HIRE PURCHASE AGREEMENT | unit 2 sale of goods act 1930

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Unit-2SALE OF GOODS ACT 1930 Q1) Explain formation of contract of sale.A1)A.DEFINITION:As per Sec 2(1) of the Indian Sale of Goods Act, 1930 defines the contract of sale of goods in the following manner: “A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price”. B. ESSENTIALS ELEMENTS OF CONTRACT OF SALEFrom the above definition, the subsequent essentials of a contract of sale may by note:The following six features are essential elements of any contract of sale of goods.• Goods• Price• Two parties• Transfer of ownership• All Essentials of a valid Contract of Sale• Includes both a ‘sale ‘and ‘an agreement to sell‘1. Two Parties: A contract of sale of goods is bilateral in nature wherein property within the goods has got to pass from one party to a different. One cannot buy one’s own goods.For example, A is that the owner of a grocery shop. If he supplies the goods (from the stock meant for sale) to his family, it doesn't amount to a sale and there's no contract of sale. This is often so because the vendor and buyer must be two different parties, together person can't be both a seller also as a buyer. However, there shall be a contract of sale between part owners.Suppose A and B jointly own a tv set, A may transfer his ownership within the tv set to B, thereby making B the only owner of the goods. Within the same way, a partner may buy goods from the firm during which he's a partner, and vice-versa.However, there's an exception against the overall rule that nobody should purchase his own goods. Where a Pawnee sells the goods pledged with him/her on non-payment of his/her money, the pawnor may buy them in execution of a decree.2. Goods: The topic matter of a contract of sale must be goods. All kinds of movable property except actionable claims and money are considered ‘goods. Contracts concerning services aren't considered as contract of sale. Immovable property is governed by a separate statute, ‘Transfer of Property Act’.3. Transfer of ownership: Transfer of property in goods is additionally integral to a contract of sale. The term ‘property in goods’ means the ownership of the goods in every contract of sale, there should be an agreement between the buyer and therefore the seller for transfer of ownership. Here property means the overall property in goods, and not merely a special property.Thus, it's the overall property, which is transferred under a contract of sale as distinguished from special property, which is transferred just in case of pledge of goods, i.e., possession of goods is transferred to the pledgee or Pawnee while the ownership rights remain with the pledger. Thus, during a contract of sale there must be an absolute transfer of the ownership. It must be noted that the physical delivery of products isn't essential for transferring the ownership.4. Price: The customer must pay some price for goods. The term ‘price’ is ‘the money consideration for a purchase of goods’. Accordingly, consideration during a contract of sale has necessarily to be in money. Where goods are offered as consideration for goods, it'll not amount to sale, but it'll be called barter or exchange, which was prevalent in past.Similarly, if an individual offers the goods to somebody else inconsiderately, it amounts to a present or charity and not sale. In explicit terms, goods must be sold for a particular amount of cash, called the worth. However, the consideration is often partly in money and partly in valued up goods. Furthermore, payment isn't necessary at the time of creating the contract of sale.5. All essentials of a valid contract: A contract of sale may be a special form of contract, therefore, to be valid, it must have all the essential elements of a valid contract, viz., free consent, consideration, competency of contracting parties, lawful object, legal formalities to be completed, etc. A contract of sale is going to be invalid if important elements are missing. as an example , if A agreed to sell his car to B because B forced him to try and do so by means of undue influence, this contract of sale isn't valid since there's no free consent on a part of the transferor.6. Includes both a ‘Sale’ and ‘An Agreement to Sell’: The ‘contract of sale’ may be a generic term and includes both sale and an agreement to sell. The sale is an executed or absolute contract whereas ‘an agreement to sell’ is an executory contract and implies a conditional sale.A contract of sale is often made merely by an offer, to buy or sell goods for a price, followed by acceptance of such an offer. Interestingly, neither the payment of price nor the delivery of goods is important at the time of creating the contract of sale unless otherwise agreed.Subject to the provisions of the law for time being effective, a contract of sale could also be made either orally or in writing, or partly orally and partly in writing, or may even be implied from the conduct of the parties. C.DISTINGUISHED BETWEEN “SALE” AND “AGREEMENT TO SELL” UNDER SECTION 4 SALE:

It is a contract where the ownership in the goods is transferred by seller to the buyer immediately at the conclusion contract. Thus, strictly speaking, sale takes place when there is a transfer of property in goods from the seller to the buyer. A sale is an executed contract.

It must be noted here that the payment of price is immaterial to the transfer of property in goods.

Ex - A sells his Yamaha Motor Bicycle to B for Rs. 10,000. It is a sale since the ownership of the motorcycle has been transferred from A to B.

AGREEMENT TO SELL

It is a contract of sale where the transfer of property in goods is to take place at a future date or subject to some condition thereafter to be fulfilled.

Ex- A agreed to buy from B a certain quantity of nitrate of soda. The ship carrying the nitrate of soda was yet to arrive. This is an agreement to sale. In this case, the ownership of nitrate of soda is to be to transferred to A on the arrival of the ship containing the specified goods (i.e. nitrate of soda)

On 1st March 1998, A agreed to sell his car to B for Rs. 80,000. It was agreed between themselves that the ownership of the car will transfer to B on 31st March 1998 when the car is got registered in Bs name. It is an agreement to sell and it will become sale on 31st March when the car is registered in the name of B.

Other points of distinction between a sale and an agreement to sell are: D. DIFFERENCE BETWEEN SALE AND AGREEMENT TO SELL

SALE	AGREEMENT TO SELL
Ownership remains with the buyer	Ownership remains with the seller
It is an executed contract	It is an executor contract
Risk of loss falls on the buyer	Risk of loss falls on the seller
Seller cannot re sell the goods	Seller can sell goods to third party
It can be in case of existing and specific goods	It can be in case of future and unascertained goods
In case of breach of a contract, seller can sue for the price of the goods	In case of breach of a contract, seller can sue only for damages not for the price
The seller is only entitled to the ratable dividend of the price due if the buyer becomes insolvent	The seller may refuse to sell the goods to the buyer w/o payments if the buyer becomes insolvent

E. DISTINGUSH BETWEEN SALE AND HIRE PURCHASE AGREEMENTThe main points of distinction between the ‘sale’ and ‘hire-purchase’ are as follows:1. In a sale, property within the goods is transferred to the customer immediately at the time of contract, whereas in hire-purchase, the property within the goods passes to the hirer upon payment of the last instalment.2. In a sale, the position of the customer is that of the owner of the goods but in hire purchase, the position of the hirer is that of a bailee till he pays the last instalment3. Within the case of a sale, the customer cannot terminate the contract and is sure to pay the price of the goods. On the other hand, within the case of hire-purchase, the hirer may, if he so likes, terminate the contract by returning the products to its owner with none liability to pay the remaining instalments.4. Within the case of a sale, the vendor takes the danger of any loss resulting from the insolvency of the customer. Within the case of hire purchase, the owner takes no such risk, for if the hirer fails to pay an instalment, the owner has the proper to require back the goods.5. Within the case of a sale, the customer can pass an honest title to a bonafide purchaser from him but during a hire-purchase, the hirer cannot pass any title even to a bonafide purchaser.6. In a sale, sales tax is levied at the time of the contract whereas during a hire-purchase, sales tax isn't leviable until it eventually ripens into a sale Q2) Explain goods and their classification.A2)Definition of GOODS under the Act

'Goods' means every kind of moveable property 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.

Actionable claims and money are not included in the definition of goods.

Thus, goods include every kind of moveable property other than actionable claim or money. Example - goodwill, copyright, trademark, patents, water, gas, and electricity are all goods and may be the subject matter of a contract of sale.

The test is if the property on shifting its situation, does not lose its character, the said property shall be movable and fall within the definition of Goods.

TYPES OF GOODS

Existing goods

Future goods

Contingent goods

1. Existing goods: Goods which are physically in existence and which are in seller's ownership and/or possession, at the time of entering the contract of sale are called 'existing goods.' Where seller is the owner, he has the general property in them. 2. Future goods: Goods to be manufactured, produced or acquired by the seller after the making of the contract of sale are called 'future goods' [Sec. 2(6)]. These goods may be either not yet in existence or be in existence but not yet acquired by the seller. Ex:- A agrees to sell to B all the milk that his cow may yield during the coming year. This is a contract for the sale of future goods.3. Contingent goods: Though a type of future goods, these are the goods the acquisition of which by the seller depends upon a contingency, which may or may not happen [Sec. 6 (2)]. Ex:- (a) A agrees to sell to B a specific rare painting provided he is able to purchase it from its present owner. This is a contract for the sale of contingent goods. (b) X agrees to sell to 25 bales of Egyptian cotton, provided the ship which is bringing them reaches the port safely. It is a contract for the sale of contingent goods. If the ship in sunk, the contract becomes void and the seller is not liable. A. EFFECTS OF DESTRUCTION OF GOODS - ALREADY CONTRACTED (AS PER SECTION 6,7,8)There are various sorts of goods and therefore the parties have various options to agree about the delivery of the goods. What shall be the fate of a contract if the products are perished or destroyed?Destruction before making of contract -- Where during a contract purchasable of specific goods, at the time of creating the contract, the goods, without knowledge of the vendor, have perished or become as damaged as not to answer to their description within the contract, the contract shall become null and void. This is often based on the rule of impossibility of performance. Since the subject matter of the contract, which is one among its essential ingredients, it is destroyed, the contract can't be administered.'Perishing of goods' includes not only complete destruction of the goods when the vendor has been irretrievably deprived by the goods or when the goods are stolen or have in another way been lost and are untraceable, but also when the goods become un merchantable i.e. when the goods has lost their commercial value.Destruction After the Agreement to Sell but before Sale -- Where in an agreement to sell specific goods, if subsequently the goods, with none fault on a part of the vendor of buyer, perish or become so damaged as not answer to their description within the agreement, the agreement shall become void, provided the goods are perished before the ownership and risk passes to the buyer. This rule is predicated on the bottom of impossibility of performance.If the title to be goods has already passed to the customer, he must buy the goods though an equivalent can't be delivered. Q3) Explain price, condition and warranties.A3)A. CONCEPTMEANING OF CONDITION Sec 12(2) of Sales of Goods Act, 1930 has defined Condition 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”.

A condition is a stipulation

(a) Which is essential to the main purpose of the contract? (b) The breach of which gives the aggrieved party a right to terminate the contract.

It goes to the root of the contract.

Its non-fulfillment upsets the very basis of the contract.

Example:- By charter party( a contract by which a ship is hired for the carriage of goods), it was agreed that ship m of 420 tons “now in port of Amsterdam” should proceed direct to new port to load a cargo. In fact, at the time of the contract the ship was not in the port of Amsterdam and when the ship reached Newport, the charterer refused to load. Held, the words “now in the port of Amsterdam” amounted to a condition, the breach of which entitled the charterer to repudiate the contract.WARRANTY Sec 12(3) of Sale Of Goods Act, 1930 has defined Warranty as : “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”.

It is a stipulation collateral to the main purpose of the contract

It is of secondary importance

If there is a breach of a warranty, the aggrieved party can only claim damages and it has no right to treat the contract as repudiated.

B. DISTINCTION BETWEEN CONDITION AND WARRANTY

CONDITION	WARRANTY
A condition is a stipulation (in a contract), which is essential to the main purpose of the contract.	A warranty is a stipulation, which is only collateral or subsidiary to the main purpose of the contract.
A breach of condition gives the aggrieved party a right to sue for damages as well as the right to repudiate the contract.	A breach of warranty gives only the right to sue for damages. The contract cannot be repudiated.
A breach of condition may be treated as a breach of warranty in certain circumstances.	A breach of warranty cannot be treated as a breach of condition

C. IMPLIED CONDITIONS AND WARRANTIES (TYPES)

Conditions and Warranties may be either express or implied.

They are said to be "express" when they are expressly provided by the parties.

They are said to be 'implied' when the law deems their existence in the contract even without their actually having been put in the contract. Sec(14 to17)

Implied conditions

Conditions as to title [Sec.14(a)] [Rowland v. Divall,(1923)]

Sale by description [Sec.15] [Bowes v.shand,(1877)]

Condition as to quality or fitness.[Sec.16(1)]

Conditions as to Merchantability [Sec.16(2)] [R.S.Thakur v. H.G.E. corp., A.I.R.(1971)]

Conditions implied by custom [Sec.16 (3)]

Sale by Sample (Sec.17)

Condition as to wholesomeness.

Warranty of Quiet possession-Sec.14(6)

Warranty against encumbrances-Sec.14(c)

Warranty to disclose dangerous natures of goods.

Warranty as to quality or fitness by usage of trade – Sec.16 (4).

Q4) Explain transfer of properties in goods.A4)Transfer of property in goods is additionally integral to a contract of sale. The term ‘property in goods’ means the ownership of the goods in every contract of sale, there should be an agreement between the buyer and therefore the seller for transfer of ownership. Here property means the overall property in goods, and not merely a special property.Thus, it's the overall property, which is transferred under a contract of sale as distinguished from special property, which is transferred just in case of pledge of goods, i.e., possession of goods is transferred to the pledgee or Pawnee while the ownership rights remain with the pledger. Thus, during a contract of sale there must be an absolute transfer of the ownership. It must be noted that the physical delivery of products isn't essential for transferring the ownership. Q5) Explain performance of contract of sales.A5)According to section 31 of sales of goods act 1930 the performance of contract of sale implies the seller duty to deliver the goods and of the buyer duty to accept the delivery of the goods and accordingly make the payments with the terms of the contract.Seller and buyers are the two parties to a contract. The duty of seller is to deliver the goods and the duty of the buyer is to accept the goods.Seller – according to section 2(13) of the sale of goods act, 1930 the seller can be defined as a person who agrees to sell goods.Rights of the seller

Until and unless payment of goods is done, he can reserve the rights of the goods

He can assume that the buyer has accepted the goods or not.

when the buyer would apply for the delivery, the seller will only deliver the goods

The seller can make the goods delivered in installments when so agreed by the buyer.

The seller can have the possession of the goods until the buyer hasn’t paid for the goods.

Under certain conditions the seller can resale the goods

Duties of seller

For the transfer of property, the seller can make an arrangement to the buyer

The seller should check whether the goods are delivered properly or not

The seller should give a proper title to the goods which he has to pass to the buyer.

The seller should deliver the goods according to the terms of the agreement.

BuyerAccording to section 2(1) of the sale of goods act 1930, the buyer can be defined as a person who buys goods from the seller.Rights of the buyer

The buyer should get the delivery of the goods as per contract.

The buyer can reject the goods if the quality and quantity are not as specified in the contract.

The buyer can examine the goods for checking whether they are in the agreement with the contract.

The buyer can sue the seller for damages for breach of a warranty or for breach of a condition.

The buyer can sue the seller for the damages of breach of contract.

Duties of the buyer

The buyer should accept the delivery of goods when the seller is prepared to make the delivery as per the contract.

The buyer should have possession on it he should pay the price for the goods as per the contract.

The buyer should apply for the delivery of the goods.

The buyer can ask to deliver the goods at a particular time

The buyer has to pay for not accepting the goods

Delivery DefinitionSection 33 of the Sale of Goods Act, 1930 defines delivery as a voluntary transfer of possession from one person to another. It is also the process of transporting goods from a source location to a predefined destination.The basic elements of delivery are

There must be two parties

One party out of those two parties should have the possession of the goods.

One party should transfer possession to the other.

This should be done voluntarily.

Mode of delivery

Actual delivery - Actual delivery means physical transfer of goods by the seller to the buyer. The delivery may be made by the agent of the seller to the agent of the buyer.

2. Symbolic delivery – the actual delivery of goods is not done and only the control of goods is transferred then it is called symbolic delivery. 3. Constructive delivery - In constructive delivery, the individual possessing the products recognizes that he holds the merchandise for the benefit of, and at the disposal of the purchaser. Q6) Explain unpaid seller and their rights.A6)A.CONCEPTA seller of goods is deemed to be an unpaid seller when:-

The whole of the price has not been paid or tendered;

A bill of exchange or other negotiable instrument has been received as a conditional payment, and the condition on which it was received has not been fulfilled by reason of the dishonor of the instrument or otherwise.

CONDITIONS:

The term "seller" includes any person who is in the position of a seller, as, for instance, an agent of the seller to whom the bill of lading has been endorsed or agent who has himself paid, or is directly responsible for, the price.

The seller shall be called an unpaid seller even when only a small portion of the price remains to be unpaid.

It is for the non-payment of the price and not for other expenses that a seller is termed as an unpaid seller.

Where the full price has been tendered by the buyer and the seller refused to accept it, the seller cannot be called as unpaid seller.

Where the goods have been sold on credit, the seller cannot be called as an unpaid seller. Unless

If during the credit period seller becomes insolvent, or

On the expiry of the credit period, if the price remains unpaid, then, only the seller will become an unpaid seller.

B. RIGHTS OF AN UNPAID SELLER

Against goods : Where the property in goods has passed to the buyer:

Right of lien, right of stoppage in transit, right of resale

Against buyer personally : Where the property in goods has not passed to the buyer: Withholding delivery, Stoppage in transit, Resale

Right of lien (sec.47-49)

The right of lien means the right to retain the possession of the goods until the full price is received.

Circumstances under the right of lien can be exercised

Where the goods have been sold without any stipulation to credit

Where the goods have been sold on credit, but the term of credit has expired

Where the buyer becomes insolvent

Right of stoppage of goods in transit (sec.50-52)

Right of stoppage in transit means the right of stopping the goods while they are in transit, to regain possession and to retain them till the full price is paid.

Conditions under which Right of stoppage in transit can be exercised

(i) Seller must have parted with the possession of goods i.e., the goods must not be in the possession of the seller (ii) The goods must be in course of transit (iii) Buyer must have become insolventRight of resale (sec.54)An unpaid seller can resell the goods under the following circumstances: Where the goods are of a perishable nature

Where the seller expressly reserves the right of resale if the buyer commits a default in making payment

Where the unpaid seller who has exercised his right of lien or stoppage in transit gives a notice to the buyer about his intention to resell and buyer does not pay or tender within a reasonable time.

Q7) Explain sale by auction.A7)An auction may be a public sale. The goods are sold to all or any members of the general public at large who are assembled in one place for the auction. Such interested buyers are the bidders.The price they're offering for the goods is that the bid and therefore the goods are going to be sold to the bidder with the very best bid.The person completing the auction is that the auctioneer. He’s the agent of the vendor. So, all the principles of the Law of Agency apply to himBut if an auctioneer wishes to sell his own property because the principal he can do so. And he needn't disclose this fact; it's not a requirement under the law. Q8) Explain hire purchase agreement.A8)Hire purchase agreement is a credit agreement. While buying expensive goods hire purchase agreement is made. During the purchase the consumer makes a down payment and the balance outstanding will be paid in instalments with an interest charge.The ownership in hire purchase is not transferred to the purchaser until all payments are made. Hire purchase is similar to rent to own concept. The lessee pays the rent over a period of time for the property or a vehicle. If the actual price of the property is paid by the lessee than he will have the option to own the property or vehicle at any time.Merits of hire purchase

Companies which are short of working capital such as plant hire, road freight, construction, manufacturing, transport, and engineering, can deploy assets and machinery on hire purchase.

The return on capital employed (ROCE) and return on assets (ROA) of a company can flatter with a hire purchase agreement.

Demerits of hire purchase

In the long run hire purchase can turn out to be expensive because a huge sum goes out as interest payment.

Hire purchase for business means added administrative complexity

Individuals and companies purchase beyond necessity with the notion of installment payments.

A very high-interest rate may be associated with the agreement, which may not be stated explicitly.

Q9) Explain sale by auction and hire purchase agreement.A9)SALE BY AUCTIONAn auction may be a public sale. The goods are sold to all or any members of the general public at large who are assembled in one place for the auction. Such interested buyers are the bidders.The price they're offering for the goods is that the bid and therefore the goods are going to be sold to the bidder with the very best bid.The person completing the auction is that the auctioneer. He’s the agent of the vendor. So, all the principles of the Law of Agency apply to himBut if an auctioneer wishes to sell his own property because the principal he can do so. And he needn't disclose this fact; it's not a requirement under the law.

HIRE PURCHASE AGREEMENTHire purchase agreement is a credit agreement. While buying expensive goods hire purchase agreement is made. During the purchase the consumer makes a down payment and the balance outstanding will be paid in instalments with an interest charge.The ownership in hire purchase is not transferred to the purchaser until all payments are made. Hire purchase is similar to rent to own concept. The lessee pays the rent over a period of time for the property or a vehicle. If the actual price of the property is paid by the lessee than he will have the option to own the property or vehicle at any time.Merits of hire purchase