Formation of the Contract of Sale (Part - 3) CA Foundation Notes | EduRev

Business Laws for CA Foundation

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CA Foundation : Formation of the Contract of Sale (Part - 3) CA Foundation Notes | EduRev

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SUMMARY:

In nutshell, contract of sale of goods is a contract where the seller transfers or agrees to transfer the property in goods to the buyer for a price. Where, however, the transfer of property in goods is to take place at a future date or subject to some conditions to be fulfilled, the contract is called ‘agreement to sell’. The subject matter of such contract must always be goods. Price for goods may be fixed by the contract or may be agreed to be fixed later on in a specific manner.


TEST YOUR KNOWLEDGE

Multiple Choice Questions

Question 1. A contract for the sale of goods where property would pass to the buyer on payment of total price would be;

(a) sale

(b) agreement to sell

(c) hire-purchase contract.

(d) sale on approval.

Question 2. The term “goods” under Sale of Goods Act, 1930 does not include

(a) goodwill.

(b) actionable claims.

(c) stocks and shares.

(d) harvested crops.

Question 3. A contract for the sale of “future goods” is

(a) sale

(b) agreement to sell

(c) void

(d) hire-purchase contract

Question 4. The sale of Goods Act, 1930 deals with the

(a) movable goods only.

(b) immovable goods only.

(c) both movable and immovable goods.

(d) all goods except ornaments.

Question 5. Under Sale of Goods Act, 1930 the terms “Goods” means every kind of movable property and it includes

(a) stock and share

(b) growing crops, grass

(c) both (a) and (b)

(d) none of the above

Question 6. The Sale of Goods Act, 1930 deals with
(a) sale

(b) mortgage

(c) pledge

(d) all of the above

Question 7. Which one of the following is true?

(a) the provisions of Sale of Goods were originally with the Indian Contract Act, 1872

(b) the Sale of Goods Act, 1930 deals with mortgage

(c) the Sale of Goods Act restricts the parties to modify the provisions of law

(d) none of the above

Question 8. Goods which are in existence at the time of the Contract of Sale is known as

(a) present Goods

(b) existing Goods

(c) specific Goods

(d) none of the above

Question 9. Which of the following is not a form of delivery?

(a) constructive delivery

(b) structured delivery

(c) actual delivery

(d) symbolic delivery

Question 10. Which one of the following is/are document of title to goods?
(a) railway receipt

(b) wharfinger’s certificate

(c) warehouse keeper’s certificate

(d) all of the above

Question 11. Which one of the following is not true?

(a) document showing title is different from document of title

(b) bill of lading is a document of title to goods

(c) specific goods can be identified and agreed upon at the time of the Contract of Sale

(d) none of the above

Question 12. Mercantile Agent is having an authority to

(a) sell or consign goods

(b) raise money on the security of goods

(c) sell or buy goods

(d) any of the above

Question 13. Contract of Sale is

(a) executory Contract

(b) executed Contract

(c) both of the above

(d) none of the above

Question 14. In which form of the contract, the property in the goods passes to the buyer immediately:

(a) agreement to sell

(b) hire purchase

(c) sale

(d) installment to sell

Question 15. In case of hire purchase the hirer can pass title to a bona fide purchaser.

(a) true

(b) false

Question 16. In a contract of sale, the agreement may be expressed or implied from the conduct of the parties.

(a) true

(b) false

Question 17. In a contract of sale, subject matter of contract must always be money.

(a) true

(b) false

Question 18. Selection of goods with the intention of using them in performance of the contract and with the mutual consent of the seller and the buyer is known as

(a) distribution

(b) appropriation

(c) amortization

(d) storage

Question 19. If a seller handed over the keys of a warehouse containing the goods to the buyer results in

(a) constructive delivery
(b) actual delivery

(c) symbolic delivery

(d) none of the above

Question 20. If A agrees to deliver 100 kg of sugar to B in exchange of 15 mts of cloth, then it is

(a) Contract of sale

(b) Agreement to sell

(c) Sale on Approval

(d) Barter

Question 21. In a hire-purchase agreement, the hirer

(a) has an option to buy the goods

(b) must buy the goods

(c) must return the goods

(d) is not given the possession of goods

Question 22. A agrees to deliver his old car valued at Rs. 80,000 to B, a car dealer, in exchange for a new car, and agrees to pay the difference in cash it is

(a) Contract of sale

(b) Agreement to sell

(c) Exchange

(d) Barter

Question 23. Legally, a contract of sale includes

(a) sale

(b) agreement to Sell

(c) barter

(d) both (a) and (b)

Question 24. The Sale of Goods Act, 1930 came into force on

(a) 15th March, 1930

(b) 1st July, 1930

(c) 30th July, 1930

(d) 30th June, 1930

Question 25. The person who buys or agrees to buy goods is known as

(a) consumer

(b) buyer

(c) both (a) and (b)

(d) none of the above
Question 26. Voluntary transfer of possession by one person to another is popularly known as

(a) transfer

(b) possession

(c) delivery

(d) none of the above

Question 27. The aggrieved party can claim only damages in case of breach of warranty.

(a) true

(b) false

Question 28. If X commissioned Y, an artist, to paint a portrait of A for 200 dollars & Y uses his own canvas & paint then it is

(a) Contract of sale

(b) Contract of work & materials

(c) Sale on approval

(d) Hire-Purchase agreement

Question 29. The property in the goods means the

(a) possession of goods

(b) custody of goods

(c) ownership of goods

(d) both (a) and (b)

Question 30. The goods are at the risk of a party who has the

(a) Ownership of goods

(b) Possession of goods

(c) Custody of goods

(d) both (b) and (c)

Question 31. In case of sale of standing trees, the property passes to the buyer when trees are

(a) felled and ascertained

(b) not felled but earmarked

(c) counted and ascertained

(d) both (b) and (c)

Question 32. In case the delivery of goods is delayed due to the fault of party, the goods shall be at the risk of defaulting party even though the ownership is with the other party.

(a) True, as there is a provision to this effect

(b) False, as it is against the general rule

Question 33. Which of the following modes of delivery of goods is considered effective for a valid contract of sale?

(a) Actual delivery

(b) symbolic delivery

(c) Constructive delivery

(d) all of these

Answers to MCQs

1.

(b)

2.

(b)

3.

(b)

4.

(a)

5.

(c)

6.

(a)

7.

(a)

8.

(b)

9.

(b)

10.

(d)

11.

(d)

12.

(d)

13.

(c)

14.

(c)

15.

(b)

16.

(a)

17.

(b)

18.

(b)

19.

(c)

20.

(d)

21.

(a)

22.

(a)

23.

(d)

24.

(b)

25.

(b)

26.

(c)

27.

(a)

28.

(b)

29.

(c)

30.

(a)

31.

(a)

32.

(a)

33.

(d)






Theoretical questions

1. What are the consequences of “destruction of goods” under the Sale of Goods Act, 1930, where the goods have been destroyed after the agreement to sell but before the sale is affected.

2. In what ways does a “Sale” differ from “Hire-Purchase”?

3. State briefly the essential element of a contract of sale under the Sale of Goods Act, 1930. Examine whether there should be an agreement between the parties in order to constitute a sale under the said Act.

Answer to Theoretical Questions

1. Destruction of Goods-Consequences:

(i) In accordance with the provisions of the Sale of Goods Act, 1930 as contained in Section 7, a contract for the sale of specific goods is void if at the time when the contract was made; the goods without the knowledge of the seller, perished or become so damaged as no longer to answer to their description in the contract, then the contract is void ab initio. This section is based on the rule that where both the parties to a contract are under a mistake as to a matter of fact essential to a contract, the contract is void.

(ii) In a similar way Section 8 provides that an agreement to sell specific goods becomes void if subsequently the goods, without any fault on the par of the seller or buyer, perish or become so damaged as no longer to answer to their description in agreement before the risk passes to the buyer. This rule is also based on the ground of impossibility of performance as stated above.

It may, however, be noted that section 7 & 8 apply only to specific goods and not to unascertained goods. If the agreement is to sell a certain quantity of unascertained goods, the perishing of even the whole quantity of such goods in the possession of the seller will not relieve him of his obligation to deliver the goods.

2. Distinction between ‘Sale’ and ‘Hire Purchase’

1. In case of hire purchase, the agreement is that the hirer regularly pays the various installments agreed between the parties. In Sale the payment-may be made cash-down or through installments.

2. The subject matter of the hire, on payment of the last installment, shall become the property of the hirer, if such installments are not paid, the article will remain the property of the hire-vendor (seller) and the hire vendor will be entitled to regain possession thereof. In Sale, the property in goods is transferred to the buyer immediately on signing the contract.
3. A hire purchase agreement is both a bailment and an option to buy. In case of Sale it is not so.

4. In case of hire purchase the hirer cannot sell the article to a third party. In Sale the purchaser can do so. This is based on the concept of ownership.

3: Essentials of Contract of Sale

The following elements must co-exist so as to constitute a contract of sale of goods under the Sale of Goods Act, 1930-

(i) There must be at least two parties.

(ii) The subject matter of the contract must necessarily be goods.

(iii) A price in money (not in kind) should be paid or promised.

(iv) A transfer of property in goods from seller to the buyer must take place.

(v) A contract of sale must be absolute or conditional [section 4(2)].

(vi) All other essential elements of a valid contract must be present in the contract of sale.

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