Doctrine of Caveat Emptor, Conditions of Sale, Warranty, stipulation

1. Sales of Goods Act, 1930

2. Definition
• It is a contract by which the ownership of movable
goods is transferred from the seller to the buyer. The
term ‘contract of sale’ is defined in Section 4(1) of
the Sale of Goods Act as-
“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”
The Sale of Goods Act extends to whole of India
except the State of Jammu and Kashmir. The State
of J&K enjoys a special status under Article 370
of the Indian Constitution.

3. Essentials of a Contract of Sale
(i) All requirements of a valid contract must be fulfilled
(ii) Two Parties –
(iii) Goods
(iv) Transfer of Property
(v) Price
(vi) Includes both a ‘sale’ and ‘agreement to sale’
(vii) No formalities are required

4. Price
Price means the money consideration for a sale of goods. [Sec
2(10)]
Mode of determining of price [ section 9(1)]
• Fixed by contract
• By third parties
• Reasonable price

5. Goods
The subject matter of a contract of sale of goods is goods.
According to Sec 2(7) “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 contract of sale.
ACTIONABLE CLAIM – means a claim which can be enforced
through the court of law e.g a debt due from one person to
another is an actionable claim
A borrows Rs. 5000/- from B at 12% per annum interest on 1st
April, 2006 and promises to pay back the amount with interest on
1st July, 2006. Till 1st July, 2006, the debt is an accruing debt
and is an actionable claim

6. Examples of Goods
Goodwill, Trade Mark, Copyright, Patent right, Water, Gas, Electricity,
are all example of good
Classification of Goods
(i) Existing Goods
(ii) Specific goods
(iii)unascertained goods :
Eg. Anthony, who owns a TV showroom, has 20 TV sets and agrees to
sell any one of them to Bharti. The contract is for unascertained
goods, since which particular TV set shall become the subject matter
of sale is not individualized at the time of the contract of sale.
(iv) Future Goods- This is applicable to goods which are subject
matter of the agreement to sale
Example: Kulkarni agrees to sell future crop of a particular
agricultural field in the next season. This is an agreement to sell
future goods
(v) Contingent Goods- i.e. the goods arriving by ships etc.

7. Difference Between
Sale
• A sale is an executed contract
• Since the ownership has passed to
the buyer, the seller can sue the
buyer for the price of the goods, if
the latter makes a default in
payment
• In case of loss of goods, the loss
will fall on the buyer, even though
the goods are in the possession of
the seller. It is because the risk is
associated with ownership
• In case the buyer pays the price
and the seller thereafter becomes
insolvent, the buyer can claim the
goods from the official receiver or
assignee as the case may be
Agreement to Sell
• It is an executory contract
• In case of breach, the seller can
only sue for damages, unless the
price was payable at a stated date
• The loss in this case shall be
borne by the seller, even though
the goods are in the possession of
the buyer
• In this case, the buyer cannot
claim the goods, but only a ratable
dividend for the money paid

8. Stipulation, Condition & Warranty
A representation which forms part of the contract of
sale and affects the contract, is called a stipulation.
A stipulation as to time: not essence of a contract unless a
different intention appears from the contract.
A stipulation not relating to time of payment: delivery of
goods

9. Conditions
Section 12(2) of the Sale of Goods Act, 1930 defines
condition as, “a condition is a stipulation essential to the
main purpose of the contract, the breach of which gives
rise to right to treat the contract as repudiated.”
Example: Buyer wanted a Car which has mileage of 90
km/lt. petrol.

10. Implied Conditions
(i) Condition as to Title [Sec 14(a)]
(ii) Condition as to Description [Sec 15]
(iii) Condition as to Sample [Sec 17(2)]
(iv) Condition as to Sample as well as Description [Sec 15]
(v) Condition as to Quality or Fitness for Buyer’s purpose
[Section 16(1)]
(vi) Condition as to Merchantability
[Section 16(2)]
(vii)Condition as to Wholesomeness

11. Condition Warranties
• Sec. 12(2) defines a
‘condition’ as, ‘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’
(denied),
• Sec 12(3) defines a
‘warranty’ as,
‘stipulation collateral to
the main purpose of the
contract, the breach of
which gives rise to claim
for damages but not to a
right to reject the goods
and treat the contract as
repudiated’ .

12. WARRANTY AS TO QUALITY OR FITNESS BY USAGE OF
TRADE
An implied warranty as to quality or fitness for a particular purpose
may be annexed by the usage of trade.
WARRANTY TO DISCLOSE DANGEROUS NATURE OF GOODS.
When a person sells goods knowing that the goods are inherently
dangerous or they are likely to be dangerous to the buyer and that the
buyer is ignorant of the danger, he must warn the buyer of the
probable danger, other wise he will be liable in damages
WARRANTY OF FREEDOM FROM ENCUMBRANCES
In addition to the previous warranty, the buyer is entitled to a further
warranty that the goods are not subject to any charge or right in favor of a
third party.
If the possession is in any way disturbed by reason of the existence of any
charge or encumbrances on the goods in favor of any third party, he shall
have a right to claim damages for breach of this warranty.

13. Doctrine of Caveat Emptor [Sec 16]
The doctrine of caveat emptor is a fundamental principle
of law of sale of goods. It means ‘Caution Buyer’ i.e. ‘let
the buyer beware’. In other words, it is no part of the
seller’s duty to point out defects in his own goods. The
buyer must inspect the goods to find out if they will suit
his purpose e.g. certain pigs are sold ‘subject to all faults’.
These pigs being infected cause typhoid to the other
healthy pigs of the buyer. The rule of caveat emptor would
apply.

14. Exceptions to the Doctrine of Caveat Emptor
(i) Condition as to Quality or Fitness for Buyer’s purpose
(ii) Where the seller makes a false representation or
obtains consent of the buyer by fraud
(iii) Condition as to Merchantability
(iv) Condition as to Wholesomeness
(v) Condition implied by the Custom or Trade Usage

15. Thank you