Definition

Buyer: Party which acquires, or agrees to acquire, ownership (in case of goods), or benefit or usage (in case of services), in exchange for money or other  consideration under a contract of sale. Also called purchaser.

Seller: A party that makes, offers or contracts to make a sale to an actual or potential buyer is called a seller.

Goods: An inherently useful and relatively scarce tangible item (article, commodity, material, merchandise, supply,wares) produced from agricultural,  construction, manufacturing, or mining activities. According to the UN Convention On Contract For The International Sale Of Goods, the term 'good' does not include items bought for personal use, items bought at an auction or foreclosure sale, aircraft or oceangoing vessels.

KINDS OF GOODS :

Following are the important kinds of goods :

1. Existing Goods :-The seller possessing the goods at the time of entering into contract are called existing goods. The goods must be in actual existence. It has two kinds :

i. Specific Goods :- When goods are identified and agreed upon at the time of contract of sale are called specific goods. In this case contract completes by delivering two goods agreed upon.

Example :- "X" agrees to sell "Y" a Honda motor cycle which bears number, it is a contract so specified goods.

ii. Unascertained Goods :- If the goods cannot be identified separately at the time of contract, it is called unascertained good. Such type of gods are described by sample or description. In this case seller is not bound to supply any particular good.

Example :- If "A" agrees to sell "B" one hen out of 100 living in shed. It is a contract of unascertained goods.

2. Future Goods :-Such type of goods are not in the possession of the seller and not available at the time of contract. Future goods are produced or acquired by the seller after making the contract. So there may be agreement to sell for future goods.

Example :- Mr. Zain agrees to sell Mr. Jack a computer which he will import after a month. It is contract of sale.

3. Contingent Goods :-Such goods are not available at the time of contract like future goods. The acquisition of the such goods by the seller depends upon contingency which may happen or not.

Example :- Mr. Dane agrees to sell Mr. George the diamond provided he is able to import. It is a contract for the sale of contingent goods.

Sale and Agreement to Sell

Definition of Sale:

In general, a transaction between two parties where the buyer receives goods (tangible or intangible), services and/or assets in exchange for money.

Agreement to Sell:

A written agreement between seller and purchaser in which the purchaser agrees to buy certain real estate and the seller agrees to sell upon terms of the agreement. Also called OFFER AND ACCEPTANCE, CONTRACT OF SALE, EARNEST MONEY contract.

Example: Abel’s broker prepared an agreement of sale to sell a home to Baker. Both principals signed it. It states that the price of $500,000 is to be paid in cash at closing, subject to Baker’s ability to arrange a $400,000 loan at an 8% interest rate.

Difference between Sale and Agreement to Sell

A sale and an agreement to sell can be distinguished as:

1. Transfer of Property (Ownership): In a sale, the property in goods or the ownership is immediately transferred from the seller to the buyer.

In an agreement to sell the property in the goods is not transferred immediately at the time of contract, but the ownership is transferred at a later time either at the expiry of a certain period or fulfillment of certain condition. Until then, the seller continues to be the owner of the goods.

2. Risk of Loss: The general rule is that, unless otherwise agreed, the risk of loss passes with property. In case of sale, if the goods are destroyed the loss falls on the buyer, even if the buyer is not in possession of goods because the ownership has been transferred.

In an agreement to sell, the loss is to be borne by the seller because the ownership has still not passed on to the buyer, even if the buyer has possession of it.

3. Consequences of Breach: In case of sale, if the buyer fails or refuses to pay the price of the goods, the seller can sue for the price, even if he has the possession of goods.

In an agreement to sell, if the buyer fails to accept and pay the price, the seller can sue him only for damages and not for the price, even if the goods in possession of the buyer.

4. Right of Resale: In a sale the property of goods is immediately transferred to the buyer and so the seller (even if the goods are in his possession) cannot result the goods. If the seller does so, the subsequent buyer cannot acquire the title to the goods. The original

buyer can recover the goods from the third person and can also sue the seller for the breach of contract.

In an agreement to sell, the seller can sell the goods to anyone as he has the property of goods and the new buyer gets the title of goods as he purchases the goods for consideration and without any notice of prior agreement. In such  a case the original buyer can only sue for damages.

5. Buyers Insolvency: In a sale, if the buyer becomes insolvent before he pays the price of the goods, the seller will have to deliver the goods to the official assignee or receiver and he can only claim dividend for the price of the goods.

In an agreement to sell, if the buyer becomes insolvent and has not paid the price, the seller can refuse to deliver the goods to the official assignee or receiver until paid in full.

6. Seller’s Insolvency: If the seller becomes insolvent then in case of sale the buyer is entitled to recover the goods from the official assignee of receiver since the ownership has been transferred to the buyer.

In case of an agreement to sell, if the buyer has paid the full price, he can only claim a rateable dividend and not the goods because the property in the goods still rests with the seller.

7. Nature of Contract: A sale is an executed contract. An agreement to sell is an executary contract.

8. Types of Goods: A sale can only be in the case of existing and specific goods. An agreement to sell mostly takes place in the case of

9. future and contingent goods.

Essential Elements for Valid Contracts

Contracts that meet all legal requirements are valid and enforceable, which means that either party can hold the other party responsible for his or her agreement.

1. Offer and acceptance:There must be a ‘lawful offer’ and a ‘lawful acceptance’ of the offer, thus

resulting in an agreement. The adjective ‘lawful’ implies that the offer and acceptance must satisfy the requirements of the Contract Act in relation thereto.

2. Intention to create legal relations:There must be an intention among the parties that the agreement should

be attached by legal consequences and create legal obligations. Agreements of a social or domestic nature do not contemplate legal relations, and as such they do not give rise to a contract.

An agreement to dine at a friend’s house is not an agreement intended to create legal relations and therefore is not a contract. Agreements between husband and wife also lack the intention to create legal relationship and thus do not result in contracts.

Illustrations:(a) M promises his wife N to get her a saree if she will sing a song. N sang the song but M did not bring the saree for her. N cannot bring an action in a Court to enforce the agreement as it lacked the intention to create legal relations.

(b) The defendant was a civil servant stationed in Ceylon. He and his wife were enjoying leave in England. When the defendant was due to return to Ceylon, his wife could not accompany him because of her health.

The defendant agreed to send her £ 30 a month as maintenance expenses during the time they were thus forced to live apart.

She sued for breach of this agreement. Her action was dismissed on the ground that no legal relations had been contemplated and therefore there as no contract. (Balfour vs Balfour)

3. Lawful consideration:The third essential element of a valid contract is the presence of

‘consideration’. Consideration has been defined as the price paid by one party for the promise of the other. An agreement is legally enforceable only when each of the parties to it gives something and gets something.

The something given or obtained is the price for the promise and is called ‘consideration’. Subject to certain exceptions, gratuitous promises are not enforceable at law.

The ‘consideration’ may be an act (doing something) or forbearance (not doing something) or a promise to do or not to do something. It may be past, present or future. But only those considerations are valid which are ‘lawful’.

4. Capacity of parties:The parties to an agreement must be competent to contract; otherwise it

cannot be enforced by a court of law. In order to be competent to contract the parties must be of the age of majority and of sound mind and must not be disqualified from contracting by any law to which they are subject (Sec. 11).

If any of the parties to the agreement suffers from minority, lunacy, idiocy, drunkenness, etc., the agreement is not enforceable at law.

5. Free consent:Free consent of all the parties to an agreement is another essential

element of a valid contract. ‘Consent’ means that the parties must have agreed upon the same thing in the same sense (Sec. 13).

There is absence of free consent’ if the agreement is induced by (ii) coercion, (ii) undue influence, (iii) fraud, (iv) misrepresentation, or (v) mistake (Sec. 14). If the agreement is vitiated by any of the first four factors, the contract would be voidable and cannot be enforced by the party guilty of coercion, undue influence etc.

The other party (i. e., the aggrieved party) can either reject the contract or accept it, subject to the rules laid down in the Act. If the agreement is induced by mutual mistake which is material to the agreement, it would be void (Sec. 20).

6. Lawful object:For the formation of a valid contract it is also necessary that the parties to

an agreement must agree for a lawful object. The object for which the agreement has been entered into must not be fraudulent or illegal or immoral or

opposed to public policy or must not imply injury to the person or property of another (Sec. 23).

If the object is unlawful for one or the other of the reasons mentioned above the agreement is void. Thus, when a landlord knowingly lets a house to a prostitute to carry on prostitution, he cannot recover the rent through a court of law.

7. Writing and registration:According to the Indian Contract Act, a contract may be oral or in

writing. But in certain special cases it lays down that the agreement, to be valid, must be in writing or/and registered. For example, it requires that an agreement to pay a time barred debt must be in writing and an agreement to make a gift for natural love and affection must be in writing and registered (Sec. 25).

Similarly, certain other Acts also require writing or and registration to make the agreement enforceable by law which must be observed.

Thus, (i) an arbitration agreement must be in writing as per the Arbitration and Conciliation Act, 1996; (ii) an agreement for a sale of immovable property must be in writing and registered under the Transfer of Property Act, 1882 before they can be legally enforced.

8. Certainty:Section 29 of the Contract Act provides that “Agreements, the meaning of

which is not certain or capable of being made certain, are void.” In order to give rise to a valid contract the terms of the agreement must not be vague or uncertain. It must be possible to ascertain the meaning of the agreement, for otherwise, it cannot be enforced.

Illustration:A agrees to sell B “a hundred tons of oil.” There is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainty.

9. Possibility of performance:Yet another essential feature of a valid contract is that it must be capable

of performance. Section 56 lays down that “An agreement to do an act impossible in itself is void”. If the act is impossible in itself, physically or legally, the agreement cannot be enforced at law.

Illustration:A, agrees with B to discover treasure by magic. The agreement is not enforceable.

10. Not expressly declared void:

The agreement must not have been expressly declared to be void under the Act. Sections 24-30 specify certain types of agreements which have been expressly declared to be void.

For example, an agreement in restraint of marriage, an agreement in restraint of trade, and an agreement by way of wager have been expressly declared void under Sections 26, 27 and 30 respectively.

Before dealing with the various essentials of a valid contract one by one in detail, it will be appropriate to discuss the ‘kinds of contracts’, first, because we shall be using the terms like ‘voidable contract’, ‘void contract’, ‘void agreement’, etc., very often in the course of our discussion.

Price

Definition of price: The sum or amount of money or its equivalent for which anything is bought, sold, or offered for sale.

Ascertainment of price

1. The price in a contract of sale may be fixed by the contract, or may be left to be fixed in a manner agreed by the contract, or may be determined by the course of dealing between the parties.

2. Where the price is not determined as mentioned in sub-section above the buyer must pay a reasonable price.

3. What is a reasonable price is a question of fact dependent on the circumstances of each particular case.

Destruction of Goods

There are various kinds of goods and the parties have various options to agree about the delivery of the goods. What shall be the fate of a contract if the goods are perished or destroyed?

A. Destruction before making of contract -- Where in a contract for sale of specific goods, at the time of making the contract, the goods, without knowledge of the seller, have perished or become so damaged as no longer to answer to their description in the contract, the contract shall become null and void. This is based on the rule of impossibility of performance. Since the subject matter of the contract, which is one of its essential ingredients, itself is destroyed, the contract cannot be carried out.

'Perishing of goods' includes not only complete destruction of the goods when the seller has been irretrievably deprived by the goods or when the goods have been stolen or have in some other way been lost and are untraceable, but also when the goods become un merchantable i.e. when the goods has lost their commercial value.

B. Destruction After the Agreement to Sell but before Sale -- Where in an agreement to sell specific goods, if subsequently the goods, without any fault on the part of the seller of buyer, perish or become so damaged as no longer answer to their description in the agreement, the agreement shall become void, provided the goods are perished before the ownership and risk passes to the buyer. This rule is based on the ground of impossibility of performance.

If the title to be goods has already passed to the buyer, he must pay for the goods though the same cannot be delivered.

Earnest Money

Definition: A deposit made to a seller showing the buyer's good faith in a transaction. Often used in real estate transactions, earnest money allows the buyer additional time when seeking financing. Earnest money is typically held jointly by the seller and buyer in a trust or escrow account.

Explains 'Earnest Money'

An earnest money deposit shows the seller that a buyer is serious about purchasing a property. When the transaction is finalized, the funds are put toward the buyer's down payment. If the deal falls through, the buyer may not be able to reclaim the deposit. Typically, if the seller terminates the deal, the earnest money will be returned to the buyer. When the buyer is

responsible for retracting the offer, the seller will usually be awarded the money.

Hire Purchase Agreements

Definition:

A method of buying goods through making installment payments over time. The term hire purchase originated in the U.K., and is similar to what are called "rent-to-own" arrangements in the United States. Under a hire purchase contract, the buyer is leasing the goods and does not obtain ownership until the full amount of the contract is paid.

Explains 'Hire Purchase'

Hire purchase is a way of buying goods on credit, which means that you are entering a credit contract. It’s important to know what you are signing up for. This information should be included in a disclosure document that the lender must give you.

A lot of hire purchase agreements are now advertised at 0% interest for a period of time, but that doesn’t mean that there are no extra costs to you. Always ask for a list of everything you’ll have to pay for; this might include charges to prepare the agreement, insurance, admin fees and interest. Whoever you’re buying from should clearly tell you the all-up cost, and if they don’t you should rethink your purchase!

If you’re offered a period of 0% interest, it’s important to ask what the interest rate will be on the amount you still owe after the interest-free period, if you can’t pay back the loan in the interest free period you could end up paying a lot of interest. 

Sale and Other Contracts

There are 8 transactions that resemble Sale of Goods contract but are not a sale of goods contract.

1. Contract of Barter or Exchange.

2. Contract of Gifts3. Contract of Bailment4. Contract of Hire Purchase5. Contract of Loan on Security of goods6. Contract of Supply of services7. Contract of Agency8. Contract of Licences of intellectual property such ‘sales’ of computer software and patents.

The distinction is important because the results are critical to the resolution of disputes if they do go to court.

Remedies available are different for different types of contracts.

Read Distinction of Sale of Goods from the other 8 contracts.

Sale of Goods Act Cap 31 Laws of Kenya Section 3 (4)

“Where under a contract of sale the property in the goods is transferred from the seller to the buyer the contract is called a sale; but, where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell.

Conditions and Warranties

The Sale of Goods Act is an Act to define and amend the law relating to the sale of goods. It also governs the contracts relating to sale of goods. This Act applies to the whole of India except the State of Jammu & Kashmir. It came into force on 1st July 1930. 

The contracts for sale of goods are subject to the general principles of the law relating to contracts i.e. the Indian Contact Act. A contract for sale of goods has, however, certain specific features such as, transfer of ownership of the goods, delivery of goods rights and duties of the buyer and seller, remedies for breach of contract, conditions and warranties implied under a contract for sale of goods. 

a)Buyer: means a person who buys or agrees to buy goods. 

b)Seller: means a person who sells or agrees to sell goods. 

c)Delivery: means a voluntary transfer of possession from one person to another. 

d)Deliverable State: Goods are said to be in deliverable state when the buyer would under contract be bound to take delivery of them. 

e)Bill of lading: is a receipt of goods shipped on board of a ship, signed by the person who contracts to carry them and states the terms on which the goods are delivered to and received by the ship. 

f)Fault: is a wrongful act or default. 

g)Insolvent: A person is said to be insolvent if he has ceased to pay his debts in the ordinary course of business or can not pay his debts as they become due. 

h)Property: means general property in goods and not merely a special property. For example: A owns goods and pledges them to B. A has a general property in the goods, whereas B has a special property (or interest) in them. 

i)Quality of goods: includes the condition or state of the goods. 

II. GOODS: 

1. Define goods? 

Ans: According to section 2(7) of the Sale of Goods Act, 1930, Goods means every kind of movable property, other than actionable claims and money; and includes stocks, 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. 

Thus we can define goods as every kind of movable property except actionable claims and money. 

2. Mention any four items not included in the term-goods as defined by the Act. 

Ans: a) Actionable claims 

b) Money 

c) Sale of immovable property. [Sale of immovable property is governed by Transfer of Property Act] 

d) Labour 

e) Stocks, shares and securities. 

3. What is meant by the term-price? 

Ans: Price means the money consideration for a sale of goods. If goods are given without any consideration, the transaction amounts to a gift but not a sale of goods. Similarly, exchange of goods for others without any consideration amounts to a barter or exchange. Thus money is the only consideration for sale of goods.

Implied Condition

IMPLIED CONDITIONS :-Those conditions are not included in the contract but the law presumes their existence in the contract are called implied conditions.

Following conditions are included by law in to a contract of sale of goods.

1. Right To Sell :-This right is considered as an implied conditions in every sale contract. It is presumed that he can sell the goods and he can enter in sale agreement.

2. Sale By Description :-In this case implied condition is that goods shall the correspond with the description. A buyer can reject if the goods if these are not according the description.

3. Sale By Sample :-In this case goods must be supplied according the sample agreed upon condition.

i. The buyer may be able to compare the sample with the bulk.

ii. The goods should be free from any defect.

iii. The bulk should match with the quality of the sample.

4. Sale By Sample & Description :-In this case goods supplied must correspond with sample and description both. So there is implied condition in it that if bulk does not match with one even then buyer may reject the goods.

5. Condition of Merchantable Quality :-Merchantable quality means that the goods must be sale able in the market as goods of that description are sold. In case of any defect a seller must inform the buyer. It is implied condition.

6. Conditions As Quality To Fitness :-Sometimes buyer informs the seller that he wants to purchase the goods for particular purpose. It is implied condition that goods shall serve the purpose of buyer. As the buyer relays on the sellers skill then seller should provide the goods according the description.

7. Wholesomeness Condition :-It means conductive to health. When someone makes a sale of contract about the eatable goods this condition is applied. If some one supply the goods and it damages to health then supplier will be liable for damages.

Example :- Sams Food Company supplied food on the marriage party of Mr. Vicky. After eating the food people were infected and died. The company was held liable in damages.

The Doctorine of Cavleat Emptor

It means that buyer should be very careful in a contract of sale. While purchasing the goods the buyer should check the goods carefully. If a buyer purchases the goods and after it he comes to know that these are defective. In this case seller will not be responsible for this defect. The object of this

principle is to make the buyer more careful in purchasing. It is his duty that he should check the quality and fitness of the commodity which he needs.

This law is framed to save the buyer from the expected loss in future.

Example :- Mr. Krishna went to market and purchased a bike to take a part in Bike race competition. But he did not tell the seller that for which purpose he is buying. When he reached home, he came to know that this bike is not suitable for bike race competition. Due to the principal of Caveat Emptor Mr. Krishna can neither reject the bike nor can claim for compensation.

1. Practical Purpose Known To Seller :-If the buyer informs and explains to the seller that the required goods are needed for such particular purpose. He relies on the seller's skill and his judgement. In this situation seller is responsible to supply the goods, fit for that particular purpose.

2. Purchase By Description :-If a buyer enters into sale contract by description with the seller, it is an implied condition that good will be supplied according the same quality.

Example :- Mr. Ghumun sells the butter to Mr. Rakha saying that it is a pure butter and there is no any mixing in it. When Mr. Rakha uses it, he comes to know that there is adulteration in it. Now Mr. Ghumun will be held responsible.

In this case two conditions are compulsory, "Purchase by description and seller deal in good as of that description."

3. Misrepresentation By Seller :-The seller will be liable for compensation if he sells goods to buyer by making misrepresentation.

4. Concealment By Seller :-If a seller does not disclose the defects of the goods to the buyer which could not be discovered after a proper examination this principal does not apply.

5. Bulk According to Sample :-

The principal of Caveat Emptor does not apply the bulk of the goods does not correspond with the sample.

6. Merchantable Quality :-Where goods are purchased by description from the seller who deals such goods are not of merchantable quality the principal does not apply.

7. Sample and Description :-The buyer is entitled to reject the goods if the goods are bought by sample as well as description and the bulk does not correspond with both.

Implied Warrantis

Definition:

Under a sales contract, whether written or oral, there is a guarantee that the item sold is merchantable and fit for the purpose intended. This guarantee arises by operation of law and is in addition to any expressed warranties that are provided at the time of sale. These implied warranties exist to protect consumers who might otherwise pay for products that are not as represented by the merchant.

Explains 'Implied Warranty'

Most products you buy do not come with a written warranty. For example, when you go to the supermarket, you assume that the stocked items are fresh and edible. This is especially important when the food is prepackaged and you can't visibly inspect it. In such cases, you are relying on the market's implied warranties when you check out and pay your bill. If you get home and the milk is sour, you can expect to return it for a full refund.

Liabilities of Seller

The Transfer of Property Act, 1882 provides for certain rights and liabilities of a seller in the absence of any contract to the contrary. Before the completion of the Sale, the seller is liable to disclose material defects in the

property or in the seller’s title thereto, to produce title deeds, to answer questions as to title, to execute conveyance, to take care of the property and to pay outgoings. After the completion of the Sale, the seller is liable to give possession to the buyer, to covenant for title impliedly (since the covenant implies an absolute warranty of title) and to deliver title deeds on receipt of price. The seller shall be deemed to contract with the buyer that the interest which he transfers to the buyer subsists and that he has the power to transfer the same. If the buyer takes possession of the property before the completion of the sale, the seller is entitled to interest on the unpaid purchase money from the date on which the possession is taken.