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CH. 2

SALE OF GOODS ACT

CHAPTER 02
SALE OF GOODS ACT 1930

Originally, the law relating to sale of goods was contained in Chapter VII of the Indian Contract Act, 1872. The
same was repealed and re-enacted by the Sale of Goods Act, III of 1930.

FORMATION OF THE CONTRACT OF SALE


Definition
(Section 4)
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 price".

ESSENTIALS OF CONTRACT OF SALE


From the above definition, the following essentials of a contract of sale may by noted:
1. There must be at least two parties
2. Transfer or Agreement to transfer the ownership of goods.
3. The subject matter of the contract must necessarily be 'goods'.
4. The consideration is Price.
3. A Contract of sale may be absolute or conditional
6. All other essentials of a valid contract must be present.

`SALE` AND 'AGREEMENT TO SELL' DISTINGUISHED


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(i)
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) [Johnson V
Mcdonald (1842) 9 M & W 600, 60 RR 838]
(ii)
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 31 st March 1998 when the car is got registered in B`s
name. It is an agreement to sell and it will become sale on 31 st March when the car is registered in the
name of B.
Other points of distinction between a sale and an agreement to sell are:
Sale
Agreement to sell
1. A sale is an executed contract.
1.
An Agreement to sell is an executory contract.
2. In a sale, since the property has passed to the buyer, 2.
In an agreement to sell, in case of breach, the
the seller can sue the buyer for the price of the
seller can only sue for damages, unless the price
goods.
was payable at a stated date.
3. A sale creates a right in rem.
3.
An agreement to sell creates a right in
4. In case of loss of goods, the loss will fall on the buyer,
personam.
even though the goods are in the possession of the 4.
The loss in this case shall be borne by the
seller. It is because 'Risk' is associated with
seller, even though the goods are in the possession
ownership.
of the buyer.
3. In case buyer pays the price and the seller thereafter
becomes an insolvent, the buyer can claim the goods 5.
In these circumstances, the buyer cannot claim
from the Official Receiver or Assignee.
the goods but only a rateable dividend for the money
6. If the buyer becomes an insolvent without paying the
paid.
price, the ownership having passed to the buyer, the 6.
In these circumstances, the seller can refuse to
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seller shall have to deliver the goods to the Official


Assignee or Receiver except where he has a lien over
the goods.

SALE OF GOODS ACT

deliver the goods to the Official Assignee or Receiver.

Sale and Hire Purchase Agreement

Hire Purchase Agreement

It is an agreement for hire, with an option to purchase.


The hirer, under this agreement, is required to pay every month a particular sum of money, and if he pays in
that way for a fixed number of months, the hirer will become the owner of the goods on the payment of the
last instalment.
But, if the hirer fails to pay any particular instalment, the owner can terminate the contract and take away
the goods, because the ownership continues to remain in the owner. A "Hire-purchase agreement" is
distinct from "Sale" in which price is payable by instalments
A 'Hire-purchase agreement,' does not result in passing of the property unless the option to purchase is
exercised, usually by payment of all the instalments. Till such time, it constitutes bailment.

Sale
ln case of sale, the property passes as soon as sale is made though price has not been fully paid.
In determining as to whether a particular contract belongs to one type or the other, regard shall have to be paid
to the fact whether the hirer has merely an option to purchase, or whether he has bought or agreed to buy the
goods.

3.2 GOODS
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.
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 sub ject 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`.

CLASSIFICATION OF GOODS
Goods may be classified into:
1. Existing Goods - Existing goods are those, which are owned or possessed by the seller at the time of the
contract. Instances of sale of goods possessed but not owned by the sellers fire sales by agents and pledgees.
Existing goods may be either:
(a) Specific and Ascertained - goods identified and agreed upon at the time a contract of sale is made; or
(b) Generic and Unascertained - goods arc goods indicated by description and not specifically identified.
2. Future Goods - Future goods" means goods to be manufactured or produced or acquired by the seller after
making the contract of sale.
3. Contingent Goods - Contingent goods are the goods the acquisition of which by the seller depends upon a
contingency which mayor may not happen. Contingent goods are a part of future goods.

3.3 PRICE

'Price' means the money consideration for sale of the goods. 'Price' is an integral part of a contract of sale. If it
is not fixed or is not capable of being fixed, the whole contract is void ab-initio.
The price may be fixed
(I)
by the contract or
(II)
may be agreed to be fixed in a manner provided by the contract, e.g., by a valuer, or
(III)
it may be determined by the course of dealings between the parties.
(IV)
in case, price is not capable of being fixed in any of the above ways, the buyer is
bound to pay reasonable price. What is reasonable price will vary from case to case.

5.4 CONDITIONS AND WARRANTIES


[Sections 11-17]

In a contract of sale, parties make certain stipulations, i.e., agree to certain terms. Some of them may be
intended by the parties to be of a fundamental nature, e.g., quality of the goods to be supplied. The stipulation
essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as
repudiated. Such stipulations are known as `Conditions`.
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SALE OF GOODS ACT

In contrast, some may be intended by the parties to be binding, but of a subsidiary or inferior character, e.g.,
time of payment. Thus, stipulation collateral to the main purpose of the contract, the breach of which gives rise
to a claim for damages but not to a right to reject the goods. Here the stipulations are known as `warranties'.

DISTINCTION BETWEEN 'CONDITION' AND 'WARRANTY'


Condition
A condition is a stipulation (in a contract), which
is essential to the main purpose of the contract.
2.
A breach of condition gives the aggrieved party
a right to sue for damages as well as the right to
repudiate the contract.
3.
A breach of condition may be treated as a
breach of warranty in certain circumstances.
1.

Warranty
A warranty is a stipulation, which is only
collateral or subsidiary to the main purpose of the
contract.
2.
A breach of warranty gives only the right to sue
for damages. The contract cannot be repudiated.

3.
A breach of warranty cannot be treated as a
breach of condition.
1.

ExA man buys a particular horse, which is warranted quiet to ride and drive. If the horse turns out to be vicious, the
buyer's only remedy is to claim damages. But if instead of buying a particular horse, a man asks a dealer to supply
him with a quiet horse and the horse turns out to be vicious, the stipulation is a condition and the buyer can reject
the horse, or keep the horse and claim damages.

WHEN CONDITION TO BE TREATED AS WARRANTY


[SECTION 13]

Under the following circumstances a breach of condition is to be treated as a breach of warranty, i.e., the right
to repudiate the contract is deemed to have been lost:
1. Waiver of Condition
2. Compulsory treatment of breach of condition as breach of Warranty.

Conditions and Warranties may be either express or implied. They are said to be "express" when the terms of
the contract expressly provide for them. 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.

EXPRESS AND IMPLIED CONDITIONS AND WARRANTIES

(A) IMPLIED CONDITIONS

The following are the implied conditions


(1) Condition as to Title
(2) Sale by Description
(3) Condition as to Quality or Fitness
(4) Merchantable Quality
Sale by sample - A contract of sale is a contract for sale by sample where there is a term in the contract, express or
implied, to that effect.
In a sale by sample, the following are the implied conditions:
1. The bulk shall correspond with the sample in quality;
2. That the buyer shall have a reasonable opportunity of comparing the bulk with the sample; and
3. That the goods shall be free from any defects rendering them unmerchantable, which would not be
apparent on reasonable examination of the sample.
Ex(i)
Certain shoes were sold by sample for the French Army. The shoes were found to contain paper not
discoverable by ordinary inspection. Held, the buyer was entitled to the refund of price plus damages.
(ii)
In a contract for the sale of brandy by sample, the brandy that was supplied had been coloured with a dye.
Held, the buyer was not bound by the contract, though the bulk corresponded with sample, since the defect
could not have been located on reasonable examination of the sample [Mody v. Gregson (1868) L.R.4Ex. 49.].

(B) IMPLIED WARRANTIES

There are two implied warranties. These are:


1. Warranty of Quiet Possession
2. Warranty of Freedom from Encumbrances
Ex
A purchased a second hand typewriter from B. A used it for sometime and also spend some money on its
repairs. The typewriter turned out to be stolen one and as such A had to return it to the true owner. It was held
that A could recover damages from B amounting to the price paid and the cost of repair [Mason v.
Burmingham (1949) 2 KB 545]
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3.5 DOCTRINE OF CAVEAT EMPTOR

Caveat Emptor is a fundamental principle of the law of sale of goods. It means "Caution Buyer", i.e. "Let the
buyer beware".
In other words, it is not the duty of the seller's duty to point out defects of his own goods. The buyer must
inspect the goods to find out if they will suit his purpose.

ExPigs were sold "subject to all faults", and these pigs, being infected, caused typhoid to other healthy pigs of the
buyer, it was held that the seller was not bound to disclose that the pigs were unhealthy. The rule of the law being
'Caveat Emptor'. [Goddard v. Hobbs 1878, 4 App. Cas. 13].

Exceptions
1. Where the seller makes a false representation and buyer relies on that representation. The rule of "Caveat
Emptor" will not apply and the buyer will be entitled to the goods according to that representation;
2. Where the seller actively conceals a defect in the goods, so that on a reasonable examination the same could
not be discovered;
3. Where the buyer makes known to the seller the purpose for which he is buying the goods, and the seller
happens to be a person whose business is to sell goods of that description, then there is an implied condition
that the goods shall be reasonably fit for such purpose. The rule of Caveat Emptor will not apply;
4. In case of sale by description, there is implied condition as to their being of merchantable quality. However, if
the buyer has examined the goods, this condition of "merchantability" extends only to hidden or latent defects.
The defects, which such examination ought to have revealed, are not covered, i.e., the rule of Caveat Emptor
will be applicable.
Ex In Donoghue v. Stevenson (the `snail in the ginger-beer `case) it was held that manufacturers owed a duty to
the ultimate consumer to take care in making their goods where there is no likelihood of their being examined
before they reach the ultimate consumer.

3.6 TRANSFER OF TITLE BY NON-OWNERS


[Sections 27-30]

The general rule is that only the owner of goods can transfer a good title. No one can give a better title than he
himself has. This rule is expressed by the maxim "Nemo dat quod non habet" which means "that no one can
give what he himself has not"
If the seller, therefore, has no title, or a defective title, the buyer's title will be equally wanting or defective as the
case may be, though he may be a purchaser - bonafide and for value.

ExA finds a ring of B and sells it to a third person who purchases it for value and in good faith. The true owner, i.e.,
B can recover from that person, for A having no title could pass none the better. [Faruquaharson v. King
(1902) A.C. 323.).
ExceptionstotheRule

1. Sale by Mercantile Agent


2. Sale by a Joint-owner
3. Sale by a Person in Possession under a Voidable Contract
4. Sale by the Seller in Possession of Goods after Sale
3. Sale by an unpaid
DUTIES OF THE SELLER AND BUYER
Dutyoftheseller
a) To deliver the goods, in accordance with the terms of the contract of sale.
b) Delivery and payment of price are concurrent conditions.
c) The seller of goods has the duty of giving delivery according to the terms of the contract.
Dutyofthebuyer
a) Pay for the goods;
b) Accept delivery; and
c) Pay compensation to the seller in case he wrongfully refuses to accept delivery.

DELIVERY
It has been defined as a voluntary transfer of possession from one person to another..
Delivery of the goods may, be:
I. Physical or Actual Delivery
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2. Symbolic Delivery - e.g., delivery of a railway receipt properly endorsed, or delivery of the key of a warehouse;
3. Constructive Delivery or Attornment - only an acknowledgement by the person in possession that he holds
them on behalf of another.

3.7 UNPAID SELLER AND HIS RIGHTS

A contract is comprised of reciprocal promises, in a contract of sale, if seller is under an obligation to deliver
goods; buyer has to pay for it. In case buyer fails or refuses to pay, the seller, as an unpaid seller, shall have
certain rights.

Who is an unpaid seller

An unpaid seller of goods is a person who has not been paid the whole of the price or to whom the whole of the
price has not been tendered. The term "seller" includes an agent of the seller.
The seller of goods is deemed to be an "unpaid seller" if:
(a) the whole of the price, has not been paid or tendered;
(b) when a bill of exchange or other negotiable instrument has been received as conditional payment, and the
condition on which it was received has not been fulfilled by reason of the dishonour of the instrument or
otherwise.

Rights of an unpaid seller

Rights of an unpaid seller may broadly be classified under two heads namely:
1. Rights against goods
An unpaid seller has the following rights against the goods:

(a) Lien on the goods


(b) A right of stoppage in transit
(c) A right of re-sale

2. Rights Against the Buyer Personally


An unpaid seller, besides his rights against goods, has the following rights against the buyer personally:
(i) Right to sue for the price; and
(ii) the right to sue the buyer for damages for non-acceptance.

LECTURES BY PROF. (DR.) S N GHOSH