Legal Aspects of

Business Unit- 2
Law of Sales of Goods, Consumer
Protection Act, Partnership Act
Conten
t• Contract of sale, Goods and their classification, Meaning of
price, Conditions and Warranties, Passing of property in goods,
Transfer of title by non-owners, Performance of a contract of
sale, Unpaid seller and his rights, Remedies for breach of
contract
• Consumer Protection Act: Objectives, definition, consumer
protection council and state consumer protection council.
• The Partnership Act: Nature of Partnership, Formulation
of Partnership firms; rights, duties, and liabilities of
partners; Dissolution of Partnership Term
Contract of Sale of
Goods
• The law relating to sale of goods is contained in the sale of Goods
Act, 1930 and came into force on 1 July 1930.
• 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”.
• Buyer is a person that who wants to buy something from seller and
seller is a person that sells out something that a buyer wants.
Definition sale of goods
A contract of sale is a legal contract an exchange of goods, services or
property to be exchanged from seller to buyer for an agreed upon
value in money paid or the promise to pay same. It is a specific type
of legal contract.
Meaning of
Goods
According to Section 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
served before sale or under the contact 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.
Examples of Goods: Goodwill, Trade Mark, Copyright, Patent
right, Water, Gas, Electricity, machines, animals are all example
of goods.
Classification of
Goods
• Existing Goods
• Specific goods
• Unascertained goods
• Future Goods:- This is applicable to goods which are
subject matter of the agreement to sale.
• Contingent Goods:- i.e. the goods arriving by ships etc.
Existing goods: These are the goods which are
owned or possessed by the seller at the time of sale.
Only existing goods can be the subject of a sale.
The existing goods may be-
a)Specific goods: Goods identified and agreed upon
at the time of making of the contract of sale of goods.
b)Ascertained goods: Goods identified subsequent to the
formation of the contract of sale. The terms ascertained and
specific, are commonly used for same kind of goods.
c)Unascertained or generic goods: Goods not identified or
agreed upon at the time of making of the contract of sale. They
are the goods defined for description only.
 Example: ‘A’ who wants to buy a television set goes to a
showroom where four sets of television are displayed. He sees
the performance of a particular set, which he agrees to buy. The
set so agreed to be bought is a specific set. If after having
bought one set he marks a particular set, the set so marked
becomes ascertained. Till this all is done all sets are
unascertained.
Future goods: Goods to be manufactured, produced or acquired
after making of the contract are called future goods.
Example: ‘A’ contract, on 1st January, to sell B 50 shares in
Reliance Ltd., to be delivered and paid for on the 1st March
of the same year. At the time of making of the contract, A is
not in possession of any shares. The contract is a contract
for the sale of future goods
Contingent goods : Goods, the acquisition of
which by the seller ,depends upon an uncertain
contingency are called ‘contingent goods’. They
are also a type of future goods.
Example: ‘A’ agrees to sell 100 units of an article
provided the ship which is bringing them, reaches the
port safely. This is an agreement for the sale of
contingent goods.
Difference between Sale
& Agreement to Sell
Sale Agreement to Sell
The ownership is transferred At some future date.
immediately.
Executed contract Executory Contract
A seller can sue for price A seller can sue for damages
He has all the right of unpaid An agreement to sell takes
seller place in the case of future
goods
A buyer bears the risk A seller bears the risk
 Essentials of Contract of
Sale
• Two parties: There must be two parties- a buyer and a seller to
constitute a contract of sale.
• Goods: Contract of sale relates to goods i.e., movable property .
Transaction involving purchase and sale of immovable property are
out of the purview of the Sale of Goods Act.
• Transfer of general property: The object of the contract must be
the transfer of general property as distinguished from the special
property in the goods by one person to another. The term ‘general
property’ refers to ownership of goods.
• Price: The consideration for the contract of sale called price must be
money.
• Essential elements of a valid contract: All the essential elements
of a valid contract must be present in the contract of sale.
 Pric
e
Sec.2(10) defines price “as money consideration for
a sale of goods”.
• It forms an essential part of the contract.
• It must be expressed in terms of money.
• It is not essential that the price should be fixed at the time
of sale. It must, however, be payable, though it may not
have been fixed.
 Transfer of
Ownership
• A contract of sale of goods involves transfer of ownership from
the seller to the buyer. Transfer of ownership or property in goods
is in fact the main object of making a contract of sale.
RULES REGARDING TRANSFER OF OWNERSHIP
Goods must be ascertained
Property passes when intended to pass.
• For Specific goods(Sec. 20 to 22)
Where there is an unconditional contract for the sale of
specific goods in a deliverable state, the property in the goods
passes to the buyer when the contract is made
EXAMPLE: B offers A for his horse FOR a sum of Rs.1000.The
horse is to be delivered to B on a fixed day and the price is to be paid
on another fixed day. A accepts the offer. The horse becomes B’s
property as soon as the offer is accepted.
Passing of property delayed beyond the date of the contract
Goods not in a deliverable state(Sec.21)
Where there is a contract for sale of specific goods
not
in a deliverable state, i.e., the seller has to do something
to the goods to put them into the deliverable state, the
property does not pass until such thing is done and the
buyer has notice of it.
When the price of goods is to be ascertained by weighing
(Sec. 22) deliverable
Where there
state, but the isseller
a contract forto
is bound sale of specific
weigh, goods
measure, test in
orado some other
act or thing with Reference to the goods for the purpose of
ascertaining the price, the property does not pass until such act or
thing is done and the buyer has notice thereof.
Unpaid Seller And His
Rights
UNPAID SELLER:-
Seller :- A person who sells the goods or agrees
to sell the goods is called seller.
Unpaid :- It means payment is not made or
without
payment. In simple words, "Unpaid seller" means a person who
has sold
the goods for a price but price has not been paid to him.
Sales act defines the "unpaid seller" in the following words :
Unpaid Seller Is A Person :-
i. To whom the whole price has not been paid or tendered.
ii.And where a bill of exchange or other negotiable instruments has
been accepted by him as a condition on which it was received has
not been fulfilled by reason of dishonor of the instrument or
otherwise.
EXAMPLE: Party A sells a car on cash basis to party
B and the price has not been received yet.
 Rights Of Unpaid
Seller
Rights of unpaid seller

Right against Right against the buyer

goods personally
When the property in Suit for
the price
goods has been
Right of Lien
transferred Suit for damages for
non
Right of stoppage acceptance
in goods in
Suit for special
transit
Right to damage
resale and interest
When the property in the
goods has not been
transferred
Right of withholding 15
delivery
Right against the
goods
When the property in the goods has been transferred
1.RIGHT OF LIEN[Sec 46(1)(a) and 47 to 49]
The right of lien means lawfully right to
retain the goods possession until the full price
is received. An unpaid seller can exercise his right of
lien
in following cases.Sec47-49
I. Where the goods have been sold on the cash basis.
II. Where the goods have been sold on credit basis and
the term of credit has expired.
III. Where the buyer has become insolvent even if the
period of credit has not been expired.
2.RIGHT OF STOPPAGE IN TRANSIT [Sec. 50 to 52]
It means stoppage of goods while they are in transit to take
possession until the price is paid (sec.50-52)
Unpaid seller can stop the goods in transit in the following
cases.
• While the buyer becomes insolvent.
• While the goods are out of actual possession of seller, but
have not reached buyer’s possession i.e. goods are in
transit with career.
• The unpaid seller can stop the goods in transit only for
payment of the price of the goods and not for any other
charges.
 The unpaid seller can not stop goods in transit in following
cases.
• When the goods reaches the destination.
• While the buyer or his agent takes possession of delivery
even if it is not reached destination.
• In case the carrier is agent of the buyer, the transit comes
to an end the instance carrier receives the goods and seller
can not stop the transition.
• Carrier’s wrongful refusal to deliver goods to the buyer
Example: "A” sells TV set to “B”. “A” delivers the TV to
the carrier to carry it to “B”. Later on gets news that “B”
has become insolvent; “A” can stop delivery.
3.Right To Re-sale
If a buyer fails to pay or offer the price within a
reasonable time, the unpaid seller has the right to
resell the goods in the following circumstances.
1. Where the goods are of perishable nature.
2. Where the unpaid seller has exercised his right of lien or
stoppage in transit and gives a notice to buyer of his
intension of resell the goods.
3. Where the unpaid seller has expressly reserved his
right of resale.
4. Where seller gives notice to the buyer of his intention to
resell and the buyer does not pay within a reasonable
time.
When the property in goods has not been transferred
RIGHT OF WITHHOLDING DELIVERY
If the property in the goods has not passed to the
buyer, the unpaid seller cannot exercise right of lien ,
but gets a right of withholding the delivery of
goods, similar to and co-extensive with lien.
SUIT FOR PRICE[Sec. 55]
Where ownership of the goods has passed to the buyer
and the
buyer refuses to pay the price according to the terms of the
contract, the seller can sue the buyer for price, irrespective of
delivery of the goods.(Sec. 55)
SUIT FOR DAMAGES FOR NON DELIVERY[Sec.56]
Where the buyer refuses to accept and pay for the goods, the
seller may sue him for damages for non acceptance. The seller
can recover damages only and not the full price (Sec. 56)
SUIT FOR SPECIAL DAMAGES AND INTEREST
[Sec.61]
The seller can sue the buyer for special damages where the
parties are aware of such damages at the time of contract. The
unpaid seller can recover interest at a reasonable rate on the total
unpaid price of goods, from the time it was due until it is paid.
(Sec. 61)
Remedies For Breach
of Contract of Sale
The Sale of Goods Act gives the following remedies
to a seller and buyer for a breach of a contract of
sale:
• Seller’s suits
 Suit for price(Sec. 55)
 Suit for damages for non-acceptance of the goods(Sec.56)
 Suit for interest[Sec. 61(2)(a)]
• Buyer’s suits
 Suit for damages for non-delivery of the goods(Sec.57)
 Suit for specific performance(Sec.58)
 Suit for breach of warranty(Sec.59)
 Suit for interest[Sec.61(2)(a)]
 STIPULATIONS

Condition Warranty

Express Condition Implied Condition Express warranty Implied Warranty

23
Conditions And
Warranties
A stipulation in a contract of sale with reference to
goods which are the subject thereof may be a condition
or a warranty[Sec. 12(1)].
• Condition:
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. [Sec 12(2)]
• Warranty:
A warranty is a stipulation collateral to the main
purpose of the contract, breach of which gives rise to a
claim for damages, but not a right to reject the goods
and treat the contract as repudiated. [Sec 12(3)]
 Difference Between Condition And
Warranty CONDITION
BASIS WARRANTY
Purpose A condition is stipulation A warranty is a stipulation
which is essential to the which is not essential to
main purpose of the the main purpose
contract of sale

Remedy A breach of condition A breach of warranty

provides a right to provides a right to claim
repudiate the contract damages
and in some cases a right
to claim damages

Treatment A breach of condition may In case of breach of

be treated as a breach of warranty, the aggrieved
warranty party can claim damages
only.

Transfer of Title Title of goods cannot be It is not true regarding

transferred unless warranty
conditions are not
satisfied
Example X sells food-stuff to Y. On the other hand, if the
The contract between X contract stipulates that
and Y states that the the food-stuff should be
food to be sold should packed in 1 kilo box but
be fit for consumption the seller packs it in half-
and this is the essential kilo box, only an auxiliary
term in the contract. So, or minor term of the
if it contains any contract is broken, Y may
poisonous substance, Y is be able to claim
entitled to reject the compensation in respect
food-stuff and to of its breach, but not
repudiate the contract avoid the contract. Such
This essential term is an auxiliary term is called
called a condition. warranty.
Express And Implied
Condition And
Warranties
Conditions and warranties may be express or
implied.
Express condition and warranties:
Express condition and warranties are those which
have
been expressly agreed upon by the parties at the
time of
contract of sale
Implied condition and warranties:
Implied condition and warranties are those which the
law incorporates into the contract unless the parties
stipulate to the contrary.
Transfer of ownership in
goods including sale by a
non-owner
This is the ground principle regarding the transfer of title.
Sections 27 to 30 of the Sale of Goods Act, 1930 specify these
laws about the transfer of title.
Section 27 deals with the sale by a person who is not the owner.
Imagine a sale contract where the seller –
Is not the owner of the goods
Does not have consent from the owner to sell the goods
Has not been given authority by the owner to sell the goods
on
his behalf
 Exceptions to Section
27
In the following scenarios a non-owner of goods can
transfer a better title to the buyer:
Sale by a Mercantile agent (Provision to Section 27)
Consider a mercantile agent, who is in possession of the
goods or a document to the title of the goods, with the
consent of the owner. Such an agent can sell the goods
when acting in the ordinary course of business of a
mercantile agent. The sale shall be valid provided the buyer
acts in good faith and has no reason to believe that the
seller doesn’t have any right to sell the goods. The transfer
of title is valid in such a case.
Sale by one of the Joint Owners (Section 28)
Many times goods are purchased in joint ownership. In many cases,
the goods are kept in the possession of one of these joint owners by
the permission of the co-owners. If this person (who has the sole
possession of the goods) sells the goods, the property in the goods is
transferred to the buyer. This is provided the buyer acts in good faith
and has no reason to believe that the seller does not have a right to sell
the goods.

Sale by a Person in Possession of Goods under a Voidable Contract

(Section 29)
Consider a person who acquires possession of certain goods under a
contract voidable on grounds of coercion, misrepresentation, fraud or
undue influence. If this person sells the goods before the contract is
terminated by the original owner of the goods, then the buyer acquires
a good title to the goods.
Sale by a Person who has already sold the Goods but
Continues to have Possession [Section 30 (1)]
Consider a person who has sold goods but continues to be
in possession of them or of the documents of title to
them. This person might sell the goods to another buyer.
If this buyer acts in good faith and is unaware of the earlier
sale, then he will have a good title to the goods even though
the property in the goods was passed to the first buyer. A
pledge or other disposition of the goods or documents of
title by the seller in possession are valid too.
Sale by Buyer obtaining possession before the Property in the
Goods has Vested in him [Section 30 (2)]
Consider a buyer who obtains possession of the goods before
the property in them is passed to him, with the permission of the
seller. He may sell, pledge or dispose of the goods to another
person.
If the second buyer obtains delivery of the goods in good faith
and without notice of the lien or any other right of the original
seller, he gets a good title to them.
Sale by an Unpaid Seller [Section 54 (3)]
If an unpaid seller exercises his right of lien or stoppage in
transit and sells the goods to another buyer, then the second
buyer gets a good title to the goods as against the original buyer.
So in such a case transfer of title will occur.
Indian Partnership
Act
• Partnership is the relation between two or more persons
who have agreed to share the profits as well as loss of a
business carried on by all or any of them acting for all.
• Partnership is a relation between those persons who have
entered into contract to share the profits of any such
business which is carried on by all of them or any of them
on behalf of the rest of them.
• Persons who have entered into partnership with one
another are called individually partner and collectively a
‘firm’.
• The name under which their business is carried on is
called the firm’s name.
• In case of partnership firm carrying on a banking business
there can be 10 partners.

• In case of partnership firm carrying on any other business

number of partners can be 20.
Essentials of
Partnership
1. Two or more persons:- A partnership is an Association of two
or more person.
2. Maximum number of partners:- In case of partnership firm
carrying on a banking business there can be 10 partners and
in case of partnership firm carrying on any other business
number of partners can be 20.
3. Necessity of an agreement:- A partnership must emerge out a
agreement
4. There must be a business:- The business to carried out must
be legal and acceptable by law.
5. The agreement must give all the essential details of
Partnership e.g. profit sharing percentage, business to be
conducted etc.
7. Minor cannot be a partner.

8. Objective of business should be earning and sharing of profit

:- Any business which has been undertaken for the purpose of
social welfare or by way of charity cannot be termed as
partnership business.
Rights of
Partner
• Normal rights or the rights which cannot be changed by an
agreement
1.Right to justified behaviour and dealing:- Every partner has
a right to expect justified behaviour and dealing from other
partners based upon mutual trust not loyalty.
2.Compensate for damages:- If any partner suffers any loss on
account of the deceitful behaviour of other partners then he can
get compensation for the loss and damages.
3.Right for making changes in firm without unanimous
opinion or consensus:- Changes in partnership firm can be
brought about by consensus. However, in case of an
emergency a partner has a right to take necessary steps to
protect the firm from any possible losses.
4. Right to ascertain all facts about the partnership.
RIGHTS WHICH CAN BE CHANGED BY
AN
AGREEMENT

1. Right to Participate in the management of business

2.Right to express opinion:- Every partner has a right to know and
understand all disputed and controversial issues related to business
and to express his opinion in this regard.
3. Right to examine books of account of business
4. Right to share the profit & loss of firm
5.Right to get interest on capital:- Every partner has a right to get
interest on the additional capital employed by him in the business to get
interest on the loan amount given to the firm.
6.Right to get compensation for the loss or damages:- if a partner
suffers some loss in managing and safeguarding the interest of the
firm or in safeguarding the firm from some sudden crisis.
7.Right on assets and property of the firm:- All the partners have a
joint right on the assets of the firm.
 Duties of
Partner
Normal duties or the duties which cannot be changed by
an agreement
1. Duty to the greatest common advantage:- It is the duty of all
partners that they should manage the business in such a way
so as to safeguard the interest of all members.
2. To be just and faithful to each other
3. To render true accounts.
4. To provide full information of all things affecting the firm or
any of the partners or his legal representative.
5. Duty to indemnify for loss caused to firm or any of the
partners or account of fraud.
Duties which can be
changed by an agreement
1. To work for the firm without wages
2. Compensation for negligence - it is the duty of the
partner to compensate the firm or other partners for
damages caused on account of intentional negligence.
3. To bear the profits or losses in the firm in equal
proportions.
4. Not to put the assets or property of the firm
for the personal use
5. Non- transference of one’s right to other partners.
Registration of
Partnership Firm
For registration of a partnership firm an application is to be submitted
to the Registrar of the Firms of the State along with the prescribed
fee. Following details are to be submitted on the form available from
the office of registrar of the firms:-
 Name of firm
 Address of the firm or address of the Head Office
 Names and Addresses of other places from where the firm is
carrying
on the business
 Dates on which different partners joined the firm
 Full name and address of all the partners
 Time period of existence or formation of firm
 Signatures of all partners and their authorized agents

If the Registrar of firms is completely satisfied then he shall enter the

particulars of the firm in the Registrar of Firms. After filling these
details, he shall issue a certificate of registration to the firm.
Effects of non
registration
• No suit can be filed in a civil court by firm against third
parties.
• No suit can be filed a partner against the firm or other
copartners.
• The firm or is partners cannot make a claim of set-off or
other proceedings based upon the contract.
Dissolution of Partnership
Firm
• If partnership between all the partners of a firm comes to
an end then this is termed as dissolution of firm.

• When any partner quits the partnership and the remaining

partners continue to manage and organize the business of
the partnership firm, then this is termed as dissolution of
partnership”
 Modes of Dissolution
of Partnership
A firm can be dissolved under the following conditions:-
Firm
1) Dissolution without the intervention of the court:
• Dissolution by agreement
• Compulsory or mandatory agreement
• Dissolution on the happening of certain contingencies.
• Dissolution by notice of partnership at will
2) Dissolution by the court
 Dissolution without
the intervention of the
1)
court
Dissolution by agreement:- Any firm can be dissolved with
the consent of all the partners or through an agreement
arrived at amongst all the partners.
2) Compulsory Dissolution:- Dissolution of firm would be
mandatory under the following circumstances:-
• When all the partners or all expect one partner are
declared
insolvent
• When on the occurrence of some incident business of the
firm becomes unlawful or illegal e.g. Government bans the
trading the commodity in which the firm is dealing.
3) Dissolution on the happening of certain contingencies:-
Unless the firm is having an agreement to the contrary, then the
firm would get dissolved under the following conditions:-
• If the firm was constituted for a fixed span of time then at the
end of that period.
• If the firm was established for accomplishment of one or more
specific tasks, then on completion of such tasks.
• On the death of any partner
• On declaration of a partner as insolvent.
4) Dissolution by Notice of Partnership at will:-
In case of ‘partnership at will’ any partner can dissolve the partnership
firm by giving written intimation to this effect to the rest of the
partners. Firm would be treated as dissolved from the date of such
intimation. If no specific date is mentioned then the firm would be
treated as dissolved from the date of receipt of such intimation by
other partner.
Following are the conditions for dissolution of firm by intimation:-
• Partnership should be partnership at will
• Intimation for dissolution should be given to rest of the partners
• Intimation must be in clear terms and in writing
• Firm would be considered as dissolves from the date given on
such intimation
Dissolution by the
court
1. By Lunacy of a partner or on his becoming of unsound
mind:- When a partner becomes lunatic then a petition can
be filed by any one of his friend or any of the partner and in
such a case court can order for dissolution of the firm. Under
such circumstances firm cannot dissolved on its own.
2. When a partner becomes permanently incapable:- If any
one the partner, other than the one who has filled petition for
dissolution becomes permanently incapable to do his duties
as a partner, then the court can order dissolution of firm on
the basis of petition filled by any other partner.
3)On the basis of misconduct of a partner:- If a partner other
than the one who has filled a petition for dissolution, if found
guilty of misconduct which can results into losses in carrying
on the business giving due consideration to the nature of
business, they under such circumstances if a suit is filed by any
one of other partners then the court may order dissolution
of the firm.
4)By willful breach of agreement:- If a partner other than the
one who has filed petition gets continuously involved in breach
of agreement in matters related to the management of the firm
or behaves in such a way in matters related to business, that it
becomes impossible for other partners to carry on the
partnership business, then the court on filing of petition by any
other partner can order dissolution of firm.
Rights of partners on
dissolution
Every partner or his representative is entitled –
(1)to have the firms property applied in payment of the firm’s
debts
(2)to have the surplus distributed amongst the partners or the
representatives according to their respective rights.
Until a public notice of is given of dissolution, the partners
continue to be liable for any act done by any of them after
dissolution and any such act is deemed to be an act done before
the dissolution.