Sale Of Goods: In Domestic And International Domain

By Dipti Khatri, UPES Dehradun

Editor’s Note: Sale of goods is an economic activity that takes place, both at the individual and at a commercial scale. Sale of Goods operates between the two antonymic maxims of caveat emptor and caveat venditor. In India, the sale of goods is governed by the Sale of Goods Act, 1930. The following project deals with the sale of goods by way of a show of samples. Samples are mainly used in the sale of goods as tangible proof of the quality promised by the buyer to the seller.

Introduction

There was no uniformity of laws in British India relating to Sale of Goods prior to the passing of the Indian Contract Act 1872, which included laws on sale of goods and laws on partnership, in its pure form. 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 the sale of goods are subject to the general principles of the law relating to contracts i.e. the Indian Contract Act. A contract for the 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 the sale of goods

Conditions and Warranty

As a general rule when a person buys something it is his duty to see whether that something suits his purpose or not. He cannot hold any body responsible for making a bad choice. This is known as the doctrine of caveat emptor when seller gives express condition or warranty regarding a product; he is bound to honor that. In case the goods bought do not comply with such condition or warranty, the seller is liable to compensate the buyer. Even in the absence of express stipulations by the seller, law presumes that products should meet certain conditions and warranties, breach of which has the same effect as the breach of express stipulations.

The Sale of Goods Act, 1930, recognize the condition and warranty separately although both the terms denote the promise made by the seller The difference lies in the nature of the promise. If the promise is such that it affects the very basis of the contract, it is a condition. If the promise is such that it is collateral to the main purpose of the contract it is a warranty. The severity of the consequences of the breach depends upon the nature of the promise. If the promise is such that it should meet certain conditions and warranties, breach of which has the same effect as the breach of express stipulations.

The Sale of Goods Act, 1930, recognize the condition and warranty separately although both the terms denote the promise made by the seller The difference lies in the nature of the promise. If the promise is such that it affects the very basis of the contract, it is a condition. If the promise is such that it is collateral to the main purpose of the contract it is a warranty. The severity of the consequences of the breach depends upon the nature of the promise.

According to Section 12 (2) of the Sale of Goods Act, the 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 forms the very basis of the contract the breach of which causes irreparable damage to the buyer, and he has a right to terminate the contract of sale entitling him to return the goods and get the refund of the price paid. It goes to the root of the contract.

In Baldry v. Marshall (1925), A consulted a car dealer and told him that he wanted to purchase a car for touring purposes suggested that a Buggati car will be fit for the purpose. Relying upon the statement, he bought the Buggati car. Later on, the car turned to be unfit for the purpose of touring.

The Court observed that the suitability of the car for touring purpose was a condition because it was so important that the non-fulfillment defeated the very purpose of defeated the very purpose of purchasing the car. It was held that A was entitled to return the car and get back the price paid.

In Wallis v. Pratt, 1910 2 K.B.1012, Lord Justice, Fletcher Moulton defined condition as ,”an obligation which goes so directly to the substance of the contract, or in other words, is so essential to its very nature ,that its non-performance will fairly be considered by the other party as a substantial failure to perform the contract at all.

Whether any express condition is made or not law presumes certain standards which are to be ensured by the seller before selling any product. These presumptions as to nature, quality, and rightful ownership of the product are termed as implied conditions. The implied conditions in the sale of goods are laid down in Sections 14 to 17.

  1. CONDITION AS TO TITLE:

    It is presumed in law that in the case of a sale, the seller has the right to sell the Goods, and in the case of an agreement to sell them, the seller will have the right to sell the goods at the time of sale. In case a seller sells without the right to sell them, the buyer has the right to repudiate the contract. The term “right to sell” infers that the seller should have a valid title to the Goods.

    According to section 14 of the Act, In a contract of sale, unless the circumstances of the contract are such as to show different attention, there is an implied condition on the part of the seller that­-

    (a).in the case of a sale, the seller has the right to sell,

    (b).in the case of an agreement to sell the seller will have a right to sell at the time of sale.

  2. SALE BY DESCRIPTION:

    “If you contract to sell peas, you cannot oblige a party to take beans.” This is the rule laid down in Section 15, where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description.

    In Bowes v. Shand, 1877 App.Cas.455, it was held that if the description of the article tendered is different in any respect, it is not the article bargained for and the other party is not bound to take it. Goods are sold by description when they are described in the contract, as farm wheat, Australian Apple, Indian silk etc and the buyer contracts in reliance on that description.

    In Shepherd v. Kane (1821)5b&Ald.240, A ship was contracted to be sold as “copper-fastened vessel” to be taken with all faults, without any allowance for any defects whatsoever. The ship turned to be partially Copper fastened. The court held that the buyer was entitled to reject the goods.

When a descriptive word or phrase is used in a contract of sale to describe the product it creates an implied condition that the goods will correspond to the description. For example, a sale of Seedless Grapes signifies that the fruit will have no seeds. If it turns that the fruit is with seeds the buyer can reject the goods.

Sale by description as well as by sample: Section 15 further provides that if the sale is by the sample as well as by description then it is not sufficient that it corresponds to the description but it should also correspond to the sample.

In Wallis v. Pratt, (1911­) A.C .394, in a contract for the sale of a quantity of the sale of seed described as “common English Sainfoin”, the seed supplied was of a different kind, though the defect was not discoverable except by showing the defect also existed in the sample. Held the buyer was entitled to recover damages for the breach of contract.

  1. CONDITION AS TO QUALITY OR FITNESS:

    Ordinarily, there is no implied condition that the goods supplied by the seller should be fit for the particular purpose of the buyer. The rule Caveat emptor applies instead. It means that while buying it is the responsibility of the buyer to ensure that the goods correspond to the particular purpose he wants to meet. However, in the following situation, the responsibility of the fitness as to Goods falls on the seller.

    The buyer makes known to the seller the particular purpose for which he requires goods. The buyer and seller rely on the skill and judgment of the buyer. The sellers business is to supply such goods whether he is the manufacturer or producer or not.

    Firstly the particular purpose for which goods are required must be known to the seller. The purpose may be made known explicitly or by implication. If the goods can be used for many purposes, the buyer should make known the specific purpose to the seller; otherwise, the condition as to fitness would not apply.

  1. CONDITION AS TO MERCHANTABILITY:

    Section 16 (2)- Where goods are bought by description from a seller who deals in goods of that description whether he is not the producer or manufacturer or not, there is an implied condition that the goods shall be of merchantable quality

The above provision reveals that the condition of merchantability is applicable when,

  1. The goods are sold by description, b) The seller deals with such goods.

Thus when Mohan a blacksmith sells to Das his old car, no implied condition as to merchantability applies. Merchantable means that the goods must be fit for the ordinary purpose for which such goods are used. For example, when shoes are sold, merchantability requires that the shoes have their heels attached well enough, that they will not break off under the normal use.

  1. CONDITION AS TO WHOLESOMENESS:

    In the case of food products the condition of fitness or merchantability requires that the goods should be wholesome, that is it should be fit for consumption.

  2. CONDITION IMPLIED BY CUSTOM:

    An implied condition as to quality or fitness for a particular may be annexed by the usage of trade. Section 16(3), there are instances where the purpose of purchasing goods may be ascertained from the conduct of parties to the sale. Or from the nature of the description of the thing purchased. For, example if a water bottle is purchased the purpose for which it is bought is implied in it; in that case, the buyer need not tell the seller the purpose for which he buys it.

  3. SALE BY SAMPLE:

    A contract of sale by the sample is a contract for sale by sample where there is a term express or implied in the contract, to that effect. (Section 17).In the case of a contract of sale by sample, there is an implied condition –

1.That the bulk shall correspond to the sample in quality.

2. That the buyer shall have a reasonable opportunity of comparing the bulk with the sample.

3. That the goods shall be free from any defect, rendering them un-merchantable.The defect should not, however, be apparent on a reasonable examination of the sample.

In the case of a patent defect, there is no breach of implied condition as to merchantability.

In Mody v. Gregson, L.R.4E.X.49, in a contract for the sale of brandy, by sample brandy colored with a dye was supplied. The court held that the buyer was not bound to the contract even though the goods supplied were equal to the sample. As the defects were not apparent on the reasonable examination of the sample.

In E & S Ruben Ltd v. Fair Bros, 1949 1K.B.254.A agreed to buy some rubber material from B. The sample of the rubber was shown to A. On receiving the rubber material, A found that the measurement of the rubber material was different from that of the sample. The court held that measurement of the rubber material was part of its quality. It was held that the goods did not correspond to the sample.

In Lorymer V. Smith, (1822) 1 B&C1., Two parcels of wheat were sold by sample. The buyer went to examine the wheat a week later. One parcel was shown to him but the seller refused to show the other parcel as it was not there. In this case, the buyer was not given a reasonable opportunity to test the bulk with the sample. The court held that the buyer was entitled to reject the contract of sale.

When condition to be treated as warranty: Where a contract of sale is subject to a condition to be fulfilled by the seller the buyer may waive the condition, or may elect to treat the breach of the condition as a breach of warranty and not as a ground for treating the contract as repudiated.

Whether a stipulation in a contract of sale is a condition, the breach of which may give rise to a right to treat the contract as repudiated, or a warranty, the breach of which may give rise to a claim for damages but not a right to reject the goods and treat the contract as repudiated, depends in each case on the construction of the contract; and a stipulation may be a condition, although called a warranty in the contract.

Where a contract of sale is not severable and the buyer has accepted the goods or part of them, the breach of a condition to be fulfilled by the seller can only be treated as a breach of warranty, and not as a ground for rejecting the goods and treating the contract as repudiated, unless there is an express or implied term of the contract to that effect.

In Scotland, failure by the seller to perform any material part of a contract of sale is a breach of contract, which entitles the buyer either within a reasonable time after delivery to reject the goods and treat the contract as repudiated, or to retain the goods and treat the failure to perform such material part as a breach which may give rise to a claim for compensation or damages.

Nothing in this section affects a condition or warranty whose fulfillment is excused by law by reason of impossibility or otherwise.[i]

Sale By Sample (along with a description)  

Sale of Goods Act 1930, Section 17, talks of sale by sample. Clause 1 states that a contract of sale becomes a contract for sale by sample where there is a term in the contract, express or implied, to that effect. A contract for sale by sample comprises of the following implied conditions:

  • that the bulk shall correspond with the sample in quality;
  • that the buyer shall have a reasonable opportunity of comparing the bulk with the sample;
  • that the goods shall be free from any defects, rendering them unmerchantable, which would not be apparent on reasonable examination of the sample.

Illustrative Case Laws:

  1. Sale by the sample on 11 September of two parcels of wheat containing 700 and 1400 bushels respectively. The buyer went to examine the bulk on 19 September. The parcel containing the 700 bushels which were lying in the seller’s warehouse was shown to him, but the seller refused to show him the other parcel which was not at the warehouse.

    The buyer was held entitled to rescind the contract and the fact that a few days later the seller offered the buyer the opportunity to inspect the second parcel did not affect the matter.[ii] the right of inspecting the bulk before delivery is not the same as the right to examine on delivery provided by Section 41.

    Consequently, when the right to inspection under Section 17(2), sub-clause (b) is excluded either expressly or impliedly, the buyer still has the right to examination after delivery they prove not to be in accordance with the contract.[iii]the rule is, however, modified in CIF sales, in that the buyer must pay against documents before examining the goods, though later on, he may be in a position to reject non-conforming goods.[iv]

  2. Sale by the sample of mixed worsted coatings to be in quality and weight equal to the samples. The goods owing to a latent defect would not stand ordinary wear when made up into coats and were therefore not merchantable. The same defect appeared in the samples but could not be detected on a reasonable examination. The buyer was held entitled to recover damages.[v]

    Sub-section 2(c) is really a special application of the principle that the seller’s duty to furnish merchantable goods answering the description in the contract is paramount to any particular condition or warranty. it will not avail him that the sample was faulty.[vi]

Evidence may be given of usage of trade to show that the sale was a sale by sample.[vii]A sale at which a specimen of the goods is exhibited is not necessarily a sale by sample, for it is inconsistent with the buyer relying on the description alone and not stipulating for conformity to the specimen produced.[viii] This distinction is not likely to be of frequent importance in modern practice.

In one case,[ix] Ameer Ali J decided that where samples are analyzed and transformed into a formula, the same may still be by the sample. The extent to which the goods must correspond with the sample would depend on the contract and what is contemplated by the parties in regard to it. In some cases, a mere visual comparison is intended and there may in other cases be a test by touching, or by chemical analysis or even microscopic examination. It would not, however, be open to a buyer to submit a sample to an analysis unusual in the trade so as to reveal in it certain attributes or qualities hitherto unsuspected, and then to require, by virtue of the sample clause alone, that the bulk should contain the same qualities.[x]

Sale of Goods Act, 1979

Businesses, as well as consumers, are usually free to enter into contracts on whatever terms they see fit to agree.  However, contracts involving sales of goods can be subject to a range of statutory provisions.  Consumers have greater protection than buyers who are ‘dealing in the course of a business’.  ‘Let the buyer beware’ or ‘caveat emptor’ does not apply to all transactions and anyone selling goods in the course of a business to consumers should be aware that the law will imply certain terms into all such transactions.

Consumers are defined as people who are buying for purposes not related to their trade, business or profession.

  1. Legislation

The Sale and Supply of Goods Act 1994 introduced significant changes to areas formerly covered by the Sale of Goods Act 1979, the Supply of Goods (Implied Terms) Act 1973, and the Supply of Goods and Services Act 1982.  However, the 1979 Act, as amended, remains the bedrock of our sale of goods law.  General sale of goods law is discussed in this fact sheet.

Our fact sheet on Sale of Goods Law (Consumer Protection) deals with legislation that is specifically designed to protect buyers who are consumers.  This includes the Unfair Terms in Consumer Contracts Regulations 1999, the Consumer Protection (Distance Selling) Regulations 2000, the Sale and Supply of Goods to Consumers Regulations 2002 and the Consumer Protection (Cancellation of Contracts Concluded away from Business Premises) Regulations 1987.

  1. Implied Terms

The terms implied into most sales of goods contracts are found in sections 12–15 of the 1979 Act.  Broadly speaking, they are:

Section 12: Title – The general rule is that a seller must have a good title, that is to say, ownership and the right to sell the goods they are selling.  If the goods are stolen, the seller will not have the right to sell them and the buyer will not obtain ‘good title’.  In such a situation the buyer might well find they have to return the stolen goods to the rightful owner and seek compensation from the seller, assuming they can be found.

Similarly, a person who has possession of goods that are subject to a hire purchase (HP) contract will not usually be entitled to sell them while finance is still outstanding because it is the finance company that actually owns the goods.

Section 12 applies to people selling goods privately as well as to those selling goods in the course of their business and is one of strict liability.  So, the fact that the seller did not know the goods were stolen is no defense to a claim for a full refund from the buyer.

Section 13: Description – If you are selling something by description it must correspond with the description given to it.  So, a car advertised as being a 1994 model must be a 1994 model, rather than the front end of a 1994 model welded to the rear end of a 1990 model. Goods bought over the counter may be a sale by description so, if the buyer relies, at least in part, on any description given by the seller, those goods must correspond with that description.

As with Section 12, this section applies to both private sellers and those selling goods in the course of a business and is again one of strict liability.  That means if a seller advertises a car for sale saying it is a 1994 model when in fact it is something else, the car will not correspond with the description.  It is no defense to rely on information provided in the registration documents.

Section 14(2): Quality – The Sale and Supply of Goods Act 1994 introduced the requirement that goods be of a satisfactory quality.  This section of the Act applies only to sellers who are acting in the course of business.  The Act sets out a list of criteria to be met for goods to be of a satisfactory quality.  In order to satisfy that test, regard must be had to the following:

  • Fitness for all the purposes for which goods of the kind in question are commonly supplied.
  • Appearance and finish.
  • Freedom from minor defects.

Buyers cannot expect a legal remedy in respect of:

  • Fair wear and tear;
  • Misuse or accidental damage; or
  • If they decide that they no longer want the item.

Further, where defects or special uses have been specifically brought to a buyer’s attention, or where an inspection is carried out and reasonable inspection of the goods would have revealed those defects, a buyer will not be able to rely on any of the above-implied terms when arguing breach of this section.   In some cases, therefore, a buyer who has not had the opportunity to carry out a reasonable inspection will be in a better position than one who has.

The section goes on to state that goods will be of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory taking into account such things as any description given, the price paid and all other relevant considerations.

Sale of goods law generally and the requirement that goods be of a satisfactory quality applies equally to used or second-hand goods as well as new goods.

Section 14(3): Fitness for purpose – If the buyer, prior to purchase and expressly or by implication, makes known to the seller any specific purpose for which the goods are required, they will have to be reasonably fit for that specific purpose.  That would be the case regardless of whether it was a purpose for which goods of that type are commonly bought or sold.

It is worth repeating that all of section 14 only applies to people who sell goods in the course of their business.  So, anyone selling a car privately by placing an advertisement in the local paper must ensure that they have good title to sell the vehicle (s.12) and that it corresponds with any description given (s.13).  However, they will be under no obligation to see that it meets the criteria of satisfactory quality as laid down by section 14 provided they are not acting in the course of their business.

Section 15: Sale by sample – If the contract is for a sale by sample there will be an implied term that the bulk of the goods will correspond with the sample in quality and be free from any defect making the goods not of a satisfactory quality which would not be apparent upon a reasonable examination of the sample.

CISG and UNCITRAL

The United Nations Convention on Contracts for the International Sale of Goods (CISG; the Vienna Convention) is a treaty that is a uniform international sales law. As of September 2013, it has been ratified by 80 countries that account for a significant proportion of world trade, making it one of the most successful international uniform laws. Bahrain was the most recent state to ratify the Convention.

The CISG was developed by the United Nations Commission on International Trade Law (UNCITRAL), and was signed in Vienna in 1980.

The contract of sale is the backbone of international trade in all countries, irrespective of their legal tradition or level of economic development. The CISG is therefore considered one of the core international trade law conventions whose universal adoption is desirable.

The CISG is the result of a legislative effort that started at the beginning of the twentieth century. The resulting text provides a careful balance between the interests of the buyer and of the seller. It has also inspired contract law reform at the national level.

The adoption of the CISG provides modern, uniform legislation for the international sale of goods that would apply whenever contracts for the sale of goods are concluded between parties with a place of business in the contracting States. In these cases, the CISG would apply directly, avoiding recourse to rules of private international law to determine the law applicable to the contract, adding significantly to the certainty and predictability of international sales contracts.

Moreover, the CISG may apply to a contract for international sale of goods when the rules of private international law point at the law of a Contracting State as the applicable one, or by virtue of the choice of the contractual parties, regardless of whether their places of business are located in a Contracting State. In this latter case, the CISG provides a neutral body of rules that can be easily accepted in light of its transnational nature and of the wide availability of interpretative materials.

Finally, small and medium-sized enterprise, as well as traders located in developing countries typically have reduced access to legal advice when negotiating a contract. Thus, they are more vulnerable to problems caused by inadequate treatment in the contract of issues relating to applicable law. The same enterprises and traders may also be the weaker contractual parties and could have difficulties in ensuring that the contractual balance is kept. Those merchants would therefore derive particular benefit from the default application of the fair and uniform regime of the CISG to contracts falling under its scope.

Conclusion

At Common Law the legal effect of sale by sample was ‘as if the seller had in express terms warranted that the goods sold should answer the description of a small parcel exhibited at the time of the sale’ and that as a general rule ‘the purchaser may reject the commodity if it does not correspond with the sample,’ but, as in other like cases, not after he has accepted the goods or dealt with them as his own.

The buyer is entitled to reasonable facilities for inspecting the bulk independently of any local or trade usage to that effect, and if there is any latent defect (not discoverable by the ordinary examination of a prudent buyer)which is present in the bulk, would render the goods un-merchantable, the sample is to be taken as if free from it. All these rules are now embodied in sub-section 2, Section 17 of Sale of Goods Act, 1930, which reproduces Section 15(2) of the English Act.

Formatted on 26th February 2019.

[i]Sale Of Goods Act 1930, Mulla.

[ii]Lorymer v. Smith(1822) 1 B&C 1.

[iii]Polenghi v. Dried Milk Co. (1904) 10 Comp Cas 42; E Clemens Horst Co. v. Biddell Bros [1912] AC 18.

[iv]Gill & Duffus SA v. Berger & Co Inc [194] AC 382.

[v]James Drummond & Sons v. EH Van Ingen & Co. (1887) 12 App C as 284; see also Jatindra Chandra Banerjee v. Muralidhur (1926) 43 Cal LJ 126, 94 IC 873.

[vi] Mulla

[vii]Syers v Jonas (1848) 2 Ex 111, 76 RR 515.

[viii]Gardiner v. Grey (1815) 4 Camp 22, 16 RR 722.

[ix]Lalchand v. Baijnath (1937) 63 Cal 736, 169 IC 128, AIR 1937 Cal 140.

[x]Continental Exporters, Bangalore v. Bhavnagar Textiles Pvt Ltd, AIR 2006 NOC 1307 (Kant).

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