LAW OF SALE OF GOODS

Contract of Sale of Goods

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CONTRACT OF SALE OF GOODS
The law regarding the sale of movable goods is contained in the Sale of
Goods Act, 1930
It came to force on July 1st, 1930.
It contains 66 sections and extends to whole of Pakistan

Section 4(1) of the Sale of Goods Act states:

“Sale and agreement to sell.---(1) A contract of sale of goods is a
contract whereby the seller transfers or agrees to transfer the property in
goods to the buyer for a price. There may be a contract of sale between one
part-owner and another.”

Section 2(7) defines goods as

"every kind of movable property other than actionable claims and
money; and includes 4[electricity, water, gas,] 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;”

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CONTRACT OF SALE OF GOODS
ESSENTIALS OF A CONTRACT OF SALE
1. Contract
A contract of sale of goods relates to movable goods. All essentials of a valid contract must be
present in a contract of sale of goods like capacity of parties, free consent, legality of object
etc. It may be verbal/written and express/implied.

2. Two Parties
There must be a seller and buyer in a contract of sale of goods. A person cannot be a buyer and
seller simultaneously in a single contract. However, the owner of one part can sell his goods
to the owner of the other part.

3. Transfer of Property
The ownership rights of the goods must be transferred from the seller to the buyer. Mere transfer
of possession of goods is cannot be termed as sale. In a contract of sale, seller transfers or
agrees to transfer the goods to the buyer.

4. Subject Matter
The subject matter is means the thing for which the contract of sale of goods is made. In a
contract of sale of goods, the subject can be only as movable property as defined in
Section.2(1).
CONTRACT OF SALE OF GOODS
5. Price
According to S.2(10), the money consideration in a contract of sale must be the
price.
When goods are sold or exchanged for other goods, the transaction is barter and
not a contract of sale of goods. However, if goods are sold partly for goods
and partly for price, it is a valid contract of sale.

6. Sale and Agreement to Sell

The term contract of sale includes both sale agreement and agreement to sell.
When ownership of goods is transferred from seller to buyer at the time of
formation of contract, then that contract is a sale agreement.
Where the transfer of the property in the goods is to take place at a future time,
the contract is called an agreement to sell.

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CONTRACT OF SALE OF GOODS
Difference b/w Sale Agreement and Agreement to Sell
Sr. Elements Sale Agreement to Sell
No
1. Transfer of The ownership passes to the The ownership does not pass
Property buyer immediately at the time of to the buyer at the time of
contract. The seller ceases to be contract. The ownership
the owner and the buyer becomes transfers at certain date later.
the owner immediately.
2. Type of A sale can only be made in case An agreement to sell is mostly
Goods of existing goods. in case of future and
contingent goods.
3. Recovery of If the seller refuses to deliver the Buyer cannot recovery the
Goods goods, the buyer may sue for goods and can only sue for
recovery of goods. damages.
4. Risk of Loss If the goods are destroyed, the If the goods are destroyed, the
buyer suffers the loss even though seller suffers a loss even
the goods are in the possession of though the goods are in
seller. possession of the buyer5
CONTRACT OF SALE OF GOODS
5. Consequence of If the buyer fails to pay the
Breach price of the goods, the seller
can sue for the price, even
though the goods are in the
possession of seller.
6. Right of Resale A seller cannot resell the
goods even though the
goods are in his possession.
7. Insolvency If buyer becomes insolvent,
his legal representatives can
claim goods
If seller becomes insolvent,
buyer can recover goods
8. Nature of It is an executed contract so
Contract buyer becomes owner
immediately
If buyer fails to pay the price, the
seller can sue for damages and not
the price even though the goods are
in the possession of buyer.
A seller can resell the goods to a
new buyer. The new buyer gets a
good title to the goods.
If buyer becomes insolvent, seller
can refuse to sell goods.
If seller becomes insolvent, the
buyer can claim price
proportionally.
It is an executory contract so the
buyer will become the owner in
future.
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CONTRACT OF SALE OF GOODS
TYPES OF GOODS
Section 6 of SoGA “Existing or future goods:
(1) The goods which form the subject of a contract of sale may be either existing
goods, owned or possessed by the seller, or future goods.
(2) There may be a contract for the sale of goods the acquisition of which by the
seller depends upon a contingency which may or may not happen.”

1.Existing Goods (owned and possessed by seller at the time of contract)

a) Specific Goods (identified and agreed upon at the time of contract)
Section.2(14)
b) Ascertained Goods (identified after the time of formation of contract)

c) Unascertained Goods (not identified and agreed upon at time of

contract)

2.Future Goods (goods to be manufactured, produced or acquired by the seller

after the making of the contract of sale)

3. Contingent Goods (the acquisition of the goods is dependent upon an

uncertain event) 7
CONTRACT OF SALE OF GOODS
PERISHING OF GOODS – EFFECTS
When the condition of the goods is alternated in such a way that they do not
match their description provided in the contract.

1.Goods perishing before contract

A contract for sale of goods is void if the goods have perished without the
knowledge of the seller before the formation of contract. However, if seller
has knowledge of the perishing of goods and he enters into the contract of the
sale with buyer, the seller is bound to compensate the buyer. If the buyer has
the knowledge of the perishing of goods, he has no right to claim
compensation. (Section 7)

2.Perishing after Agreement to Sell

When there is an agreement to sell goods and the goods perish without any
fault of the seller or buyer, the contract becomes void (Section 8)
If the contract is indivisible and some of the goods perish, the contract
remains void. If the contract is divisible the contract remains valid with
regards to the goods in good condition.
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CONTRACT OF SALE OF GOODS
FIXATATION OF PRICE
Price is essential in a contract of sale of goods. A valid sale cannot take
place without a price. The price may be fixed by the parties in the following
ways (Section 9)
1.Parties (parties may fix it at their discretion)
2.Agreed method (the parties may decide the method of determining price)
3.Course of dealing (price may be determined according to the customs and
usage of trade)
4.Third party (the parties may agree to sell the goods on the price fixed by a
third party)
5.Reasonable price (if the price is not fixed by any of the above modes, the
buyer is bound to pay the seller a reasonable price. It is dependent upon
circumstances of each case)

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CONDITIONS AND WARRANTIES

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CONDITIONS AND WARRANTIES

A contract of sale of goods contains various terms or stipulations

regarding the quality, the price, the mode of payment, the
delivery of goods, the time of performance and the place where
the goods are to be sent etc.

The major terms are called conditions

The minor terms are called warranties.

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CONDITIONS AND WARRANTIES
CONDITION
Section 12(2) of the Sale of Goods Act states:
“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 essential for the main purpose of the contract. Its non-
fulfillment causes irreparable loss to the aggrieved party. In case of violation of
condition, the aggrieved party has a right to terminate the contract or to claim
damages in case of acceptance of contract.
EXAMPLES
a)A contracts to deliver 100 iPhones to B but delivers 100 Samsung phones. It
is a breach of condition. B can choose to accept or reject the contract and claim
damages.
b)B asked M, a car dealer to suggest him a car for touring purposes. M
suggested a Buggatti car. B purchased it and found it unfit. Held: it was a breach
of condition therefore B could return the car.
(Baldry vs Marshall)

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CONDITIONS AND WARRANTIES

WARRANTY
Sec, 12(3) states
“A warranty is stipulation collateral to the main purpose of the
contract, the breach of which gives rise to a claim for damages but not right
to reject the goods and treat the contract as repudiated.”
In other words, a warranty is not essential for the main purpose of the
contract. The breach of warranty gives the injured party a right to recover
damages only but not to terminate the contract.

EXAMPLE
A promises to deliver 100 fans to B at his office. But A delivers the fans at his
home. It is breach of warranty. B can claim damages only.

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CONDITIONS AND WARRANTIES
Sr. Elements Condition Warranty

1. Value A condition is a stipulation A warranty is a stipulation not

essential to the main purpose of essential to the main purpose of
the contract. the contract.
2. Basis It forms the basis of a contract It does not form the basis of a
and goes direct to the root of contract and does not go direct
the contract. to the root of the contract.
3. Breach The breach of a condition gives The breach of warranty does not
the aggrieved party the right to give the aggrieved party a right
reject the contract. to reject the contract.
4. Treatment In breach of condition may be A breach of warranty cannot be
treated as a breach of warranty. treated as a breach of condition.

5. Option The aggrieved party has an The aggrieved party as no

option to reject the contract or option to reject the contract. He
claim damages can only claim damages.
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CONDITIONS AND WARRANTIES
When Condition Treated as Warranty
According to S.13 of the SoGA, a breach of condition is treated as breach of warranty
in the following ways:
1.When the buyer waives of performance of the condition for his own benefit.
2.When the buyer decides to treat the breach of condition as breach of warranty, he
can claim damages instead of rejecting the contract
3.Where the contract is indivisible and the buyer has accepted the whole goods, or any
party thereof.
4.When the condition of any contract cannot be fulfilled due to impossibility or any
other reason.

Example
C agrees to supply first grade sugar to B but supplies second grade. B can choose to
out rightly reject it or B may accept the second grade sugar and claim damages.
J contracted to sell horns to R. The horns were delivered in 19 boxes by instalments. R
accepts one box an rejects all others being dented. J sued for the price of all horns. It
was held that R could reject it.
(Jackson vs Rotax Motor Car Co.)

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CONDITIONS AND WARRANTIES
EXPRESS & IMPLIED CONDITIONS AND WARRANTIES
The conditions and warranties which are included in contract are called
express. Correspondingly, the conditions and warranties which are not included
in the contract but the law presumes their existence in the contract are called
implied.

IMPLIED CONDITIONS
Unless otherwise agreed, the law includes the following conditions in a contract
of sale of good.

1.Title (Sec. 14(a))

It is implied condition that in a sale the seller has a right to sell goods and in an
agreement to sell he will have a right to sell the goods at the time when the
ownership is to pass. Thus, if the seller's title proves to be defective the buyer
can reject the goods and recover his price. (
Example
R purchased a car from D. After, the police took away the car as it was stolen.
R sued D to recover the price. Held, that R can recover the‘ price.
(Rowland vs. Dival) 16
CONDITIONS AND WARRANTIES
2. Sale By Description (Sec. 15)
In a contract of sale of goods by description; it is an implied condition that the goods
shall correspond with the description. If the goods are not according to the
description, the buyer can reject the goods. If the seller supplies different goods,
the buyer is not bound to accept such goods. Example
a) S contracted to supply new Singer car to A. The car supplied had run some
mileage. It was held that there was a breach of condition and A could reject the
car. (Andrew Bros vs. Singer & Co)
3. Sale By Sample (Sec. 17)
In case of sale by sample, the goods must be. supplied according to a sample agreed.
It is subjected to the following are conditions.
a) The bulk shall correspond with the sample in quality.
b) The buyer shall have reasonable opportunity to compare the bulk with the
sample.
c) The goods shall be free from any defect.
For example, there was sale by sample of two parcels of wheat. The seller showed the
bulk of one parcel but not the other. It was held' that the buyer could cancel the
contract. (Lorymer vs. Smith)
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CONDITIONS AND WARRANTIES
4. Sale by Sample as Well as by Description (Sec.15)
When the goods are sold by sample as well by description, there is an implied
condition that the bulk of the goods shall correspond with the sample and the
description. If the goods supplied correspond only with the sample and not the
with the description. Or vice versa the buyer can reject the goods. For
example, N agreed to sell G foreign refined grape oil. The oil supplied
corresponded with the sample but was mixed with hemp oil. Held that the oil
was not in accordance with the description, so the buyer could reject.
(Nichol vs. Godts)
5. Fitness or Quality (Sec. 16(1))
Where the buyer informs to the seller about the particular purpose for which the
goods are required, there is an implied condition that the goods shall be
reasonably fit for such purpose. This condition applies if the following
requirements are satisfied.
a) The buyer should inform the seller about the purpose of goods.
b) The buyer should rely on the seller's skill or judgment.
c) The seller’s business must be to sell goods of that type.
For example, A enters into an agreement with B to buy 100 oil filters to be used
for Suzuki cars. The oil filters were unfit. A can reject them. 18
CONDITIONS AND WARRANTIES
6. Merchantable Quality (Sec.16(2))
The term merchantable means that the goods must be fit for the ordinary purpose
for which such goods are used. Where goods are bought by description from
seller who deals in goods of that description, whether he is the; manufacturer
or producer or not there is implied condition that the goods shall be of
merchantable quality. The goods must be free from hidden defects.
For example, M bought a battle of wine from F. When M tried to open the battle a
piece of it brake off and injured him. Held that the bottle was not of
merchantable quality
(Morelli vs. Fitch & Gibbons)

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CONDITIONS AND WARRANTIES
IMPLIED WARRANTIES
The SoGA includes following warranties into a contract.
1.Possession of Goods (Sec.14(b))
It is an implied assurance to the buyer that he shall have the possession and enjoyment of
the goods. lf the buyer is disturbed in the enjoyment of the goods due to the seller’s
defective title, he can claim damages from the seller.
For example, M purchased a second hand typewriter from B. M spend money on its repair
and used it for some months. The typewriter was found to be stolen and M had to return it
to its true owner. Held, M could recover damages and price. (Mason vs
Burningham)
2.Freedom from Encumbrances (Sec.14 (c))
Encumbrance mean a claim against the goods by a person who is not the owner. It is
implied warranty on the part of seller that the goods shall be free from any encumbrance. If
the possession of the buyer is disturbed due to encumbrance in favour of third party he can
claim damages.
For example, A pledges his car with B and promises to give its possession the next day. A
sells his car to X. B asks X about the pledge affair. X pays the amount of pledge to B. X can
recover compensation from A. 20
CONDITIONS AND WARRANTIES
3. Custom of Trade (Sec. 16(3))
An implied warranty for a particular purpose may be linked to the custom of
trade. It will apply if a particular practice prevails in a particular trade.
For example, a whole market offers to pay damage on the fading of colour of
cloth. Every seller of cloth of that market will be bound by this warranty.

4. DISCLOSURE OF DANGEROUS GOODS

The implied warranty on the part of the seller is that if the goods are of
dangerous nature he will warn the ignorant buyer about the probable danger.
In case of breach of this warranty the buyer is entitled to claim compensation
for the injury caused to him.
For example, C purchased a tin of disinfectant powder from A. A knew that if tin
is not opened with special care it may be dangerous but told nothing to C. C
opened the tin in the normal way and as a result the powder flew into his eyes
and caused injury. A was held liable
(Clarke vs. Army & Navy Coop Ltd)

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CONDITIONS AND WARRANTIES
DOCTRINE OF CAVEAT EMPTOR
Caveat Emptor essentially means “let the buyer beware”.
According to this principle it is the duty of the buyer to be careful while
purchasing goods of his requirement. The buyer must examine the goods
thoroughly. He should also see that the goods are suitable for his purpose. If the
goods prove to be defective or do not suit his purpose, the buyer cannot hold the
seller liable for the same.
For example, A purchases a horse from B.A needs the horse for riding but he
does not mention to B. The horse is not suitable for riding. Nonetheless, A
cannot reject the horse.
EXEPTIONS
1.Purchase by Samples And Description (Sec. 15)
Where the goods are bought by sample as well as by description and the bulk of
the goods do not correspond both with the sample or with the description, the
buyer is entitled to reject the goods.
For example, A sells oil filter to B saying that it is genuine and fit for Corolla
car. B finds that it is fit but not genuine. B can reject it.
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CONDITIONS AND WARRANTIES
2. Fitness for Purpose (See16(1))
Where the buyer informs the seller about particular purpose for which he needs
the goods and relies upon seller's skill and judgment. The seller must supply
the goods which shall be fit for the buyers purpose.
For example, C tells B, a car dealer that he needs a motorcycle for touring
purposes. B sells him a bike not fit to do so. It is a breach of condition.

3. Mercantile Quality (Sec.16(2))

Where the goods are bought by description from a seller who deals in goods
of that description, there is an implied condition that the goods shall be of
merchantable quality. It means that if the goods are not fit consumption,
the seller will be liable.
For example, A bought a milk from B, a dairyman, It was contaminated by
germs. A's wife got infected and died of it B was held liable in damages.

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CONDITIONS AND WARRANTIES
4. Fraud (Sec.17 of Contract Act)
Where the seller makes a wrong statement intentionally to the buyer and the
buyer relies on it or where the seller actively conceals the defects in the
goods, which could not be discovered on a reasonable examination this
principle does not apply.
For example, A knows that his watch is made in Pakistan. In order to sell his
watch A. tells B that it is made in Switzerland. B buys the watch. B can
reject the contract.

5. Misrepresentation (Sec.18 of Contract Act)

Where the seller makes a misrepresentation arid the buyer relies on it the
doctrine of caveat emptor does not apply. Such a contract is voidable at
the option of the buyer. The buyer can reject the contract.
For example, A while selling his horse to B, tells him that the horse is
sound. B buys it and finds the horse to be unsound. B can reject the
contract.
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