Contract of Sales of GoodsEMBA 2009 Kathmandu University

By Team Sunil Shrestha

Munish AcharyaRamesh Kumar Shrivastav

Agam Mukhia

What is contract?

What is Contract?. Section 2(a) of Nepalese Contract

Act 2000, " A contract is an agreement enforceable by law made between two or more than two parties to do or to abstain from doing anything".

What is Sale? Transferring the ownership (title of the

goods) from the seller to the buyer. What is Goods? Section 40(1) of the Contract Act

defines goods means “every movable property which is purchasable( except money and land )”.

For eg: car/ bike/ excavated gas/ water jar/ growing crops/ shares/ goodwill/ patents/timber/ old coins/fruits

What is sales of Contract?

Contract of sale of goods is a contract where by the seller transfer or agrees to transfer the property in the goods (ownership) to the buyer for money consideration.

Section 40(1) says, “ A contract of sale of goods is deemed to have been concluded if any seller agrees to handover the goods to the buye either immediately (sale) or in the future (agreement to sell) for price”

Contd

Contract Law of UK states that Sale of goods is a "contract by which the seller transfers or agrees to transfer the property in goods to the buyer for money consideration called the price": s 2(1) Sale of Goods Act.

What is condition?

The Indian sales of Goods Section 12 (2) of the act has defined the term 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.”

What is Warranties? The Indian Sales of Goods Act,

1930 according to the Section 12 (3) has clearly defined that “ A warranty is stipulation collateral to the main purpose of the contract, the breach of which gives rise a right to claim for damages but not a right to reject the goods and treat the contract as repudiated.”

Difference of Condition and Warranties

ConditionsEssential versus Collateral

It is a term, which is essential to the main purpose of the contract. The contract cannot be performed without prior fulfillment of the

condition.Right of the Aggrieved party

In each case of breach condition, the aggrieved party is entitled to repudiate the contract and to claim damages.

Performance of ContractIn case of breach condition, the aggrieved party is not bound to

perform the contract.4. Transfer of ownership.

In case of non fulfillment of condition, property in goods does not transfer to the buyer.

5 Legal Effect A breach of condition can be treated as breach of warranty. For example, the buyer may like to retain the goods and claim only

compensation.6. Liability

Under condition, the party has much liability.

Warranty 1. Essential versus Collateral

It is subsidiary or collateral to the main purpose the contract. Prior fulfillment of warranty is not compulsory to perform the

contract. 2. Right of the Aggrieved party

In case of breach of warranty the aggrieved party is entitled to claim damages only.

3. Performance of Contract In case of breach of warranty the aggrieved party is bound to

perform the contract. 4. Transfer of ownership.

In case of repudiation of warranty the property in goods transfers the buyers.

5. Legal Effect A warranty cannot become condition. Therefore its violation

cannot be treated as the breach of condition. 6. Liability

Under Warranty, the party has less liability.

Case on warranties

U.S. Supreme Court DeWitt v. Berry, 134 U.S.

306 (1890) DeWitt v. Berry No. 173 Argued January 7-8, 1890 Decided March 17, 1890

IMPLIED CONDITIONS IN SALE OF GOODS If an agreement does not make an

event a condition then the court may supply a term that does so. Such conditions will be referred to as "implied" conditions

A Term may either be expressed or implied. An Express term is stated by the parties during negotiation or written in a contractual document. Implied terms are not stated but nevertheless form a provision of the contract.

When a term will be a condition?

The leading textbooks on contract state that a term will be a condition if it satisfied one of the following four tests, namely (a) if statute provides that it is a condition(b) if a binding authority requires a court to hold that it is a condition; if every breach, or (c) if the consequences of every breach, goes to the root of the contract; or,(d) If the parties have agreed that it is to be treated as a condition.

Reasonableness and equitableness

Business efficacy: The implied term must be necessary for the business efficacy of the contract. For instance, if the term simply causes the contract to operate better, that does not fit this criterion. This is the principle laid out in The Moorcock. The presiding judge created a quaint concept of an officious bystander; if the officious bystander were to propose a term and both the parties would be likely to reply with a testy "oh, of course", the term is implied.

Obviousness: The term is so obvious that it goes without saying. Furthermore, there must be one and only one thing that would be implied by the parties. For example, in Codelfa Construction Pty Ltd v. State Rail Authority of New South Wales a term regarding the inability of construction company to work three shifts a day could not be implied because it was unclear what form it would have taken

Clear expression: The term must be capable of clear expression. No specific technical knowledge should be required.

Consistency: The implied term may not contradict an express term.

Necessity: The term must be necessary to ensure reasonable or effective operation of a contract of the nature before the court.

Transfer of Ownership The term ‘property in the goods’ may

be defined as the legal ownership of the goods. On the passing of the property to the buyer, he becomes the owner of the goods and acquires all the rights held by the seller in respect of the goods sold.

Significance of transfer of ownership

The transfer of ownership is of great significance in a contract of sale due to the following reason:

1. Risk passes with the ownership 2. Proprietary rights over the goods 3. Seller’s right for price 4. Insolvency of the seller or the buyer.

Transfer of Ownership in case of Sale of Specific Goods

Transfer of Ownership in case of Sale of Unascertained Goods

Transfer of Ownership in case of Sale of Approval

Risk Passes with the Property (Ownership)

Nepal Contract Act 2000 on Compensation

Special provisions concerning compensation: Notwithstanding anything contained elsewhere in this Act, action in respect to compensation for contract under this chapter shall be taken as follows:

In case a buyer does not accept or refuses to accept or

refusesto pay the price of goods after once signing a contract

relatingto sale of goods, the seller may, subject to the contract,

claimcompensation from the buyer in consideration of the

buyer's failure to accept or refusal to accept the goods.

While determining compensation under Clause (a), in case goods not accepted or rejected by the buyer are available in the market, compensation shall be determined on the basis of the difference between the price of goods mentioned in the contract and the market or current price.

In case the seller does not deliver or refuses to deliver goods

Reference :

Nepal Contract Act 2000 Indian Contract Act 2003 Business Law by S.B.Karki &

B.P.Mishra WWW.supreme.justia.Com

Thank you