BBA 1st Semester Business Low Notes

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Subject matter of Contract of Sale

Business Low Notes :-

The subject matter of contract of sale is essentially the goods. Section 2 (7) says that “goods”, means every kind of movable property other than money or actionable claims, it includes stock and shares, growing crops, and things attached to the earth which are to b  removed because of the contract of sate.

According to this definition money and actionable claims are not goods and cannot be bought and sold. Money here means legal tender money; It does not include old coins which are sold like goods, e.g., silver rupee coins in our country.

An actionable claim means a debt or a claim for money which a person may have against another and which he can recover by suit.

Goods may be classified into three types :

(1) Existing goods (2-) Future Goods, and (3) Contingent Goods.

  • Existing Goods are goods which are already in existence and which are physically present in some person’s possession and ownership. Existing goods may be either (i) Specific and Ascertained or (ii) Generic and
  • Specific goods are those goods which are identified and agreed upon at the time of the contract of sale; i.e., a particular painting by a painter, a horse pointed out and recognised as separate from other horses in a stable. The term Ascertained goods is used in the same sense as Specific
  • Generic or Unascertained Goods are those goods which are not specifically identified but are indicated by description. If A agrees to supply one bag of wheat from his godown to B, it is a contract relating to unascertained goods because it is not known which bag will be delivered. As soon as a particular bag is separated from the lot and making or identified for delivery it becomes specific
  • Future Goods are goods which the seller does not own or possess at the time of the contract, but which he will manufacture or produce or acquire after the making of the contract. For example, A agree to sell to B all the oranges which will be produced in his garden next This is an agreement for the sale of future goods.
  • Contingent goods are those goods which the seller will acquire on the happening of a contingency. An agreement to sell contingent goods can also be made. For example, A’s father has a rare copy of book which is out of print. A hopes to get it on his father’s death. A agrees to sell it to B for Rs. 10,000 even before his father’s death. This is an agreement for .the sale of contingent

Perishing of Goods: If in a contract for the sale of specific goods, the goods have, without the seller’s knowledge, perished at the time when the contract was made, the contract is void. Where A sold 700 bags to B, but only 591 bags were in existence at the date of contract, the remaining having been stolen. In this case B cannot be compelled to accept the 591 bags.

The Price: Price, which means money consideration for a sale of goods, constitutes the essence of a contract of sale. It may be money actually paid or promised to be paid accordingly as the agreement is for cash sale or credit sale. If consideration other than money is given, it is not a saie.

In an agreement to sell when the seller becomes insolvent the only remedy available to buyer is to claim for rateable dividend if the buyer has paid the price. But in a sale if seller becomes insolvent, the buyer can recover the goods from the liquidator because the ownership  in goods has passed to him.

The price may be fixed by the contract or may be determined by the course of dealing between the parties. In the absence of either of these provisions the buyer must pay a reasonable price, the amount of which is determined by the facts of each particular case.

Sale and contract for work and materials. A contract of sale must be distinguished from a contract for work and materials. The Sale of Goods Act applies to the former and not to the latter. A contract of sale contemplates the delivery of goods whereas a contract for work and materials involves exercise of skill and labour by one party in respect of materials supplied for another, the delivery of goods being only subsidiary or incidental.

Business Low Earnest or Deposit Money Notes

An earnest money is some amount which the buyer pays to the seller at the time of the contract as a token of good faith, and as a guarantee that he will fulfill his contract. If he fails    to fulfil the contract, the earnest money is forfeited by the seller, but if he fulfills the contract.

the earnest or deposit will be treated as part-payment of the price, only the balance being required to be paid to make up the full price.

Sale and Hire-Purchase Agreement

A hire purchase agreement is one under which a person takes delivery of goods promising to pay the price by a certain number of installments and, until full payment is made, to pay hire charges for using the goods. It is in fact bailment for hire with an option to the hirer to buy the goods in his possession on making the full payment.

Until the full payment is made the agreement remains a contract of hire and the hirer can return the goods to the owner and the owner can get them back, as the ownership of the goods remains with him.

When the hirer pays full price he buys the goods. The essence of hire purchase agreement is that there is no purchase or agreement to purchase, but only an option is given to the hirer to buy so that when he has paid the full price it becomes a sale and he becomes the owner.

In a sale, on the other hand, the property passes    to the buyer immediately on making the contract even if the payment of the price is to be made by instalments.

The transaction of hire-purchase protects the owner against the insolvency of the buyer, for if the buyer becomes insolvent or fails to pay the instalments, the seller has the right to take the goods as owner and treat all the money already received as hire-charges. Again, until the full

.price is paid and the agreement remains that of hire, no title will pass even to an innocent and bonafide parties. Sale and Bailment

Bailment is the delivery of goods from one person to another upon a condition that he shall return the goods to the bailor when his purpose is accomplished. Bailment may be with or without consideration.

Sale is delivery of goods in return of monetary payment and there is no provision of return of those goods. In a sale, the buyer becomes the absolve owner of goods but in bailment, the question of transfer of ownership does not arise at all.

Agreement to sell at valuation. According to section 10 the parties may agree to sell and buy goods on the terms that price is to be fixed by the valuation of a third party. If such third party cannot or does not make such valuation, the agreement becomes void.

But if the goods or any part thereof have been delivered to and appropriated by the buyer, he shall pay a reasonable price therefore. If the third party is prevented from making the valuation by the fault of the seller or buyer, the party not in fault may maintain a suit for damages against the party in fault.


  • A agreed to sell to B oil, not yet pressed from seeds in his possession. It is a contract of sale ? .
  • A changes with B a 100 rupee note with coins for 100 rupees. Is this transaction a sale ?
  • A buys Victoria Rupees from a jeweller and pays for them in 10 rupee notes. Is there a sale ?
  • A exchanges 32 bullocks for the entire crop of wheat harvested from B’s Does this transaction amount to sale ?
  • A agrees to buy 100 bales of cotton from B and takes delivery after one He

deposits Rs.100 with B as a guarantee for performance by him of the contract. A fails to take delivery of the goods on the expiry of one week. What are B’s rights?

Answer :

  • Yes, it is a contract of sale of future
  • No, it is exchange and not
  • Yes, it is sale of victoria Rupees which are no more legal tender, and can be treated   as
  • No, it is
  • 100 deposited by A with B is earnest money. It will be forfeited by B for A’s nonperformance of the contract. If the contract falls through due to the fault of seller B, the deposit is returnable. If the contract-is performed, the amount of Rs.100 will be counted towards the price.

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