Business Regulatory Framework - Nov ' 2011 (Solved)


Contract of Sale and Its essentials
According to Section 4 of the Sale of Goods Act, 1930, ‘A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in the goods to the buyer for a price.’

The term ‘Contract of sale’ is a generic term and includes both a sale and an agreement to sell. Where under a contract of sale, the property in the goods is transferred from the seller to the buyer (i.e. at once), the contract is called a ‘sale’ but where the transfer of the property in the goods is to take place at a further time or subject to some condition thereafter to be fulfilled, the contract is called an ‘agreement of sell’. [Section 4(3)].

An agreement to sell becomes a sale when the time elapses or the condition, subject to which the property in the goods is to be transferred, is fulfilled. [Section 4(4)].

The essentials of a contract of sale are:-
1. Numbers of parties – In a contract of sale, minimum two parties are necessary namely the seller and buyer. Sale involves transfer of ownership from one to another.

2. Goods – The subject matter of a contract of sale must be goods. Goods mean every kind of movable property other than actionable claims and money. Transfer of immoveable property is not regulated by the Sale of goods Act.

3. Price – The consideration for a contract of sale is price. Price means money consideration. If it is anything other than money, it will not be sale. But if the exchange is made partly for goods and partly for price, it will still amount to sale. However, the price may be paid or promises to be paid.

4. Transfer of property – In a contract of sale, there must be transfer of property, from the seller to the buyer.

OR

‘Condition’ and ‘Warranty’
Section 12(2) states that a condition is a stipulation which is essential to the main purpose of the contract. The breach of a condition gives rise to a right to treat the contract as repudiated or broken.
Example – A buys from B hair oil advertised as pure coconut oil. The oil turns out to be mixed with herbs. A can return the oil and claim the refund of price.

Section 12(3) states that a warranty is a stipulation which is collateral to the main purpose of the contract. The breach of a warranty gives rise to a claim for damages but not a right to reject the goods and treat the contract as repudiated.
Example – A while selling his car to B, stated the car gives a mileage of 12 kms per litre of petrol. The car gives only 10 kms per litre. B cannot reject the car. It is breach of warranty. He can only claim damages for the loss due to extra consumption of petrol.

Difference between Condition and warranty:
Basis of Difference
Condition
Warranty
Definition
A stipulation which is essential to the main purpose of the contract.
A stipulation which is collateral to the main purpose of the contract.
Remedy
The aggrieved party can terminate the contract, claim damages or treat it as breach of warranty
The aggrieved party cannot terminate the contract but can only claim damages
Treatment
A breach of condition can be treated as a breach of warranty
A breach of warranty cannot be treated as breach of condition.


Change of Condition to Warranty
Sometimes, a condition is changed to the status of a warranty, i.e., it is reduced to a warranty, and the breach of condition is treated as the breach of a warranty. In such cases, the buyer loses the right to reject the goods on the ground of breach of condition. However, his right to recover damages continues. The circumstances, in which a breach of condition is treated as a breach of warranty, may be discussed under the following two heads, namely: 
(1) Voluntary circumstances, and 
(2) Compulsory circumstances. 

1. VOLUNTARY CIRCUMSTANCES [Section 13 (1)]: The express or implied conditions are for the benefit of the buyer. He may, at his option, treat them as warranties. As a matter of fact, the buyer is always at his option to treat the breach of a condition as a breach of warranty, and may not reject the goods. The analysis of Section 13(1) reveals that the buyer may exercise his option in either of the following two ways: 

(a) Waiver of condition: The buyer may waive off the condition, i.e., if certain condition is not fulfilled the buyer, may give up the condition and accept the goods. The waiver, by the buyer, may be express or implied. 

(b) Option to treat the condition as a warranty: The buyer may also, at his option, treat the breach of a condition as breach of warranty. Thus, if certain condition is not fulfilled, tile buyer may not put an end to the contract by rejecting the goods. He may accept the goods and recover damages from the seller for breach of warranty. Once the buyer exercises his option, i.e., decides to treat the breach of condition as a breach of warranty, he cannot afterwards compel the seller for its fulfillment. It may be noted that when the buyer waivers of the condition or treats its breach as a breach of warranty, he does not lose his right to recover damagers from the seller. He remains entitled to recover the damages as in case of breach of as warranty. 

2. COMPULS0RY CIRCUMSTANCES [Section 13 (2)]: Sometimes, the buyer is bound to treat the breach of condition as a breach of warranty. Such Circumstances are contained in Section 13(2) of the Sale of Goods Act. This section provides that, if the contract is not divisible and buyer accepts all the goods or their part, then he cannot reject the goods on the ground that certain condition is not fulfilled. In such cases, he can only claim damages from the seller. This is however subject to an agreement to the contrary, i.e., the agreement between the parties may give the right to the buyer to reject the goods. But where the contract is divisible and the buyer has accepted the part of the goods, he can exercise his right to reject the remaining goods. 
It may be noted that in case the breach of condition is treated as a breach of warranty, then it does not mean that a condition has become a warranty. The condition remains a condition. Only the buyer’s right changes, i.e., the buyer loses his right to reject the goods, he can only recover damages from the seller as in the case of breach of warranty.

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