THE SALES OF GOODS ACT 1930 FORMATION OF CONTRACT : CONTRACT OF SALE: LEGISLATIVE HISTORY: In 1926-27 an exhaustive examination of the

Indian Contract Act was made and in 1928 a draft bill was prepared under the aeges of the late D.F.Mull and the present Sales of Goods Act (Act III of 1930) was enacted. The Sales of Goods Act 1930 is based upon and is largely a reproduction of English Sale of Goods Act 1893.

Section 4: SALE AND AGREEMENT TO SELL:

(1)

A contract of sale of goods is a contract whereby the seller transfers or agrees to

transfer the property in goods to buyers for a price. (2) A contract of sale may be absolute and conditional
(3)

Where under a contract of sale the property in goods transferred from the seller to buyer, the contract is called sale, but where the transfer of property in goods is to take place at a future time or subject to some condition, the contract is called an agreement to sell. An agreement to sell becomes a sale when the time elapses or conditions are fulfilled subject to which the property in goods is to be transferred.

(4)

SALE AND AGREEMENT TO SELL: 1. Transfer of property: Immediately - in future 2. Type of goods: Existing 3. Risk of loss - Buyer - in future Seller

4. Consequenses of breach: Seller to sue damages claim 5. Right to re-sell: Seller cannot - Buyer gets title
6.

General and particular property: sale creates jus in rem i.e. right to buyer to enjoy the goods. Merely contract jus in personam gives to buyer against seller to sue. Insolvency of buyer Seller not bound to part goods in case of sale.

7.

CONDITIONS AND WARRANTY Sec. 12 (1) a stipulation in contract of sale with reference to goods which are the subject thereof may be a condition or a warrantee.

(2)

A condition is a stipulation essential to main purpose of the contract, the breach of which gives rise to a right to treat the contract as a repudiated. A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to right to reject the goods and treat the contract as repudiated. Whether a stipulation in a contract of sale is condition or a warrantee depends in each on the construction of contract. Stipulation may be a condition though called warrantee in the contract.

(3)

(4)

DISTINCTION BETWEEN A CONDITION AND WARRANTY

1. Difference as to value. A condition is a stipulation which is essential to the main purpose of the contract. A warrantee is s stipulation which is collateral to the min purpose of the contract. 2. Difference as to breach. If there is a breach of condition, the aggrieved party can repudiate the contract of sale; in case of a breach of a warranty the aggrieved party can claim damages only
3.

Difference as to treatment; A breach of a condition may be treated as a breach of a warranty. This would happen where the aggrieved party is contented with damages only. A breach of a warranty, however, cannot be treated as a breach of a condition.

EXPRESS AND IMPLIED CONDITIONS AND WARRANTIES:

Express conditions and warranties are those which are expressly provided in the contract. Implied conditions: 1. condition as to title -- right to sell, right to sell in future Sec. 14(a) Example: A purchases a car from B and uses it for some time. It turns out that the car sold by B to A was a stolen one and had to be returned to the rightful owner. A brings action against B for return of the price. Will he succeed? Ref. 14(a) Rowland v. Divali 2. Sale by description Sec.15 Example: A agreed to sell a second hand reaping machine which B the buyer, had not seen. The seller stated the machine was new the previous year and had been used to cut 50 acres only. B however found that the machine, when it was delivered, was old and had even been repaired. Can B repudiate the contract?

Re.S 15: Varley vs Whipp Condition as to quality and fitness Sec.16(2)

3.

Example: B purchased a hot water bottle from a retail from a retail chemist. The bottle could stand hot water but not boiling water. When it was filled by A with boiling water, it burst and injured his wife. A sues for damages. Decide. Ref. Priest vs. Last.
4.

Condition as merchantability Sec. 16(2)

Example: a purchases some chocolates from a shop. One of the chocolates contains a poisonous matter and as a result As wife who has eaten it falls seriously il. What remedy is available to A against the shopkeeper? Condition implied by custom Sec. 16 (3)

5.

Where an implied warranty or condition as to quality or fitness for a particular purpose is gathered by the usage of trade annexed to the

contractof sale such usage of trade must b taken into consideration while deciding the validity of such implied condition under S. 16(2) Its origin and use are to promote high standards, in business and to discourage sharp dealings. It rests upon the principle that honesty is the best policy and it contemplate3s business transactions in which both parties may profit.

6.

Sale by sample Sec.17

Example: worsted cotton clothe of quality equal to sample was sold to tailors who could not stitch it into coats owing to some defect in its texture. The buyers had examined the cloth before effecting the purchase. Are they entitled to damages? S. 17: Drummond vs Van Ingen. Condition as to wholesomeness. (pure)

7.

IMPLIED WARRANTIES: 1 Warranty of quiet possession Sec.14 (b) 2 Warranty of freedom from encumbrances Sec 14 3 Warranty as to quality Sec. 16 (4) 4 Warranty to disclose dangerous nature of goods

CAVEAT EMPTOR: This means let the buyer beware i.e. in a contract of sale of goods the seller is under no duty to reveal unflattering truths about the goods sold. Example. H bought oats from S a sample of which had been shown to H erroneously thought that the oats were old. The oats were, however, new. Held, H could not avoid the contract. SMITH VS HUGHES (1871) LR.

EXCEPTIONS: 1
2

Fitness for buyers purpose Sec. 16(1) Sale under a patent or trade name16(1) Merchantable quality Sec.16(2) Usage of trade Sec. 16(3) Consent by fraud

3 4 5

TRANSFER OF PROPERTY: There are three stages in performance of contract of sale of goods by a seller. 1. 2. The transfer of property in goods The transfer of possession in goods i.e.

Delivery 3. The passing of risk.

PASSING OF PROPERTY FROM SELLER TO BUYER: 1. 2. Risk follows ownership Sec.26 Action against third party - in case of damage Insolvency of seller or the buyer Suit for price. SPECIFIC GOODS: Sec. 20 - 22 Passing of property at time of contract (S. 20) Eg. B selects certain books in a book shop. The price is settled. He arranges to take delivery of the books the next day through his servant and agrees to pay for the books the next day through his servant and agrees to pay for the books on the first of the next month. The books are destroyed by fire the same evening. The property in the
1.

3.

books has passed to the buyer and he is bound to pay the price. (2) Passing of the property delayed beyond the date of the contract: (i) Goods not in a deliverable state. S. 21.

Eg. There was a contract for a sale of machine, weighing 30 tons and embedded in a concrete floor. A part of the machine was destroyed while being removed . Ref. Underwood vs. B.C. Cement Syndicate (1922) 1 K.B. 343. 2. Unascertained goods Sec.23 does not pass to buyer.

Eg. In a sale of 20 hogheads of sugar out of a larger quantity, 4 were filled and taken away by the buyer. The remaining 16 hogheads were subsequently filled and the buyer was informed of

the same. The buyer promised to take them away, but before he could do so the goods were lost. Held , the property had passed to the buyer at the time of the loss. Rhode vs. Thwaits (1827) 6 B & C 388.

3.

Goods sent on approval - when he signifies. S.24. Eg. K delivered some jewellery to W on sale or return. W pledged it with A. Held, the pledge was an act by W adopting the transaction. As such the property in the jewellery had passed to w so that k could not recover it from A. Kirkham vs Attenborough (1897) 1 Q.B. 210.

4.

Reservation of right of disposal. S. 25.

Eg. B placed an order with S requesting him to send the goods by sea. S took a bill of lading in the name of B and sent it to his own agent. The goods

were destroyed in the course of voyage. S had to suffer the loss as the ownership had not passed to B. RIGHTS OF AN UNPAID SELLER: A seller is deemed to be unpaid seller when : (1) The whole of price has not been paid or tendered (2) A bill of exchange or other negotiable instrument has been received as a conditional payment and the condition has not been fulfilled Sec.45 (a) RIGHT OF UNPAID SELLER Sec. 46 (1) AGAINST GOODS: 1 Right of lien - right to retain possession Rules regarding lien; 1. 2. Should have actual possession Lien depends on actual possession and not on title

3. 4. 5.

Seller must not exclude the right of lien Lien can be excercised only for price Unpaid seller does not lose his lien by reason only that he has obtained a decree for price of goods.

2. Right of stoppage in transit - Sec. 50 52 3. Right of resale Sec. 46 (1) & 54 WHERE THE PROPERTY IN THE GOODS HAS NOT PASSED:

Right of withholding delivery - Sec. 46 (2) 1. With holding delivery 2. Stoppage in transit

AGAINST THE BUYER PERSONALLY 1 Suit for price Sec. 55

2 3 4

Suit for damages Sec. 56 Repudiation of contract Sec 60 Suit for interest Sec.61(2)

REMEDIES FOR BREACH OF CONTRACT OF SALE: 1. Sellers suit Suit for price S. 55 Suit for damages S.56 Suit for damages or repudiation of contract S. 60 Suit for interest S.61. RIGHT OF THE BUYER: 1.Right to have delivery as per contract S. 31, 32 2. Right to reject the goods S. 37 3. Right to repudiate s. 38(1) 4. Right to notice of insurance S. 39 (3) 5. Right to examine S.41

6.

Rights against the seller for breach of contract

Suit for damages for non delivery S. 57 Suit for price Suit for specific performance S.58 Suit for breach of warranty S. 59 Repudiation of contract before due date S, 60 Suit for interest. S.61 (2) (b) DUTIES OF THE BUYER 1. DUTY TO ACCEPT THE GOODS AND PAY FOR THEM IN EXCHANGE FOR POSSESSION s 31 and 32 2. Duty to apply for delivery Se. 35 3. Duty to demand delivery at a reasonable hour Se. 36 4. Duty to accept instalment delivery and pay for it S. 38.

5. Duty to take risk of deterioration in the course of transit S. 40 6. Duty to intimate the seller where he rejects the goods S. 43 7. Duty to take delivery S.44 8. Duty to pay price S. 55 9. Duty to pay damages for non-acceptance S. 56. AUCTION SALE: S. 64 1. Goods put up for sale in lots 2. Completion of sale 3. Right of seller to bid 4. Sale not notified subject to right to bid. 5. Reserve price 6. Use of pretended bidding DISTINCTION BETWEEN SALE AND HIRE PURCHASE: Sale Hire Ownership is Ownership is transferred from seller transferred from seller to buyer as soon as to hire purchased only contract entered when certain agreed number of installments is paid The position of buyer is The position of hire

that of owner

purchaser is that of bailee The buyer cannot Hire purchaser has an terminate contract and option to terminate the as such bound to pay contract as any time and price cannot be forced to pay further installments The amount payable by Till option to purchase buyer is reduced the goods is not towards price of goods exercised, the payment of hire purchaser will not be regarded as payment towards price.

DISTINCTION BETWEEN CONTRACT OF SALE AND CONTRCT OF WORK: Halsuburys Laws of England (4th Edition 41, para 603): A contract of sale of goods must be distinguished from a contract for work and labor. The distinction is often a fine one.

A contract of sale is a contract the main object of which is the transfer of the property in, and the delivery of the possession of, a chattel as such to the buyer. Where the main object of work undertaken by the payee of the price is not the transfer of a chattel as such, the contract is one for the work and labor. The test is whether or not the work and labour bestowed end in anything that can properly become the subject of sale. Neither the ownership of the materials, nor the value of the skill and labor as compared with the value of the materials, is conclusive, although such matters may be taken into consideration in determining in the circumstances of a particular case whether the contract is in substance one for work and labor or one for the sale of a chattel. Example: (a) A dentist agreed to supply a set of artificial teeth to a patient. The material was wholly found by the dentist. Held. The contract was for the sale of goods . Lee vs. Griffin 1861

(b) a contract involved the repair of a car and the supply of part for that purpose. Held, it was contract for work and materials .Myers and co. vs. Brent ross ervices Co. 1934. G commissioned R an artist, to paint a portrait of A for 250 guineas. R supplied the canvas and other materials. Held, the contract was one for work and materials and not for sale of goods because the substance of the contract was the artists skill and it was only ancillary to that there would pass to the customer some materials, viz. the paint and canvas. Robinson vs. Graves 1935

SALE AND BAILMENT: In a sale, the property in goods is transferred from the seller to the buyer. In a bailment, there is only transfer of possession from the bailor to the bailee. This may be for any one of the objects, namely safe custody , use, carriage from one place to another,etc.

In a sale the buyer can deal with the goods in any way he likes.

The bailee can deal with the goods according to the directions of the bailor. EFFECT OF DESTRUCTION OF GOODS: 1. Goods perishing before making contract (S.7): Eg. A agrees to sell a horse to B who tells A that he needs the horse for riding to Mumbai immediatel. The horse is ill at the time of the agreement. Both A and B are ignorant of this fact. The agreement is void. 2. Goods perishing after the agreement to sell but before the sale is effected (S.8). Eg. A agrees to sell to B 10 bales of Egyptian cotton out of 100 bales lying in his godown. The godown had been destroyed by fire at the time of the contract. Both A and B are unaware of this fact. The contract is not void as the sale here is not of specific goods, but of certain quantity of unascertained goods.

A must supply 10 bales of cotton or pay damages for the breach.

DOCUMENTS OF TITLE TO GOODS: A document of title to goods is one which enables its possessor to deal with the goods described it it as if he were the owner. It is used in the ordinary course of business as proof of the possession or control of goods. It authorizes either by endorsement or by delivery, it spossessor to transfer or receive goods represented by it ( 2 (4)) SOME INSTANCES OF DOCUMENTS OF TITLE TO GOODS ARE GIVEN BELOW: 1. Bill of lading; it is document which acknowledges receipt of goods on board a ship

and is signed by the captain of the ship or his duly authorized representative. 2. Dock warrant. It is adocument issued by a dock owner, giving details of the goods and certifying that the goods are held to the order of the person named in it or endorsee. It authorizes the person holding it to receive possession of the goods. 3. Warehouse keepers or wharfingerscertificate. It is a document issued by a warehouse keeper or a wharfinger stating that the goods specified in the document are in his warehouse or in his wharf. 4. Railway receipt. It is a document issued by a railway company acknowledging receipt of goods. It is to be presented by the holder or consignee at the destination to take delivery of the goods. 5. Delivery order. It is a document containing an order b the owner of the goods to the holder of the goods on his behalf asking him to delivery the goods to the person named in the document. THE PRICE [Sec. 9 and 10] Ascertained price:

Price in contract of sale may be (a) fixed by the contract itself (b) left to be fixed in an agreed manner determined by the course of dealing between the parties (s, 9(1). Agreement to sell at valuation. 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 therefor (S. 10(1). CONTRACTS INVOLVING SEA ROUTES: F.A.S.Contract: FAS stands for free alongside ship. The property in goods sold under an FAS contract passes from the seller to the buyer when the goods are delivered alongside the ship named by the buyer under a contract of carriage. FOB CONTRACTS: FOB stands for free on board

If A of Delhi agrees to sell 100 tons of sugar FOB Mumbai to B of Manchester, this would mean that A must put the goods on board a ship at Mumbai at his own expense under a contract of carriage bu sea to be made by or on behalf of the buyer for the purpose of transmission to the buyer. C.I.F. CONTRACTS. CIF stands for cost, insurance and freight If A of Delhi agrees to sell 100 bags of rice at Rs.. 2450 per bags CIF Manchester, the sum of Rs. 2,45,000 includes (1) the price of goods (2) the cost insurance and (3) the freight up to Manchester. A CIF contract is performed by the delivery of edocuments representing the goods to the buyer through a bank. The documentsare usually delivered by the bank against payment of the price or against acceptance of a draft(bill of exchange). The seller contibues to be the owner of goods until the buyer pays for the goods and gets the documents. If in the meantime goods are lost at sea the buyer or the seller whoever is the owner at the time of the loss can recover the amount from the insrer. If on receiving the goods thefuyer finds that they are not according to the contract, he may reject them and recover the price paid by him.

CIF contracr - Is it a contract for the sale of documents? In Arnhold Karberg and company Vs. Elythe (1916), Scrutton J, observed, A CIF sale is not a sale of goods but a sale of documents relating to goods. This view is however not correct. A CIF contract may better be described as a contract for the sale of goods to be performed by the delivery of documents,or a contract for the sale of goods through documents. EX-SHIP CONTRACTS. (named ship and named port of delivery) These are contract under which the seller causes the delivery of the goods to be made to the buyer from a ship which has arrived at the port of destination at his (sellers expense. In such contracts the property in the goods does not pass to the buyer until the goods are actually delivered to him.