Q.#.1. IN WHAT WAYS AN OFFER CAN BE COMMUNICATED, ACCEPTED AND REVOKED?
ANSWER
PROPOSAL OR OFFER (Sec.2(a)
For a valid contract it is essential that there must be consensus between the contracting parties by means of offer and acceptance. An agreement arises when one party makes an lawful offer and the other party to whom it is made accept it in lawful manner. So offer and acceptance are essential to constitute a valid agreement.
DEFINITION: According to sec 2(a) of the contract act 1872:
“When one person signifies to another his willingness to do, or to abstain from doing any thing with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal”. Now it is understood, that an offer is made with the object to obtain the assent of other person and its main purpose is to create relationship between contracting parties.
PARTIES OF OFFER:
There are two parties of an offer:
i. Promisor / Offerer
The person who makes the proposal or offer is called offerer or Promisor.
ii. Promisee / Offeree
The person to whom the proposal is made called Offeree or promise.
Illustration:
Suppose A offers B to purchase his car for Rs.150000. Here A is promisor and B is promisee.
Types of Proposals
i) Express Proposal:
When a proposal is communicate by words spoken or in written form is called express proposal.
ii) Implied Proposal:
When the proposal is expressed by the conduct. It is called implied proposal.
iii) Specific Proposal:
When a proposal is made to certain or specific person it is called as specified proposal. It can be accepted only by a specific person.
iv) General Proposal:
When a proposal is made to a country or world at large it is knows as general proposal.
ESSENTIALS OF VALID PROPOSAL:
Following are the rules or essentials of valid proposal:
1. Express or Implied:
An offer may be communicate in writing, orally or by conduct. When offer is made by words spoken or written is called express offer. The offer which is made by the conduct of a person is called an implied offer.
Illustration:
(i) The owner of the weighting machine gives offer to general public through his conduct by putting the weighing machine at nay public place. It is an example of implied offer.
(ii) X says to Y that the will sell his watch to him for Rs.5000 after two days. It is an express offer.
2. Legal Relationship:
It is essential for valid proposal that it must create a legal relationship otherwise it is only an invitation. A social offer does not create a legal relationship. A proposal made without an intention to create legal relationship is not a valid offer. Legal relationship determine the rights duties and obligation of the contracting parties.
Illustration:
(i) Ali invites Arif to attend his birthday party at Avari Hotel. It is a social offer which do not create legal obligation.
(ii) X offers to sel his car to Y at a price of Rs.100000. It is a valid offer which creates legal relationship.
3. Specific or General Proposal:
An offer may be made either to specific person or persons or to the country or world at large. A proposal is called specific when it is made to a certain person and when proposal is made to country or world it is called general proposal. In specific offer it must be accepted by the same person to whom it is made.
Illustration:
(i) Mr. Akram announces a prize of Rs.1000 for any one who will find his lost documents. It is a general offer.
(ii) Mr. Akram offers to sell his watch to Ali for Rs.2000. It is a specific offer.
4. Precise and Definite:
An offer must be precise and definite. If the proposal is indefinite then it is not consider a valid proposal. An ambiguous or vague offer is consider invalid offer. The terms and conditions of the proposal must be simple clear and understandable, so that the persons involves in agreement must be aware of it.
Illustration:
Ali says to Arif “I will sell my precious item to you at a very low price”. It is not a valid offer because nature and price of item is not clear.
5. Communication of Offer:
It is an important factor of offer that it must be communicated to the other party without communication. Mere intention does not create agreement. So the offer must be in the notice of offeree before its acceptance.
Illustration:
(i) Mr. A have just intention to sell his VCR to B for Rs.5000 and fails to communicate offer in writing, orally or by conduct, then there is no valid proposal.
(ii) A’s nephew was missing. He sent B his servant to trace the boy, subsequently A announced a reward for information relating to the boy. B traced the boy in ignorance of the announcement regarding award. Later on reading the notice of award B claimed it. Held B was not entitled to the award on the ground that he could not accept the offer unless he had knowledge of it.
6. Lawful Proposal:
The proposal must fall under the law of state and it should not against the public interest. If proposal is against the law of state then it will not enforceable at law.
Illustration:
(i) An offer to create Monopoly.
(ii) An offer to trade with Alien enemy.
7. Object is obtaining the Consent:
Where a person just show his intention without any willingness to obtain the assent of offeree, is not consider a valid offer. So the object of the proposal should be to obtain the free consent of the other party.
Illustration:
(i) A says to B, “I will sell my VCR at a reasonable price in next few months”. If my mood will good. It is not a valid offer by A.
(ii) A says to B. I will sell my VCR to you for Rs.5000. it is a valid offer of Mr. A.
8. It must not CoÐÏÎÍ
In simple words the person making an offer cannot say that if the acceptance is not communicated to him up to a certain time, the offer would be treated to have been accepted.
Illustration:
X offers to Y to sell his watch to him at a price of Rs.2000, adding that if he does not replay within ten days, the offer would be considered accepted. It is only one side offer because such condition cannot be imposed on the offeree, so it is not a valid offer.
10. Distinction between Offer and Invitation to Offer:
A proposal must be different from an invitation to offer. An invitation to offer is not treated as offer in the eye of law because proposal or offer is different from invitation to proposal. An invitation to proposal is just inviting the other person to show his willingness to do or not to do anything. Son a offer must not be an invitation to offer.
Illustration:
An advertisement of sale of a car by auction, invitation by tender, issuance of prospectus by educational institution and quotation are only invitation to offer and not offer.
REVOCATION OF PROPOSAL OR OFFER:
According to contract act an offer may revoke in following circumstances:
1. Notice of Revocation: (Sec.6(1))
Revocation means the “cancellation”. A proposal is revoked by the communication of notice of revocation by the offeror to the other party. The offeror can cancel its offer even the time for acceptance is still un-expired. An offer once revoked cannot be accepted until it’s renewed by offeror.
Illustration:
X proposes, by a letter sent by post, to sell his VCR to Y, X may revoke his proposal at any time before or at the moment when Y posts his letter of acceptance, but not afterwards.
2. Lapse of Time: (Sec.6(2))
A proposal is revoked by the lapse of time prescribed in proposal for its acceptance. Where no time is prescribed, by the lapse of reasonable time without communication of the acceptance, the proposal may comes to an end. So proposal must be accepted to the time specified by the offeror. “Reasonable time” is depend upon the circumstances. In case of perishable goods time is obviously very short.
Illustration:
On Thursday a seller offers Rice to a buyer and gave him three days for acceptance. The buyer accepted offer after ten days. After waiting for three days the seller sold the Rice. Offer has lapsed by ten days and seller is not bound, to sell the rice to such buyer.
3. Failure of Acceptor to Meet Conditions: (Sec.6(3)).
A proposal is revoked by the failure of acceptor to fulfill condition precedent to acceptance. Every proposal contains some conditions and for a valid agreement their acceptance must be made according to requirement of proposal. So an offeror can terminate the offer due to failure of acceptor to meet required condition.
Illustration:
A seller agrees to sell T.V. to B on condition that buyer should pay the price before a particular date. The buyer fails to pay the price on due date the offer comes to an end.
4. Death or Insanity of Proposer and Acceptor: (Sec.6(4))
A proposal is revoked by the death or insanity of the proposer if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance. In simple words where the offeror is died before acceptance of the offer may comes to an ends provided that death must be in the notice of offeree. If offeree is died before acceptance, the proposal may cancel. But where the offeree is died before acceptance of the proposal, then his executors will liable for the contract.
Illustration:
X owned certain debentures of a company. Y offered to buy them. X died without accepting the offer. Held, the death of X terminated the offer to buy and his administrator after X’s death could not accept.
5. Counter Offer:
If offeror accept the counter offer, then it creates a legal obligation and the contract will enforceable at law. An offer is revoked when a counter offer is made by the other party.
An offer is counter when it is accepted with some amendment in the terms and conditions are attached by the offeree. This type of offer is called counter offer.6. Revocation by Sending Refusal:
An offer lapses when offeree rejects it by sending refusal. A rejected offer cannot be accepted unless it is renewed by the offeror.
Illustration:
X offers to Y to sell his car for rupees two hundred thousands. The market value of the car is Rupees three hundred thousand. Y refuses and does not accept the offer. There is revocation of offer.
7. Subsequent Illegality:
The offer comes to an end when performance of contract becomes illegal after offer is made. An offer may also be terminate, when it becomes illegal due to incapability of performance or change in law before its acceptance.
8. Destruction of Subject matter:
The proposal or offer comes to an end after the destruction of the subject matter. The subject matter is the reason of offer given by the offeror. So existence of subject matter is necessary for an agreement.
9. Acceptance in Prescribed Mode:
When the offeror mention the prescribe mode for the acceptance of proposal, then for valid acceptance it is necessary that acceptance should be made in the required manner. If the acceptance is not made in a prescribe way, the offeror may cancel the acceptance. Where no prescribe way is mention by the offeror, then acceptance should made according to normal trends and customs.
Illustration:
X offers to purchase Y’s car and impose a condition that to intimate him by a phone call within two days. If Y accept the offer by sending a letter which receives by X after three days, X may reject the offer.
ACCEPTANCE: Sec 2(b)
Section 2(b) of contract act defines Acceptance “when the person to whom the proposal is made signifies his assent thereto the proposal is said to be accepted”. A proposal when accepted becomes a promise. So every contract arises from the acceptance of offer.
Illustration:
A offer B to sell his watch for Rs.2000. B accept the offer. This is valid acceptance.
Parties of Acceptance:
(i) Promisor:
The person making the proposal is called “Promisor”.
(ii) Promisee:
The person to whom the proposal is made is called “Promisee”.
Q.#.2. DISCUSS IN DETAIL THE RIGHTS AND OBLIGATIONS OF PARTNERS BEFORE AND AFTER THE DISSOLUTION OF A PARTNERSHIP FIRM.
ANSWER
DISSOLUTION OF A FIRM
When a partnership is dissolved, all the liabilities of the firm are paid, out of the assets of the firm, available at the time of dissolution. The remaining amount after paying all the liabilities, if available, will be distributed among the partners in their profit loss sharing ratios. If assets of the firm are not sufficient to pay all the liabilities of the firm, the partners will contribute the balance amount in their profit/loss sharing ratios to meet the liabilities of the firm.
Business organization is an act of grouping activities into effective cooperation to obtain the “It is more or less independent complex of land, labour and capital, organized and directed for “It is the simplest form of business organization, which is owned and controlled by one man.” Sole proprietorship is the oldest form of business organization which is owned and controlled by one person. In this business, one man invests his capital himself. He is all in all in doing his business. He enjoys the whole of the profit.
According to Partnership Act 1932:
“Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.” Partnership means a lawful business owned by two or more persons. The profit of the business shared by the partners in agreed ratio. The liability of each partner is unlimited. Small and medium size business activities are performed under this organization. It has the following features:
- Legal Entity
- Profit and Loss Distribution
- Unlimited Liability
- Transfer of Rights
- Management
- Number of Partners
DISSOLUTION OF FIRM
According to Section 39 of Partnersh
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If a firm is established for a fixed period, then it will be dissolved after the expiry of period.
2. Completion of Particular Venture
A firm may be dissolved after the completion of particular venture, for which it is formed:
3. Death of a Partner
A partnership firm may also dissolve with the death of a partner.
4. Insolvency
Insolvency of a partner also serves as a notice for dissolution of firm.
DISSOLUTION BY COURT
The court may dissolve a firm due to the following reasons:
1. Case of Unsound Mind
A partnership firm may be dissolved by the order of court, if any partner becomes of unsound mind.
2. Case of Incapable Partner
A partnership firm may be dissolved by the order of court if any partner permanently become incapable of performing his duties.
3. Case of Misconduct
A partnership firm may be dissolved if a partner is found guilty of misconduct in affairs of business.
4. Transfer of Interest
A partnership firm may be dissolved if any partner transfers his share of interest to other persons, without the consent of existing partners.
5. Breach of Agreement
A partnership firm may be dissolved if any partner commits a breach of agreement.
6. Assurance of Loss
Court may dissolve a partnership firm if the business of that firm is suffering from continuous loss.
7. Others Reasons
The court has the right to accept or reject the application of dissolution. The just and equitable reason is determined by the court.
RULE OF DISTRIBUTION (Sec.48)
After dissolution of firm it is the liability of every partner to pay:
i) The deficiency or loss first out of the profit of business.
ii) If profit of the firm is not sufficient to pay the deficiency of the firm then pay it form of capital.
iii) If capital is not sufficient then each partner individually contributes the loss according to their profit sharing ratio.
Q.#.3. DISCUSS VARIOUS STEPS INVOLVED IN THE REGISTRATION OF A COMPANY?
ANSWER
Formation of company:
The following documents are required to be prepared/ submitted for formation of a company.
1. Certificate of Incorporation
2. Commencement of business
3. Memorandum of Association
4. Articles of Association
5. Prospectus
Certificate of Incorporation:
On issuance of this certificate, the promoters of proposed company become entitled on the registration of its memorandum with the registrar of companies. This certificate contains the following information:
- Date of issue
- Name of the company
- Certification by the registrar that company is incorporated
- In case of limited company certificate by the registrar that company is limited.
- Province and seal of the registrar
Authority of issuing certificate of incorpor„[1]r²éD"[1]i”(
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(a) Shares held subject to the payment of the whole amount thereof in cash have been allotted to an amount not less in the whole than the minimum subscription;
(b) Every director of the company has paid to the company full amount on each of the shares taken or contracted to be taken by him and for which he is liable to pay in cash;
(c) No money is or may become liable to be repaid to applicants for any shares or debentures which have been offered for public subscription by reason of any failure to apply for or to obtain permission for the shares or debentures to be dealt in on any stock exchange;
(d) There has been filed with the registrar a duly verified declaration by the chief executive or one of the directors and the secretary in the prescribed form that the aforesaid conditions have been complied with and the registrar has issued a certificate referred to in sub-section (2); and
(e) In the case of a company which has not issued a prospectus inviting the public to subscribe for its shares, there has been filed with the registrar a Statement in lieu of prospectus.
Certificate of commencement of business:
• it is a conclusive evidence that public company can start the business and enter into contracts with the rest of world.
• Any contract made before issuance of this certificate shall be provisional and the contracts enter into are not binding.
Restrictions on commencement of business:
1) A company shall not commence any business or exercise any borrowing powers unless—
a) shares held subject to the payment of the .,whole amount thereof in cash have been allotted to an amount not less in the whole than the minimum subscription;
b) every director of the company has paid to the company full amount on each of the shares taken or contracted to be taken by him and for which he is liable to pay in cash;
c) no money is or may become liable to be repaid to applicants for any shares or debentures which have been offered for public subscription by reason of any failure to apply for or to obtain permission for the shares or debentures to be dealt in on any stock exchange;
d) there has been filed with the registrar duly verified declaration by the chief executive or one of the directors and the secretary in the prescribed form that the aforesaid conditions have been complied with and the registrar has issued a certificate referred to in subsection (2); and
e) in the case of a company which has not issued a prospectus inviting the public to subscribe for its shares, there has been filed with the registrar a statement in lieu of prospectus.
2) The registrar shall, on th„[1]r²éD"[1]i”(
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6) Nothing in this section shall apply to a private company, or to a company limited by guarantee and not having a share capital.
Memorandum of Association:
Memorandum of association is a legal document for incorporation of a company Memorandum of association is a fundamental legal document on the basis of which the company conducts external affairs. This document signifies the powers of the company as well as the limitations of the company. It contains information regarding the purpose, capital, place of business, liability of the members and acquisition of shares by the subscribers.
Contents of Memorandum—section 16,17,18
Memorandum of association is required to be subscribed by at least three persons in case of public company and at least by one person in case of private company.
- Objects
- Liability of the members—limited or unlimited
- Authorized capital
Section 26 of the Ordinance as contained in the Ordinance is reproduced here under for reference:
Registration of articles: sec 26
(1) There may, in the case of a company limited by shares, and there shall, in the case of a company limited by guarantee or an unlimited company, be registered with the memorandum, articles of association signed by the subscribers to the memorandum and setting out regulations for the company.
(2) Articles of association may adopt all or any of the regulations contained in Table A in the First Schedule.
(3) In the case of an unlimited company or a company limited by guarantee, the articles, if the company has a share capital, shall state the amount of share capital with which the company proposes to be registered.
(4) In case of an unlimited company or a company limited by guarantee, if the company has not a share capital, the articles shall state the number of members with which the company proposes to be registered.
(5) In the case of a company limited by shares and registered after the commencement of this Ordinance, if articles are not registered, or, if articles are registered, in so far as the articles do not exclude or modify the regulations in Table A in the First Schedule, those regulations shall, so far as applicable, be the regulations of the company in the same manner and to the same extent as if they were contained in duly registered articles.
(6) The articles of every company shall be explicit and without ambiguity and, without prejudice to the generality of foregoing, shall list and enumerate the voting and other rights attached to the different classes of shares and other securities, if any, issued or to be issued by it.
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(2) A declaration by such person as may be prescribed in this behalf, or by a person named in the articles as a director, or other officer of company, of compliance with all or any of the requirements of this Ordinance and the rules made thereunder shall be filed with the registrar; and the registrar may accept such a declaration as sufficient evidence of such compliance.
(3) If the registrar is satisfied that the company is being formed for lawful purposes, that none of its objects stated in the memorandum is inappropriate or deceptive or insufficiently expressive and that all the requirements of this Ordinance and the rules made thereunder have been complied with in respect of registration and matters precedent and incidental thereto, he shall retain and register the memorandum and articles. if any.
(4) If registration of the memorandum is refused, the subscribers of the memorandum or any one of them authorised by them in writing may either supply the deficiency and remove the defect pointed out, or within thirty days of the order of refusal prefer an appeal—
(a) where the order of refusal has been passed by an additional registrar, a joint registrar, a deputy registrar or an assistant registrar, to the registrar; and
(b) where the order of refusal has been passed, or upheld in appeal, by the registrar, to the Authority.
(5) An order of the Authority under subsection (4) shall be final and shall not be called in question before any Court or other authority.
Q.#.4. EXPLAIN THE VARIOUS PROVISIONS OF COMPANIES ORDINANCE 1984 REGARDING THE WINDING UP OF COMPANIES?
ANSWER
COMPANIES ORDINANCE, 1984
Law relating to Companies:
At the time of independence, Companies Act, 1913 prevalent in undivided
Scope of Company Law:
Company Law covers the following areas:
- Rules regarding incorporation of companies
- Rules regarding issue of prospectus
- Conditions with regard to issue of shares
- Rights of various classes of shares
- Transfer of shares
- Rights, duties and obligation of promoters, directors, managers, secretaries, chief executives and
- other officers of the company
- Rights and duties of members, auditors, liquidators, creditors of the company
- Rules regarding the preparation of memorandum and articles of association
Objects of Companies Ordinance, 1984:
- Consolidate and amend the law relating to companies.
- Healthy growth of corporate sector
- Setting minimum standards of integrity and management
- Prevention of malpractices
- Promotion of investment
- Protection of interests of share holders
- Full and fair disclosure of information
- Empowering government to intervene and investigate
Winding up of companies
Winding Up-- Defined:
It is a process through which the property of the company is administered by the liquidator who takes control of the company, liquidates the assets and pay off the debts owed by the company and thereafter distributes the surplus, if any to the members according to the proportion of shares held by them. Winding up is a process culminating on dissolution. Dissolution is the stage where a company ceases to exist, its’ name is struck off by the registrar. These modes as provided in section 297 of the ordinance:
Modes of winding up –(sec 297)
Winding up by Court –a compulsory winding up by the order of court or
Voluntary winding up
Members’ voluntary winding up or Creditors’ voluntary winding up
Winding up subject to the supervision of the Court:
Circumstances in which company may be wound up by Court: – Sec 305
A company may be wound up by the Court -
(a) if the company has, by special resolution, resolved that the company be wound up by the Court;
(b) if default is made in delivering the statutory report to the registrar or in holding the statutory meeting or
any two consecutive annual general meetings;
(c) if the company does not commence its business within a year from its incorporation, or suspends its
business for a whole year;
(d) if the number of members is reduced, in the case of private company, below two or, in the case of any
other company, below seven;
(e) if the company is unable to pay its debts;
(f) if the company is -
(i) conceived or brought forth for, or is or has been carrying on,
unlawful or fraudulent activities;
Winding up
84. (1) If the company is wound up, the liquidator may, with the sanction of a special resolution of the company and any other sanction required by the Ordinance divide amongst the members, in specie or kind, the whole or any part of the assets of the company, whether they consist of property of the same kind or not.
(2) For the purpose aforesaid, the liquidator may set such value as he deems fair upon any property, to be divided as aforesaid and may determine how such division shall be carried out as between the members or different classes of members.
(3) The liquidator may, with like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the contributories as the liquidator, with the like sanction, thinks fit, but so that no member shall be compelled to accept any shares or other securities whereon there is any liability.
(ii) Carrying on business not authorized by the memorandum;
(g) if the company is -
(iii) conducting its business in a manner oppressive to any of its members or persons concerned with the formation or promotion of the company or the minority shareholders;
(iv) run and managed by persons who fail to maintain proper and true accounts, or commit fraud, misfeasance or malfeasance in relation to the company; or
(h) if the company is -
(v) managed by persons who refuse to act according to the requirements of the memorandum or articles or the provisions of this Ordinance or fail to carry out the directions or decisions of the Court or the registrar or the Commission given in the exercise of powers under this Ordinance;
(i) if, being a listed company, it ceases to be such company; [
(j) if the Court is of opinion that it is just and equitable that the company should be wound up; or
(i) if the company ceases to have a member.
Explanation ll. - "Minority shareholders" means shareholders together holding not less than twenty per cent of the equity share capital of the company.
Company when deemed unable to pay its debts: sec 306
(1) A company shall be deemed to be unable to pay its debts,-
a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding one per cent of its paid-up capital or fifty thousand rupees, whichever is less, has served on the company, by causing the same to be delivered by registered post or otherwise, at its registered office, a demand under his hand requiring the company to pay the sum so due and the company has for thirty days thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor; or
(b) if execution or other process issued on a decree or order of any Court or any other competent authority in favor of a creditor of the company is returned unsatisfied in whole or in part; or
(c) if it is proved to the satisfaction of the Court that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the Court shall take into account the contingent and prospective liabilities of the company.
(2) The demand referred to in clause (a) of sub-section (1) shall be deemed to have been duly given under the hand of the creditor if it is signed by an agent or legal adviser duly authorized on his behalf, or in the case of a firm if it is signed by such agent or legal adviser or by any member of the firm on behalf of the firm.
Q.#.5. EXPLAIN THE CONTRACT OF SALES OF GOODS BY DISCUSSING ITS MAIN FEATURES.
ANSWER
CONTRACT OF SALES OF GOODS & ITS FEATURES:
Sale of Goods Act is one of very old mercantile law. Sale of Goods is one of the special types of Contract. Initially, this was part of Indian Contract Act itself in chapter VII (sections 76 to 123). Later these sections in Contract Act were deleted, and separate Sale of Goods Act was passed in 1930.
The Sale of Goods Act is complimentary to Contract Act. Basic provisions of Contract Act apply to contract of Sale of Goods also. Basic requirements of contract i.e. offer and acceptance, legally enforceable agreement, mutual consent, parties competent to contract, free consent, lawful object, consideration etc. apply to contract of Sale of Goods also.
Contract of
Thus, following are essentials of contract of sale - * It is contract, i.e. all requirements of ‘contract’ must be fulfilled * It is of ‘goods’ * Transfer of property is required * Contract is between buyer and seller *
How Contract of sale is made - A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of such offer. The contract may provide for the immediate delivery of the goods or immediate payment of the price or both, or for the delivery or payment by installments, or that the delivery or payment or both shall be postponed. [section 5(1)]. Subject to the provisions of any law for the time being in force, a contract of sale may be made in writing or by word of mouth, or partly in writing and partly by word of mouth or may be implied from the conduct of the parties. [section 5(2)]. Thus, credit sale is also a ‘sale’. - - A verbal contract or contract by conduct of parties is valid. e.g. putting goods in basket in super market or taking food in a hotel.
Two parties to contract - Two parties are required for contract. - - “Buyer” means a person who buys or agrees to buy goods. [section 2(1)]. “Seller” means a person who sells or agrees to sell goods. [section 2(13)]. A part owner can sale his part to another part-owner. However, if joint owners distribute property among themselves as per mutual agreement, it is not ‘sale’ as there are no two parties.
Contract of Sale includes agreement to sale - 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. [section 4(3)]. An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred. [section 4(4)]. The provision that contract of sale includes agreement to sale is only for the purposes of rights and liabilities under Sale of Goods Act and not to determine liability of sales tax, which arises only when actual sale takes place.
Transfer of property - “Property” means the general property in goods, and not merely a special property. [section 2(11)]. In layman’s terms ‘property’ means ‘ownership’. ‘General Property’ means ‘full ownership’. Thus, transfer of ‘general property’ is required to constitute a sale. If goods are given for hire, lease, hire purchase or pledge, ‘general property’ is not transferred and hence it is not a ‘sale’.
Possession and property - Note that ‘property’ and ‘possession’ are not synonymous. Transfer of possession does not mean transfer of property. e.g. - if goods are handed over to transporter or godown keeper, possession is transferred but ‘property’ remains with owner. Similarly, if goods remain in possession of seller after sale transaction is over, the ‘possession’ is with seller, but ‘property’ is with buyer.
Goods - “Goods” means every kind of movable property other than actionable claims and money; 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. [section 2(7)].
Price - “Price” means the money consideration for a sale of goods. [section 2(10)]. Consideration is required for any contract. However, in case of contract of sale of goods, the consideration should be ‘price’ i.e. money consideration.
Ascertainment of price - The price in a contract of sale may be fixed by the contract or may be left to be fixed in manner thereby agreed or may be determined by the course of dealing between the parties. [section 9(1)]. Where the price is not determined in accordance with the foregoing provisions, the buyer shall pay the seller a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each particular case. [section 9(2)].
Conditions and Warranties - Opening para of section 16 makes it clear that there is no implied warranty or condition as to quality of fitness of goods for any particular purpose, except those specified in Sale of Goods Act or any other law. - - This is the basic principle of caveat emptor’ i.e. buyer be aware. However, there are certain stipulations which are essential for main purpose of the contract of sale of goods. These go the root of contract and non-fulfilment will mean loss of foundation of contract. These are termed as ‘conditions’. Other stipulations, which are not essential are termed as ‘warranty’. These are collateral to contract of sale of goods. Contract cannot be avoided for breach of warranty, but aggrieved party can claim damages. - - A breach of condition can be treated as breach of warranty, but vice versa is not permissible.
A stipulation in a contract of sale with reference to goods which are the subject thereof may be a condition or a warranty. [section 12(1)]. 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. [section 12(2)]. A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated. [section 12(3)]. Whether a stipulation in a contract of sale is a condition or a warranty depends in each case on the construction of the contract. A stipulation may be a condition, though called a warranty in the contract. [section 12(4)].
Where a particular stipulation in contract is a condition or warranty depends on the interpretation of terms of contract. Mere stating ‘Conditions of Contract’ in agreement does not mean all stipulations mentioned are ‘conditions’ within meaning of section 12(2).
When condition to be treated as warranty - Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may waive the condition or elect to treat the breach of the condition as a breach of warranty and not as a ground for treating the contract as repudiated. [section 13(1)]. Where a contract of sale is not severable and the buyer has accepted the goods or part thereof, the breach of any 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 a term of the contract, express or implied, to that effect. [section 13(2)]. Nothing in this section shall affect the case of any condition or warranty fulfillment of which is excused by law by reason of impossibility or otherwise. [section 13(3)].
Time of payment is not essence of contract but time of delivery of goods is, unless specified otherwise - Unless a different intention appears from the terms of the contract, stipulations as to time of payment are not deemed to be of the essence of a contract of sale. Whether any other stipulation as to time is of the essence of the contract or not depends on the terms of the contract. [section 11]. As a general rule, time of payment is not essence of contract, unless there is specific different provision in Contract. In other words, time of payment specified is ‘warranty’. If payment is not made in time, the seller can claim damages but cannot repudiate the contract.
Caveat Emptor - The principle termed as ‘caveat emptor’ means ‘buyer be aware’. Generally, buyer is expected to be careful while purchasing the goods and seller is not liable for any defects in goods sold by him. This principle in basic form is embodied in section 16 that subject to provisions of Sale of Goods Act and any other law, there is no implied condition or warranty as to quality or fitness of goods for any particular purpose. As per section 2(12), “Quality of goods” includes their state or condition.
Transfer of property as between seller and buyer - Transfer of general property is required in a sale. ‘Property’ means legal ownership. It is necessary to decide whether property in goods has transferred to buyer to determine rights and liabilities of buyer and seller. Generally, risk accompanies property in goods i.e. when property in goods passes, risk also passes. If property in goods has already passed on to buyer, seller cannot stop delivery of goods even if in the meanwhile buyer has become insolvent. - - - Where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained. [section 18].
Property passes when intended to pass - Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. [section 19(1)]. For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. [section 19(2)]. Unless a different intention appears, the rules contained in sections 20 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer. [section 19(3)].
Specific goods in a deliverable state - Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment of the price or the time of delivery of the goods, or both, is postponed. [section 20].
Auction sale - Auction sale is special mode of sale. The sale is made in open after making public announcement. Buyers assemble and make offers on the spot. Person offering to pay highest price gets the goods. Usually, auctioneer is appointed to conduct auction. Higher and higher bids are offered and sale is complete when auctioneer accepts a bid.- - - In the case of a sale by auction— (1) where goods are put up for sale in lots, each lot is prima facie deemed to be the subject of a separate contract of sale; (2) the sale is complete when the auctioneer announces its completion by the fall of the hammer or in other customary manner; and, until such announcement is made, any bidder may retract his bid; (3) a right to bid may be reserved expressly by or on behalf of the seller and, where such right is expressly so reserved, but not otherwise, the seller or any one person on his behalf may, subject to the provisions hereinafter contained, bid at the auction; (4) where the sale is not notified to be subject to a right to bid on behalf of the seller, it shall not be lawful for the seller to bid himself or to employ any person to bid at such sale, or for the auctioneer knowingly to take any bid from the seller or any such person; and any sale contravening this rule may be treated as fraudulent by the buyer; (5) the sale may be notified to be subject to a reserved or upset price; (6) if the seller makes use of pretended bidding to raise the price, the sale is voidable at the option of the buyer. [section 64].
Delivery of goods to buyer - The Act makes elaborate provisions regarding delivery of goods to buyer. It is the duty of the seller to deliver the goods and of the buyer to accept and pay for them, in accordance with the terms of the contract of sale. [section 31]. Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions, that is to say, the seller shall be ready and willing to give possession of the goods to the buyer in exchange for the price, and the buyer shall be ready and willing to pay the price in exchange for possession of the goods. [section 32]. - - Note that this is ‘unless otherwise agreed’, i.e. buyer and seller can agree to different provisions in respect of payment and delivery.
Acceptance of goods by buyer - Contract of
Buyer’s and Seller’s duties - The Act casts various duties and grants certain rights on both buyer and seller.
Rights of unpaid seller against the goods - After goods are sold and property is transferred to buyer, the only remedy with seller is to approach Court, if the buyer does not pay. Seller has no right to take forceful possession of goods from buyer, once property in goods is transferred to him. However, the Act gives some rights to seller if his dues are not paid.
Suits for breach of the contract - Unpaid seller can exercise his rights to the extent explained above. In addition, seller can exercise following rights in case of breach of contract. Buyer has also rights in case of breach of contract.
Measure for compensation and damages – The Sale of Goods Act does not specify how to measure damages. However, since the Act is complimentary to Contract Act, measure of compensation and damages will be as provided in sections 73 and 74 of Contract Act.
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