Contract of Sale of Goods

Chapter 10
 Contract of Sale of Goods
• The Sale of Goods Act, 1930 codifies the law
relating to the sale of goods in a separate
enactment.
• Prior to the passing of this Act, provisions of
Indian Contract, 1872 (Chapter VII, Sections 76-
123) were made applicable to the sale of goods.
The Ac? came into force on 1st July, 1930.
• It contains 66 sections and extends to the whole
of India except the State of Jammu and Kashmir.
 Contract of Sale of Goods
• Section 4 (1) of the Sale of Goods Act,
1930 defines
– "A contract of sale of goods is contract
whereby the seller transfers or agrees to
transfer the property in goods to the buyer for
a price".
 Contract of Sale of Goods

Essential Characteristics of a Contract of Sale of

Goods

– There must be two parties to a contract of sale viz., a

buyer and a seller.
– The object of the contract of sale must be transfer of
property in the goods by one person to another.
'Property' here means 'ownership'.
– The Subject matter of the contract of sale must be
'Goods'. The term and includes Goods mean every
kind of movable property other than actionable claims
and money, and includes stock and share, 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.
 Contract of Sale of Goods
Essential Characteristics of a Contract of Sale of Goods

Consideration for a sale of goods must be money consideration, called the

'Price'; when goods are exchanged for other goods, the transaction is not
'sale, but an 'exchange' or 'barter'.

However, there is nothing to prevent the consideration being partly in

money and partly in goods.

– A contract of sale may be writing or by words of month, or partly in

writing and partly by words of month, or may be implied from the conduct
of the parties.

– A contract of sale includes both an actual sale and agreement to sell.

 Contract of Sale of Goods
• Delivery and Option Delivery Payment
Payment : 1. Immediate Immediate
• The contract of sale 2. Immediate By instalments
may provide for any
of the following 3. Immediate At some future date
combination. 4. By instalments By instalments

5. By instalments Immediate

6. By instalments At some future date

7. At some future At some future date

date
8. At some future Immediate
date
9. At some future By instalments
date
Agreement to Sell (Section 4(3)):
• Where under a contract of sale, the transfer of
property in goods is to take place at a future
date or subject to some conditions thereafter to
be fulfilled, the contract is called an ' Agreement
to Sell'.

• Thus, whereby a contract of sale, a seller

purports to effect a present sale of future goods,
the agreement operates as an executory
contract.
 Distinction between Sale and Agreement to Sell

• (i) Transfer of property:

– In a sale, the property in the goods passes from the seller to his
buyer immediately so that the seller is no more the owner of his
goods sold.
– In an agreement to sell, the transfer of property in the goods is to
take place at a future date or subject to certain conditions being
fulfilled so that the seller continues to be owner until the
agreement to sell becomes an actual sale.

• (ii) Risk of loss:

– In a sale, in the event of the goods being destroyed, the loss
falls on the buyer even though the possession of the goods was
with the seller.
– In an agreement to sell, if the goods are destroyed, the loss falls
on the seller even though the goods were in the possession of
his buyer.
 Distinction between Sale and Agreement to Sell

• Nature of contract:
– A sale is an executed contract whereas an agreement
to sell is an executory contract.

• Consequences of breach:
– In a sale, if there is a breach of contract by the buyer,
the seller can sue for his price, even though the
goods are still in his possession.
– In an agreement to sell, the seller can sue only for
damages and not for his payment of the price.
 Distinction between Sale and Agreement to Sell

• Right to resell:
– In a sale, the seller cannot resell the goods and if he
does so, the subsequent buyer does not acquire a
good title to his goods. In an agreement to sell, in case
of resale, the bona fide buyer for value, without notice
of the prior agreement to sell, the seller is not bound to
part with the goods until he is paid for.

• Insolvency of buyer:
– In a sale, if the buyer becomes insolvent before he
pays for the goods, the seller must return them to the
Official Receiver or Assignee,
• he will be entitled to a rateable dividend only for the price of
the goods.
– In an agreement to sell, the seller is not bound to part
with the goods until he is paid for.
 Distinction between Sale and Agreement to Sell

• Insolvency of seller:
– In sale, upon insolvency of the seller, since the
ownership has passed to the buyer, he (buyer) can
recover identical goods from the Official Receiver or
Assignee of the seller.
– In an 'agreement to sell', if the buyer has paid for the
goods, he can only claim a rateable dividend from the
seller's estate.

• Nature of rights :
– The buyer acquires a jus in rem i.e., right against the
whole world.On the other hand, an agreement to sell is
a mere contract which secures to the buyer, only jus in
personam i.e., right against a particular individual.
 Sale and Contract for Work and Labour
• The difference between a contract of sale and a contract
for work and labour is difficult to make.
• This is particularly so when the contract is a composite
one involving both a contract of work and labour and a
contract of sale.
• Nevertheless, the distinction between the two rests on a
clear principle.
• A contract of sale is one whose main object is the
transfer of property in, and the delivery of the possession
of, a chattel (a movable item) as a chattel to the buyer.
• Where the principal object of the work undertaken by
the payee of the price is not the transfer of chattel as a
chattel, the contract is one for work and labour.
 Sale and Contract for Work and Labour

• Example :

• (1) A promises to print and deliver to B 500 copies of

manuscript, which B entrusted to A. For that job, paper
and ink is supplied by A. Is this a contract of sale?

• The present contract is not a contract for sale because

though A uses his own paper and ink for printing books
and delivers them to B, the substance of the contract is
skill and experience of the printer and supply of materials
is only subsidiary to work and labour of A.
 Difference between Sale and Bailment
Sale Bailment and Pledge

1 Ownership in goods is There is transfer of possession and not of

transferred from the seller to
the buyer.
2 The buyer may use the goods in
any way he likes.
3 There is no return of goods from
the buyer to the seller, unless
there is breach.
4 The consideration is the price in
terms of money.
5 The question of any charges to be The bailor has to repay the charges which
paid by the seller to buyer or
vice versa does not arise
ownership from the baifor to the bailee
A bailee can use the goods only according to
the directions of the bailor.
The goods are necessarily returned after the
specified time or accomplishment of the
purpose.
The consideration is an undertaking to
return the goods after the
accomplishment of purpose.
the bailee has incurred in keeping the
goods safe.
 Sale and Hire Purchase Agreement
• A hire purchase agreement differs from a contract of sale.

• An ordinary hire purchase agreement is a contract of bailment.

• It differs from a contract of an outright sale since in hire purchase

the ownership or property in the goods will pass on to the buyer
when he pays off all the stipulated installments

• A hire purchase agreement, therefore, is an irrevocable offer for

sale, which will become a contract of sale on the fulfillment of the
condition by the intending buyer, i.e., payment of all the hire
installment

• Unlike a seller, a hirer cannot exercise any ownership rights on the

goods, i.e., right to resell or pledge the goods till he has paid all the
installments of hire.
 Difference between Sale and Hire
Purchase Agreement
• Transfer of property in the goods :

– In a sale, the property in the goods is transferred from the

seller to the buyer immediately on the date of contract of
sale.
– But in a hire purchase agreement, the property in the goods
passes from the seller to the hire purchaser only when he
(i.e., the hire purchaser) pays the last instalment.
• Position of the buyer :

– In a sale, the buyer becomes the owner of the goods

bought, whereas in a hire purchase, the hire purchaser
becomes just a bailee till the last instalment is paid by him.
 Difference between Sale and Hire Purchase Agreement
• Insolvency of the buyer :
– In a sale, if the price of the goods sold is not paid by the buyer and the
buyer becomes insolvent, the seller cannot recover the goods from the
official assignee or official receiver.

– He can only claim rateable dividend out of the property of the insolvent
buyer.

– But in a hire purchase, if the price of the goods is not paid and if the buyer
becomes insolvent, the seller can take back the goods.

• Passing of title by the buyer :

– In a sale, as the ownership of the goods sold is with the buyer, the buyer
can pass a good title to a bonafide purchaser from him.

– On the other hand, in a hire purchase, since the ownership will not be
passed on to the hire purchaser until the last installment is paid, the hire
purchaser cannot pass any title even to a bona fide purchaser.
Difference between Sale and Hire Purchase Agreement

• Sales Tax :
– In a sale, tax is levied at the time of the contract of sale,
whereas in a hire purchase, sales tax is not levied till the
hire purchase ripens into a sale.

• Nature of the contract:

– A sale is an executed contract (i.e., completed contract)
in which the ownership of the goods is transferred from
the seller to the buyer as soon as the contract is entered
into.

– But a hire purchase agreement is only an executory

contract in which the ownership of the goods will be
transferred from the seller to the hire purchaser only
when the last installment is paid.
Difference between Sale and Hire Purchase Agreement
• Termination of contract :
– In a sale, the buyer cannot terminate the contract of sale and
return the goods at any time he likes.
– But, in a hire purchase, the hire purchaser has an option to
terminate the contract and return the goods at any time he
likes.

• Installments paid :
– In a sale, where the payment is made by the buyer in
installments, the installments paid by the buyer are regarded
as part payments made by the buyer towards the price of the
goods.

– But, in a hire purchase, the installments paid by the hire

purchaser are not regarded as payments made by the hire
purchaser towards the price of the goods till the option to
purchase is exercised by him.
– If the hire purchase is terminated, the installments already paid
are just regarded as hire charges.
Difference between Sale and Hire Purchase Agreement
• Governing Act :
– A sale is governed by the Sale of Goods Act, 1930, whereas
a hire purchase is governed by the Hire Purchase Act, 1972.

• Taking lack possession of the goods :

– In a sale, as the ownership of the goods is passed from the

seller to the buyer immediately on the date of sale itself, the
seller cannot take back the possession of the goods, if the
purchaser fails to pay the price of the goods.

– On the other hand, in a hire purchase, as the ownership of

the goods is not transferred from the seller to the hire
purchaser until the last installment is paid, the hire seller can
take back the possession of the goods, if the hire purchaser
fails to pay any of the installments.
GOODS - the Subject-matter of Contract of Sale

• The term 'goods' means every kind of

movable property and includes
– (a) stocks and shares,
– (b) growing crops, grass
– (c) the things attached to or
– (d) forming part of the land which can be
severed (i.e., separated) from the land.
• Goods does not include money and
actionable claims
GOODS - the Subject-matter of Contract of Sale

• The goods forming subject-matter of the

contract of sale may be classified as
under:
– (i) existing goods,
– (ii) future goods,
– (iii) contingent goods.
• Existing goods may be
– (a) specific goods
– (b) ascertained goods and
– (c) unascertained goods.
 Difference between Future Goods and Contingent
Goods

• Possession or Acquisition :

– Future goods are goods which are not possessed by

the seller at the time of making the contract of sale,
but which will be manufactured, produced or acquired
by the seller after the contract of sale is made.

– On the other hand, contingent goods are goods the

acquisition of which by the seller depends upon an
uncertain contingency which may or may not happen.
 Difference between Future Goods and Contingent Goods

• Certainty :
– Future goods are more certain about their coming
into existence, whereas contingent goods are less
certain about their coming into existence.

• Control over factors of Production:

– In the case of future goods, the factors of production
are within human control.
– But in the case of contingent goods, the factors of
production are not within the control of human
beings.
 PRICE
• Section 2 (10) of the Act defines 'price' as
the money consideration for a sale of
goods.
• The price may be 'money' actually paid or
promised to be paid depending on whether
the agreement is for a cash or credit sale
 Modes of fixing price

• Accordingly, there are five methods of

fixing price, which are given below:
– 1. Price expressly stated in the contract;
– 2. Price to be fixed in manner provided by the
contract;
– 3. Price to be determined by the course of dealings
between the parties;
– 4. Reasonable price;
– 5. Price fixation by third party e.g. valuer
• A valuer is a person who is appointed to value a thing
because of his special skill, aptitude or knowledge.
 Earnest money or deposit
• Sometimes, it happens that the buyer pays part of the price in
advance as a token of good faith or as a security for the due
performance of the contract.

• If such amount is not given as a part payment of the purchase money,

it is called earnest money or deposit.

• If the contract is duly performed, the earnest money is adjusted

against the purchase price and only the balance of the price is
required to be paid.

• But if the contract is not performed or cannot be performed through

the fault of the buyer, the earnest money is forfeited by the seller.

• If the contract is not performed or cannot be performed through the

fault of the seller, the seller must return the earnest money.

• Thus, earnest money is security for the prompt performance fulfillment

of the agreement.
 Stipulation as Time
• Section 11 of the Act states that where a different intention
appears from the terms of the contract, stipulation as to
time of payment is not deemed to be of the essence of a
contract of sale.

• Whether any stipulation as to time is of the essence of the

contract or not depends on the terms of the contract.

• However, stipulation as to time, except as regards the time

of payment, are usually of the essence of the contract.
 DOCUMENT OF TITLE OF GOODS

• Any document which is used in the

ordinary course of business as
– proof of the possession or
– control of goods, or
– authorising or purporting to authorise,
– either by endorsement or by delivery,
– the possessor of the document to transfer or
receive goods thereby represented is
document of title to goods (Sec.2(4)).
 Popular examples of the documents of title to goods

• Bill of lading :

– A bill of lading is a receipt given by the ship owner

acknowledging the receipt of goods for carriage.

– It has been defined as a "receipt for goods shipped

on board a ship, signed by the person who
contracts to carry them, or his agent, and stating the
terms on which the goods were delivered to and
received by the ship".
 Popular examples of the documents of title to goods

• Dock warrant:

– A dock warrant is document which is issued

by a-dock owner.
– It contains the details of the goods; certifying
that the goods are held on behalf of the
person whose name is appeared in it or his
assignee by endorsement.
– It authorizes the person holding it to receive
the possession of the goods.
 Popular examples of the documents of title to goods

• Warehouse keeper's certificate :

– Warehouse is a building in which goods are stored.

Warehouse keeper's certificate is a document
issued by the warehouse keeper stating that the
goods specified in the document are in the
warehouse or wharf.

– Warehousing (Development & Regulation ) Bill

2007 gives legal validity to warehouse Receipt and
makes a fully negotiable instrument.
 Popular examples of the documents of title to goods

• Railway receipt :

– A railway receipt is a document which issued by the

railway as the acknowledgement of the receipt of
goods.
– It provides that on surrender of the receipt at the
destination of the goods by the consignee the goods
mentioned therein will be delivered to him.

• Delivery Order :
– A delivery order is an order which is given by the
owner of goods directing a person who holds the
goods on his behalf to deliver them to a person
named therein.
 CONDITIONS AND WARRANTIES

• There may be certain terms which are not

so vital to the contract that their breach
may seem to be a breach of the contract
as such.
• Such terms are known as Warranties of
the contract of sale
 CONDITIONS AND WARRANTIES

• Section 12(2) of the Sale of Goods Act, 1930

has defined a condition thus :

• "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".

• A warranty is defined by Section 12(3) of

the.Sale of Goods Act, 1930 thus :

• "A warranty is a stipulation collateral to the main purpose of

the contract, the breach of which gives rise to only claim for
damages but not to a right to reject the goods and treat the
contract as repudiated".
 Characteristic features of a Condition
• A condition is a stipulation or term regarding goods forming part of
the contract of sale, and it is not a rqere expression of opinion or
commendatory statement (i.e., statement of praise).

• A condition is a stipulation in a contract of sale essential to the main

purpose of the contract.
– It goes to the very root of the contract and forms the very foundation of
it.

• The breach of a condition gives the aggrieved party the right to treat
the contract as repudiated, and also entitles him to claim damages.

• If a condition in a contract of sale is broken, no doubt, the aggrieved

party can treat the contract as repudiated and reject the goods.
– But he has also an alternative option.

• That is, he can treat the breach of condition a breach of warranty

and can claim only damages without rejecting the goods.
 Characteristic features of a Warranty
• A warranty is a stipulation or term regarding goods forming part of
the contract of sale, and is not a mere expression of opinion or
statement of commendation or praise.

• A warranty is a stipulation or term which is not essential to the main

purpose of the contract and is only collateral (i.e., incidental,
subsidiary or minor) to the main purpose of the contract. In short, it
is only of secondary importance.

• The breach of a warranty gives the aggrieved party only the right to
sue for damages, and not the right to repudiate the contract.

– It may be noted that the measure of damages for breach of warranty is

the estimated loss directly or naturally resulting in the ordinary course of
events from the breach.
 Examples of Conditions and Warranties

• A says to B, a horse dealer, "I want a horse

which runs at a speed of 60 kilometers per
hour".
• B points out a particular horse and says that it
runs at 60 kilometers per hour. A buys the
horse.
• Later, A finds that the horse runs only at a
speed of 45 kilometers per hour.

• Here, there is a breach of condition, because

the stipulation made by the seller regarding the
horse is a condition forming the very basis of
the contract.,
Cases of treating the breach of condition as
breach of warranty:

– A buyer can treat the breach of a conditions as

a breach of warranty.
– This option has been given to him under
Section 13(1) of the Act.
– According to it, in the following cases, a breach
of condition would be treated as a breach of
warranty only.
 Voluntary waiver
• Where the buyer elects to treat the breach
of condition as a breach of warranty.
– For example, where he claims damages
instead of repudiating the contract,
• Where the buyer waives the 'condition'. Waiver
may be express or implied.
• Once the buyer has waived a condition, he is
stopped from insisting on its fulfillment.
 Acceptance of Goods

• "Where, a contract of sale is not severable and

the buyer has accepted the goods or part
thereof, the buyer breach of any condition to be
fulfilled by the seller can only be treated as a
breach of warranty".

• In such case, the buyer would be deprived of

his right of rejecting the goods and treating the
contract as repudiated, unless there is a term in
the contract, express or implied, to that effect.
 Difference Between Condition And Warranty

Condition Warranty

1 Relation to main purpose It is subsidiary to the main purpose of the

It
. is an essential to the main purpose of the contract. contract.

2 Rights of aggrieved party Breach of warranty entiles the aggrieved

Breach
. of condition gives the aggrieved party a right party to claim damages only.
to repudiate the contract and to get damages.

3 Treating condition as warranty. A warranty cannot become a condition.

Under
. certain circumstances a breach of condition
may be treated as a breach of warranty.

4 Legal effect of breach Breach of warranty will not affect the

Breach
. of condition will affect the legality of the legality of the contract.
contract.
5 Discharge on breach In case of breach of warranty the aggrie­ved
In
. case of breach of condition the aggrieved party is party is not free to discharge his
free to discharge his promise. promise.
 Express and Implied Conditions and Warranties

• Conditions and Warranties may be either

express or implied.

• They are express, when they are

expressly provided by the parties.

• On the other hand, there are certain

conditions and warranties which are
implied by law
 Implied Conditions and Warranties
Implied Conditions Implied 'Warranties

(a)
Conditions as to title [Section 14(a)] (a) Warranty as to quiet possession/ enjoyment
(Section 14(c)]
(b)
Condition in case of sale by description (b) Warranty of freedom from encumbrances
(Section 15) [Section 14(c)]
(c)
Condition in case of sale by sample (Section 17) (c) Warranty as to quality or fitness for a
particular purpose annexed by the usage
of trade [Sectionl6 (3)
(d)
Condition in case of sale by description and (d) Disclosure of dangerous nature of goods
sample (Section 15)
(e)
Condition as to quality or fitness [Section
16(2)]

(0
Condition as to merchantable quality [Section
16(2)]

(g)
Condition as to wholesomeness

(h)
Condition implied by custom [Section 16(3)]
 Implied Conditions
• Conditions as the title {Section 14 (a)}:

– In a contract of sale, there is an implied condition on the

part of the seller that:
– (a) in the case of a sale, he has a right to sell the goods;
– (b) in the case of an agreement to sell, he will have a
right to sell the goods at the time when the property is to
pass.

• Sale by description (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.
 Implied Conditions
• Sale by sample (Section 17):

– In the case of a contact for sale by sample, there is an

implied condition:
– 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 defect, rendering
them unmerchantable, which would not be apparent on
reasonable examination of the sample.
– This applies only to latent defect i.e., those which are not
discoverable on reasonable examination.
– But if the defect is patent i.e., apparent and visible, the
seller is not responsible.
 Implied Conditions
• Sale by Sample as well as by description
(Section 15):
• If the sale is by sample as well as description,
there is an implied condition that the bulk of the
goods shall correspond both with the sample and
with the description
 Implied Conditions
Condition as to fitness or quality (Section 15)

• Priest Vs. Last (1903):

• P, a draper, purchased a hot water bottle from a retail
chemist.
• P asked the chemist whether it will withstand boiling
water.
• Chemist told him that the bottle was meant to hold hot
water.
• The bottle burst when water poured into it and injured his
wife.
• It was held that the chemist shall be liable to pay
damages to P, as he knew that the bottle was purchased
for the purpose of being used as a hot water bottle
 Implied Conditions
• Sale under patent or trade name :
– In the case of a contract for the sale implied
condition as to its fitness for any particular
purpose.
– It is so because in such a case, the buyer is
not relying on the skill and judgement of the
seller but relies on the good reputation of the
trade name.
 Implied Conditions
• Condition as to merchantability - (Section 16(2)) :

• This condition is implied only where the sale is by

description.

• Where goods are bought by description from a seller, be

of a merchantable quality i.e., the goods are of
merchantable quality if:

– (i) they are reasonably saleable under the description by which they
are known in the market;
– (ii) they are purchased for personal use, they must be reasonably fit
for the purpose for which they are generally used.
 Implied Conditions
• Condition as to wholesomes :
– In the case of eatables and provisions, in
addition to the condition of the merchantable
quality, there is an added obligation on the
part of the seller that the goods shall be
wholesome.
– Chaproniere Vs. Mason (1905) :
• C bought a bread from a store.
• It contained a stone which broke one of C's teeth.
• Held, C could recover damages
 Implied Conditions
• Condition implied by custom or usage
of trade - Section 16 (3):
– An implied warranty or condition as to quality
or fitness a particular purpose may be
annexed by custom or usage of trade.
– It is clear that a usage would override the law
provided it is reasonable and just.
– If usage is given effects, it necessarily
changes the rule of law applicable to the
case.
 Implied Warranties
• Quiet possession - {Section 14( b)}:
• In a contract of sale, unless the circumstances of the contract are
such as to show different intention, there is implied warranty that the
buyer shall have and enjoy quiet possession of the goods.

• Freedom from encumbrance - {Section 14(c)} :

• In contract of sale, there is implied warranty that the goods shall be

free from any charge or encumbrance, in favour of any third party
not declared or not known on the part of the buyer before or at the
time when the contract was made or he has been given notice of
them.

• Disclosure of dangerous nature of goods :

• There is another implied warranty on the part of the seller, that in
case the goods sold are inherently dangerous or they are likely to
be dangerous to the buyer, the seller must warn the buyer about the
probable danger. If there is a breach of his warranty, the seller will
be liable in damages.
 Exclusion of implied conditions and warranties
(Section 62)

• Implied conditions and warranties in a

contract of sale may be negatived or
varied by
– (i) express agreement between the parties;
– (ii) the course of dealings between the parties;
– (iii) the custom or usage of trade, if usage is
such as to bind both the parties to the
contract.
 DOCTRINE OF CAVEAT EMPTOR

• 'caveat emptor' is Latin word which means

'let the buyer beware'
• It is the buyer's duty to select goods of his
requirement.
– The seller is not bound to supply the goods
which shall be fit for any particular quality.
– This rule is known as the 'doctrine of caveat
emptor'.
 DOCTRINE OF CAVEAT EMPTOR

• Sale of Goods Act

– Subject to the provisions of this Act and any
other law for the time being in force,
– there is no implied warranty or conditions as
the quality or fitness for any particular
purpose of goods supplied under a contract of
sale
 Exceptions to the Doctrine of Caveat Emptor (Section 16)

(a) (b) (c) (d) (e) (0) (g)

In case of In case of In case In case In case of Fitness Merchantable
misre conceal of of sale by for a Quality
prese ment of sal sal descrip particular
ntatio latent e e tion purpose
n defects by by and Section (16)2
de sa sample Section16(1)
by seller by seller scr mpl
ipti e (Section
on 15)
(Sectio
(Secti n
on 17)
15)
 Exceptions to the Doctrine of Caveat Emptor

• Conditions as to quality of fitness for buyer's

purpose:

– Ordinarily, there is no implied condition that the goods

shall be fit for the particular purpose of the buyer.

– But in certain circumstances, if the buyer makes his

purpose clear to seller and buys the goods relying upon
his skill and judgment, then there is an implied
condition that the goods shall be fit for the buyer's
specific purpose.

– In such cases, the doctrine of caveat emptor does not

apply.
 Exceptions to the Doctrine of Caveat Emptor
• Condition as to merchantability:

– Sometimes, the goods are sold by description. In such cases, there is

an implied condition that the goods shall be of merchantable quantity.

– Thus, in case of sale by description the seller is bound to deliver the

goods of merchantable quantity and in such cases, the doctrine of
caveat emptor does not apply.

• Conditions as to wholesomeness :

– It is a part of the condition as to merchantability.

– This condition is applicable in cases of eatables i.e., foodstuffs and

other goods which are used for human consumption.

– In such cases, in addition to the principal condition as to

merchantability, another implied condition is that the goods must be
wholesome i.e., sound, pure and fit for consumption at the time of sale.
 Exceptions to the Doctrine of Caveat Emptor

• Conditions implied by customs:

• The implied conditions as to 'fitness' and 'merchantability'

are applicable only if certain requirements are fulfilled.

• However, the implied condition as quality or fitness for a

particular purpose may be attached by the custom or
usage of trade {section 16 (3)}.

• This is so because the parties enter into an agreement

with reference to those known usages.
 Exceptions to the Doctrine of Caveat Emptor

• Sale under a patent or trade name :

– In the case of a contract for the sale of a specified article

under its patent or other trade name, there is no implied
condition that the goods shall be reasonably fit for any
particular purpose {(provision to Sec. 16(1)}.

• Consent obtained by fraud:

– Where the consent of the buyer, in a contract of sale, is

obtained by the seller by fraud or where the seller knowingly
conceals a defect which could not be discovered on a
reasonable examination i.e., where there is latent defect in
the goods, the doctrine of caveat emptor does not hold good.
 PRACTICAL PROBLEMS

• Attempt the problem, giving reasons for your answer:

• A dealer in radios gives a 'Philips' radio to a customer on the terms
that Rs. 1000 should be paid by him immediately and Rs. 200 more
in two monthly equal installments.
• It was further agreed that if the radio is found defective the customer
may return it within a week but not later. The customer makes
default in paying the last installment. Can the radio dealer take back
the radio on his default?

• [Hint. No,the radio dealer cannot take back the radio on default by
the customer because it is a contract of sale and not of hire
purchase.}
End of Chapter 10