, the ownership of nitrate of soda is to be to
transferred to A on the arrival of the ship containing
the specified goods (i.e. nitrate of soda) [Johnson V
Mcdonald (1842) 9 M & W 600, 60 RR 838]
Other points of distinction between a sale and an
agreement to sell are:

1.

sale

Sale
is an

Agreement to sell
executed 1. An Agreement to sell is an

contract.

executory contract.

2. In a sale, since the property 2. In an agreement to sell, in

has passed to the buyer, the

case of breach, the seller can

seller can sue the buyer for the

only sue for damages, unless

price of the goods.

the price was payable at a

3. A sale creates a right in rem.

stated date.

4. In case of loss of goods, the 3. An agreement to sell creates

loss will fall on the buyer, even

a right in personam.

though the goods are in the 4. The loss in this case shall be
possession of the seller. It is

borne by the seller, even

because

though the goods are in the

'Risk'

with ownership.

is associated

possession of the buyer.

Sale
Agreementtosell
5. In case buyer pays the price and the 5. In these circumstances, the buyer
seller thereafter becomes an insolvent,

cannot claim the goods but only a

the buyer can claim the goods from the

rateable dividend for the money paid.

Official Receiver or Assignee.

6. If the buyer becomes an insolvent
without paying the price, the ownership
having passed to the buyer, the seller
shall have to deliver the goods to the
Official Assignee or Receiver except
where he has a lien over the goods.

6. In these circumstances, the seller can

refuse to deliver the goods to the
Official Assignee or Receiver.

Sale and Hire Purchase Agreement

Hire Purchase Agreement
It is an agreement for hire, with an option to purchase.
The hirer, under this agreement, is required to pay every month a

particular sum of money, and if he pays in that way for a fixed number
of months, the hirer will become the owner of the goods on the payment
of the last instalment.
But, if the hirer fails to pay any particular instalment, the owner can

terminate the contract and take away the goods, because the ownership
continues to remain in the owner. A "Hire-purchase agreement" is
distinct from "Sale" in which price is payable by instalments
A 'Hire-purchase agreement,' does not result in passing of the property

unless the option to purchase is exercised, usually by payment of all the

instalments. Till such time, it constitutes bailment.

Sale:
ln case of sale, the property passes as soon
as sale is made though price has not been
fully paid.
In determining as to whether a particular
contract belongs to one type or the other,
regard shall have to be paid to the fact
whether the hirer has merely an option to
purchase, or whether he has bought or
agreed to buy the goods.

GOODS
Definition of `GOODS` under the Act
'Goods' means every kind of moveable property and
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.
Actionable claims and money are not included in the
definition of goods.
Thus, goods include every kind of moveable property other
than actionable claim or money. Example - goodwill,
copyright, trademark, patents, water, gas, and electricity
are all goods and may be the subject matter of a contract of
sale.
The test is if the property on shifting its situation, does not
lose its character, the said property shall be movable and
fall within the definition of `Goods`.

Types of goods
Existing goods
Future goods
Contingent goods

Which documents are considered as `DOCUMENTS OF TITLE TO GOODS`

A document of title to goods may be described as any

document used as proof of the possession or control of

goods, authorising or purporting to authorise, either by
endorsement or by delivery, the possessor of the
document to transfer or receive goods thereby
represented.
The following are documents of title to goods:
Bill of Lading;
Dock Warrant;
Warehouse keeper's Certificate;
Warfinger's Certificate;
Railway Receipt;
Warrant or order for the delivery of goods; and

Any

other document used in the ordinary course of

business as a document of title

CONDITIONS AND WARRANTIES

[Sections 11-17]

Sec 12(2) of Sales Of Goods Act, 1930 has

defined Condition as:

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.

Sec 12(3) of Sale Of Goods Act, 1930 has

defined Warranty as :
A warranty is a stipulation collateral to the
main purpose of the contract, the breach of
which gives rise to only claim for damages but
not to a right to reject the goods and treat the
contract as repudiated.

DISTINCTION BETWEEN 'CONDITION' AND

'WARRANTY'
Condition
Warranty
1. A condition is a stipulation (in 1. A warranty is a stipulation,
a contract), which is essential
which is only collateral or
to the main purpose of the
subsidiary to the main
contract.
purpose of the contract.
2. A breach of condition gives 2. A breach of warranty gives
the aggrieved party a right to
only the right to sue for
sue for damages as well as
damages.
The
contract
the right to repudiate the
cannot be repudiated.
contract.
3. A breach of condition may be 3. A breach of warranty cannot
treated as a breach of
be treated as a breach of
warranty
in
certain
condition.
circumstances.

CASES OF TREATING THE BREACH OF

CONDITION AS BREACH OF WARRANTY
[SECTION 13]
1. Voluntary Waiver .
2. Compulsory treatment of breach of

condition as breach of Warranty.

EXPRESS AND IMPLIED CONDITIONS AND WARRANTIES

Conditions

and Warranties may be either

express or implied.
They are said to be "express" when they are
expressly provided by the parties.
They are said to be 'implied' when the law

deems their existence in the contract even

without their actually having been put in the
contract.

IMPLIED CONDITIONS

(1)
(2)
(3)
(4)

Condition as to Title
Sale by Description
Condition as to Quality or Fitness
Merchantable Quality

1)They are reasonably saleable under the

description by which they are known in
market.
2)They are purchased for the personal use
they must be reasonably fit for the purpose
for which they are generally held.

(5)Sale by sampleIn a sale by sample, the following are the implied

conditions:
1. The bulk shall correspond with the sample in
quality;
2. That the buyer shall have a reasonable opportunity
of comparing the bulk with the sample; and
3. That the goods shall be free from any defects
rendering them unmerchantable, which would not
be apparent on reasonable examination of the
sample.

Implied warranties
1. Warranty of Quiet Possession
In a contract of sale, unless the circumstances
of the contract are such as to show different
intention, there is a implied warranty that the
buyer shall have and enjoy quiet possession of
the goods.
2. Warranty of Freedom from Encumbrances

DOCTRINE OF caveat
emptor
Caveat Emptor is a fundamental

principle of the law of sale of goods

It means "Caution Buyer", i.e. "Let
the buyer beware".

Exceptions to the doctrine of

Caveat Emptor (Sec.16)
In case of any misrepresentation by the seller
In case of concealment of latent defects by the

sellers
In case of sale by descriptions and sample(Sec 15)
Conditions as to merchantability
Conditions as to quality of fitness for buyers
purpose
Conditions of wholesomeness

TRANSFER OF PROPERTY BY NON-OWNERS

(Sec. 27-30)
The general rule is that only the owners of the

property can transfer a goods title.

Nemo dat quod non habet which means

no one can give which he himself has not

EXCEPTIONS
UNDER THE SALE OF GOODS ACT

Estoppels (Sec . 27)

Sale by a mercantile agent
Sale by one of several joint

IN OTHER LAWS

Sale by a finder of lost goods

Sale by a Pawnee
Sale by Official Receiver

owners (Sec 28)

Purchase in market overt
Sale by an unpaid seller
Under Negotiable Instrument Act 1881

UNPAID SELLER
A seller deemed to be an unpaid seller

(a). When the whole of the price has not

been paid or rendered
(b). When the bill of exchange or other
negotiable instrument has been received as
conditional payment and condition has not
been fulfilled by the reason of the dishonor
of the instrument or otherwise (Sec. 45)

RIGHTS OF UNPAID
SELLER
AGAINST THE
GOODS

AGAINST THE BUYER

PERSONALLY

Unpaid sellers lien

Right to sue for price
Stoppage in transit
Right to sue for damage
Right of resale
Repudiation of contract before due date

DELIVERY
It has been defined as a voluntary transfer of

possession from one person to another..

Delivery of the goods may, be:
I. Physical or Actual Delivery
2. Symbolic Delivery - e.g., delivery of a
railway receipt properly endorsed, or delivery
of the key of a warehouse;
3. Constructive Delivery or Attornment - only
an acknowledgement by the person in
possession that he holds them on behalf of
another.

Rules regarding delivery

1. The seller is not bound to deliver goods till

the buyer applies for delivery in terms of the

contract.
2. Place of Delivery - goods sold are to be
delivered at the place agreed for delivery in
the contract.
3. Time of Delivery as per contract otherwise
within reasonable time.
4. The expenses of and incidental to putting the
goods into a deliverable state shall be borne
by the seller, as per the terms of the contact.

5 Demand and tender must be at a reasonable hour - What

is a reasonable hour is a question of fact.
6 Delivery of Wrong Quantity -.
7 Instalment Deliveries - The buyer is not bound to accept
delivery by instalment, unless otherwise agreed.
8 Delivery to the Carrier or Wharfinger
9 Buyer not bound to return rejected goods -.
10 Liability of the Buyer -

SALE BY AUCTION (Section 64)

In the case of sale by auction the following
rules apply:
1. At an auction, the sale is complete when the
auctioneer announces its completion by the
fall of the hammer
2. A bidder is at liberty to withdraw his bid at any

time before it is accepted by auctioneer

3. Advertisement to auction is not an offer but
mere invitation .
4. Auctioneer has right to make any condition he
likes .
5. Biddings can be withdrawn before acceptance

Sale by Auction ..
6 In case of goods put up for sale in lots
7 no seller or any person who has advertised
can bid at an auction sale unless right is
notified
8 Knockout agreements are unlawful
9 Pretended bidding by seller to raise price is
voidable at option of buyer

INTRODUCTION TO
NEGOTIABLE INSTRUMENTS
ACT, 1881
The Negotiable Instruments Act was enacted,
in India, in 1881. Prior to its enactment, the
provision of the English Negotiable Instrument
Act were applicable in India, and the present Act
is also based on the English Act with certain
modifications. It extends to the whole of India
except the State of Jammu and Kashmir. The Act
operates subject to the provisions of Sections 31
and 32 of the Reserve Bank of India Act, 1934.

125

MEANING OF NEGOTIABLE
INSTRUMENT
The word negotiable means transferable
by delivery, and word instrument means a
written document by which a right is created
in favour of some person. Thus, the term
negotiable instrument means a written
document transferable by delivery.
According to Section 13 (1) of the
Negotiable Instruments Act, A negotiable
instrument means a promissory note, bill of
exchange, or cheque payable either to order or
to bearer.
126

CHARACTERISTICS OF NEGOTIABLE
INSTRUMENTS

127

Free transferability or easy negotiability

Negotiable
instrument
is
freely
transferable.
Title of holder is free from all defects
A
person
who
takes
negotiable
instrument bona-fide and for value gets
the instrument free from all defects in the
title. The holder in due course is not
affected by defective title of the
transferor or of any other party.

TYPES OF NEGOTIABLE
INSTRUMENTS

128

There are two types of Negotiable Instruments:

1. Instruments Negotiable by Statute:
The Negotiable Instruments Act mentions
only three kinds of negotiable instruments
(Section 13). These are:
1. Promissory Notes
2. Bills of Exchange, and
3. Cheques
2. Instruments Negotiable by Custom or
Usage:
There are certain other instruments which
have acquired the character of negotiability
by the usage or custom of trade. For example:
Exchequer bills, Bank notes, Share warrants,

PROMISSORY NOTES
Section 4 of the Act defines, A
promissory note is an instrument in writing
(note being a bank-note or a currency note)
containing an unconditional undertaking,
signed by the maker, to pay a certain sum
of money to or to the order of a certain
person, or to the bearer of the instruments.
The person who makes the promissory
note and promises to pay is called the
maker. The person to whom the payment is
to be made is called the payee.
129

CHARACTERISTICS OF A PROMISSORY
NOTE
It is an Instrument in Writing
It is a Promise to Pay
Signed by the Maker
Other Formalities
Definite and Unconditional Promise
Promise to Pay Money Only
Maker must be a Certain Person
Payee must be Certain
Sum Payable must be Certain
It may be Payable on Demand or After a
130

Definite Period of Time

It cannot be Made Payable to Bearer on

PARTIES TO A PROMISSORY
NOTE
Maker:

Maker is the person who promises to pay the

amount stated in the note.
Payee:
Payee is the person to whom the amount of
the note is payable.
Holder:
He is either the payee or the person to whom
the note may have been endorsed.

131

SPECIMEN OF PROMISSORY
NOTE

132

BILL OF EXCHANGE
According to Section 5 of the act, 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. It is also called a Draft.
Special Benefits of Bill of Exchange:
A bill of exchange is a double secured instrument.
In case of immediate requirement, a Bill may be
discounted with a bank.
133

ESSENTIAL ELEMENTS OF BILL

OF EXCHANGE
It must be in Writing.
Order to pay
Drawee
Signature of the Drawer
Unconditional Order
Parties
Certainty of Amount
Payment in Kind is not Valid
Stamping
Cannot be made Payable to Bearer on Demand
134

PARTIES TO A BILL OF
EXCHANGE
Drawer:

The maker of a bill of exchange is called the

drawer.
Drawee:
The person directed to pay the money by the
drawer is called the drawee.
Payee:
The person named in the instrument, to whom
or to whose order the money are directed to be
paid by the instruments are called the payee.
135

SPECIMEN OF BILL OF EXCHANGE

CLASSIFICATION OF BILL OF
EXCHANGE
Inland and Foreign Bills [Section 11 and

12]
Inland Bill:
It is drawn in India on a person residing in
India whether payable in or outside India; or
It is drawn in India on a person residing
outside India but payable in India.
Foreign Bill:
A bill drawn in India on a person residing
137

outside India and made payable outside

India.
Drawn upon a person who is the resident of

CLASSIFICATION OF BILL OF
EXCHANGE (Cont.)
Time and Demand Bills:
Time Bill: A bill payable after a fixed time is

termed as a time bill. A bill payable after

date is a time bill.
Demand Bill: A bill payable at sight or on
demand is termed as a demand bill.
Trade and Accommodation Bills:
Trade Bill: A bill drawn and accepted for a
genuine trade transaction is termed as trade
bill.
Accommodation Bill: A bill drawn and
accepted not for a genuine trade transaction
138
but only to provide financial help to some

CHEQUE
According to Section 6 of the act, A
cheque is a bill of exchange drawn on a specified
banker and not expressed to be payable
otherwise than on demand. A cheque is also,
therefore, a bill of exchange with two additional
qualification:
It is always drawn on a specified banker.
It is always payable on demand.

139

Special Benefits of Bill of Exchange:

A bill of exchange is a double secured
instrument.
In case of immediate requirement, a Bill may be

ESSENTIAL ELEMENTS OF A CHEQUE

In writing
Express Order to Pay
Definite and Unconditional Order
Signed by the Drawer
Order to Pay Certain Sum
Order to Pay Money Only
Certain Three Parties
Drawn upon a Specified Banker
Payable on Demand

140

PARTIES TO A CHEQUE
Drawer:

Drawer is the person who draws the cheque.

Drawee:
Drawee is the drawers banker on whom the
cheque has been drawn.
Payee:
Payee is the person who is entitled to receive
the payment of a cheque.

141

SPECIMEN OF CHEQUE

142

TYPES OF A CHEQUE
Bearer Cheque
Cross Cheque

d
an

ny
pa
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Co

&

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No

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tN

Cheque Crossed Specially

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A/C

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Restrictive Crossing (A/c Payee Only)

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143

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