Sale of Goods Act, 1930

P.S. Swathi SSIM

Introduction
The Sale of Goods is the most common of all commercial contracts. The Law relating to it is contained in the Sale of Goods Act, 1930. The Sale of Goods Act is complimentary to Contract Act prior to this Act the law of sale of goods was contained in Chapter VII of the Indian Contract Act, 1872. Sale of Goods Act is one of very old mercantile law.

Chapters covered in the Act

Sale of Goods Act, 1930 contains the following Chapters General Principles Conditions and warranties Transfer of Ownership Performance of a Contract of Sale Auction Sale

General Principles
Contract of Sale - 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. There may be a contract of sale between one part-owner and another. [section 4(1)]. A contract of sale may be absolute or conditional. [section 4(2)].
For contract of Sale of Goods Basic requirements of contract shall apply i.e. offer and acceptance, legally enforceable agreement, mutual consent, parties competent to contract, free consent, lawful object, consideration etc. Example: A promise by a dentist to make a set of artificial teeth to fit in the mouth of a customer is a contract of sale of goods.

Contd.
1. 2. 3.
4. 5.

A contract of sale may be made in writing or by word of mouth, or partly in writing and partly by word of mouth or may be implied from the conduct of the parties. [section 5(2)]. Thus, credit sale is also a sale. A verbal contract or contract by conduct of parties is valid. e.g. putting goods in basket in super market or taking food in a hotel.

 Agreement to sell : Where under a contract of sale, the transfer of property in goods is to take place at a future time or subject to the fulfillment of certain conditions the contract is called an agreement to sell. Example: On 15th March A agrees with B that he will sell to B, his horse on 21st of March for a sum of Rs.1,000. It is an agreement to sell, since A agrees to transfer the ownership of the horse to B in future.

Types of Contract of Sale and Distinction Between Sale and Agreement to Sell
1. 2.

Sale Nature of Contract is executed Contract. Ownership over goods is transferred immediately

Agreement to Sell
1. 2. Nature of Contract is Executory Contract The property in the goods is agreed to be passed at some future time or on the fulfillment of some condition

3.

4.

Sale implies contract plus conveyance of ownership in the goods. It gives the buyer jus in rem. The buyer can sue the seller if there is any breach the way he likes.

3. Agreement to Sell creates only jus in personal

4. In this case the aggrieved party can sue the defaulting party only for damages.

Sale Distinguished from other Contracts

Sale and Bailment : In the case of sale ownership passes to buyer whereas in bailment the goods are delivered for a specific purpose with the condition that the same goods shall be returned back to the bailor. Sale and Gift: In case of sale the ownership of goods is transferred to another person for a consideration termed as price. While in the case of gift, ownership passes without any consideration. Sale, Barter and Exchange: In sale goods are exchanged for money. But in barter system goods are exchanged for goods. If consideration for goods is received partly in the form of goods and partly in money it will be taken as a contract of sale.

 Sale, Mortgage and Hypothecation: In the case of sale general property in goods is transferred to the buyer. While in case of mortgage special property in the goods is transferred by the mortgagor and this transaction is related to immovable properties. Hypothecation is with regard to movable properties and the hypothecated proper continues to be in the possession of the debtor. Sale and Contract for Work and Labour: A contract of sale is one whose main object is the transfer of property in and the delivery of the possession of a movable item.

 Sale and Contract for Work and Labour: A contract of sale is one whose main object is the transfer of property in and the delivery of the possession of a movable item to the buyer. Where in contract for work and labour the principal object of the transaction and the intention of the parties shall determine whether the transaction is the contract of sale or a contract for work and labour. Example: A promises to print and deliver to B 500 copies of manuscript, which B entrusted to A. For that job, paper and ink is supplied by A. It is a not a sale because the substance of the contract is skill and experience of the printer.

Definitions
Goods: According to Section 2(7) the term goods means every kind of movable property other than actionable claims and money and includes stock and shares, growing crops and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. Perishing of Goods : where specific goods are the subject matter of sale, the goods must be in existence at the time of making of the contract . Example: A agrees to sell to B a specific cargo of goods supposed to be on its way from England to Bombay. It turns out that, before the day of bargain, the ship carrying the cargo had been cast ways and goods lost. Neither party was aware of the facts. The agreement is void.

Definitions
Price: Sec.2(10) defines price as money consideration for a sale of goods. Money means legal tender money in circulation. Old and rare coins are not included in the definition of the term money. Document of Title to Goods [Sec.2(4))] : These documents contain an undertaking on the part of the issuing authority to deliver the goods to the possessor of the documents unconditionally. Example: Bill of lading, dock warrants, railway receipts warehouse keepers certificate, multimodal transport document order for the delivery etc.

Contd.
Insolvent [ Sec. 2(8)] : A person is said to be insolvent if he has ceased to pay his debts in the ordinary course of business, or cannot pay his debts as they become due, whether he has committed an act of insolvency or not. Merchantile Agent [ Sec. 2(9)] : Mercantile agent means an agent who has, in the customary course of his business, authority to sell goods or to buy goods or to raise money on the security of goods on behalf of his principal. Ex: A broker of jewellery ,who is given the jewellery by the owners for sale, is a mercantile agent.

Types of Goods
1. 2. 3. Goods may be of the following types: Existing Goods Future Goods Contingent Goods

Existing Goods

1. 2. 3.

Existing Goods means the goods owned or possessed by the seller at the time of making of contract of sale. Existing Goods may be classified as follows: Specific (identified at the time of contract) Ascertained (identified after the formation of contract) Unascertained (goods are defined by description only)

Future goods
Future goods: Goods to be manufactured, produced or acquired after the 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
In this case the seller agrees to sell the goods when he gets the possession of goods on happening of an event. Example: (a) 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. (b) fruits that may grow on the trees in the coming season etc.,

Price
Ascertainment of Price: The price in a contract of sale may be fixed by the contract or may be left to be fixed in a manner thereby agreed or by the course of dealings between the parties. If the price is not determined the buyer shall pay to the seller a reasonable price.

Contd.
If in another case if the price is to be fixed by the third party and the third party fails to fix the price the contract becomes voidable. Example: A agreed to sell ten casks of oil to B at a price to be fixed by C. In case C refuses to fix the price, the contract between A and B will be void. If however C is willing to fix up the price but is prevented either by A or B from doing so the aggrieved party will be entitled to sue the defaulting party for damages.

2. Conditions and Warranties

Condition : A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to reject goods and can repudiate the contract. Example: A asked a car dealer to suggest him suitable car for touring purposes. The dealer suggested him to buy Buggati Car. Accordingly, A purchased the car but found it unsuitable for touring purposes. A can return the car and get back the price.

Warranty
A warranty is stipulation collateral to the main purpose of the contract, the breach of which gives rise to claim for damages but not a right to reject goods and treat the contract as repudiated. [Sec. 12(3)] Ex: A goes to B a horse dealer, and says, I want a good horse. The horse dealer shows him a horse and says, it can run at a speed of 60 m.p.h. There is a breach of warranty because the stipulation made by the seller forms the very basis of contract.

Distinction between Condition and Warranty

1.

2.

With regard to its nature condition is essential to the main purpose of the contract. Breach of condition gives right to the party to repudiate the contract or to claim damages or both

1.

2.

Warranty is only parralel to the main purpose of the contract. Breach of warranty gives rise to the party not at fault to claim damages only

3. A breach of condition may be treated as a breach of warranty by voluntary waiver

3. A breach of warranty cannot be treated as a breach of condition by compulsory treatment of a condition as a warranty.

Express and Implied Conditions and Warranties

Express conditions and warranties are those which have been expressly agreed upon by the parties at the time of the contract of sale. Implied conditions and warranties are those the law incorporates into the contract unless the parties stipulate to the contrary.

Implied conditions
1. Under implied conditions the buyer is assured with regard to passing of title in the goods. The goods sold to the buyer should match with description given at the time of contract.
The bulk of the goods shall correspond with the sample quality. Condition as to quality or fitness

2.

5. Condition as to merchantability which means that goods should be such as are reasonably saleable under the description by which there are known in the market.

3.

4.

6. Condition as to wholesomeness it means that the goods sold should be pure unadulterated and suitable for consumption at the time of sale.

Implied Warranties
1. The buyer should be ensured of quiet enjoyment of the goods. For example if the good is given for hire and seller should not sell the good until the hirer returns the good. 3. In general it is implied condition the goods supplied should be of quality and fitness for a particular purpose may be annexed by the usage of trade. E.g.. It is a usage of trade to disclose any sea-damage to the buyer.
4.With regard to dangerous goods the seller should intimate to the buyer probable danger about the goods. E.g.. A sold a tin of disinfectant powder to C. A has to warn C how to open the tin. Otherwise A is liable for any consequences.

2. It is implied warranty that the goods sold are free from encumbrance.

3. Transfer of Ownership
The contract of sale is complete only when the title over the goods are passed from the seller to buyer. Along with the title the risk prima facie passes with ownership. Only the owner can take action against the third parties for any damage caused to the goods. In the case of insolvency of the seller or the buyer the official receiver has to determine before taking over the goods who is possessing the title over the goods.

Rules regarding the Transfer of Ownership

In case of Specific or Ascertained Goods In case of Unascertained Goods In case of Title by Non-Owners

In case of Ascertained Goods

When the goods are in deliverable state: Goods are said to be deliverable state when they are in such a state that the buyer would, under the contract, be bound to take delivery of them. When the seller has to do something: which means that he has to fulfill his obligation before the delivery of goods.

When goods are to be measured :The property in the goods will pass from the seller to the buyer when the condition is fulfilled by weighing, measuring or testing the goods.

When goods are sold on approval: which means that the buyer taken the possession of goods or he sells away the goods.

In case of Unascertained Goods

The title over the goods passes in case of unascertained goods when the goods are ascertained. In case of future goods by description the title passes when the goods are in a deliverable state. The goods are unconditionally appropriated to the contract by one party with the consent of the other. E.g.. A has 100 tins of oil in his godown. He agrees to sell 10 tins out of them to B. The goods will be said to be appropriated when 10 tins of oil are set apart as those meant for buyer and the buyer has been informed about it.

Transfer of Title by Non-Owners

It is a general rule that seller cannot convey a better title to the buyer than he himself has. There are some exceptions to above rule. Title by estoppel. Sale by mercantile agent. Sale by a co-owner. Sale by a person in possession of goods under voidable contract. Sale by seller in possession after sale.

CIF Contract

The abbreviation CIF is used for the terms Cost, Insurance and Freight. Under CIF contract the seller agrees to sell the goods to be carried by sea at a price which will cover the cost of the goods, insurance and freight charges. The contract is deemed to be performed when the seller delivers the shipping documents relating to goods. Payment of price is not dependent on the safe arrival of the goods. The buyer has to recover from the insurance company if the goods are damaged or destroyed during the transit. The seller has to make out an invoice of the goods sold in the usual form showing the price of the goods. He has to tender at the earliest to the buyer, either at the place named in the contract or at the palce of business of the buyer the documents like Invoice, Bill of lading, Insurance Policy.

Remedial measures for Un Paid Seller

Un paid seller is a person who has not been paid or tendered the whole of the price of the goods sold. Or who received bill of exchange or any other negotiable instrument which has been dishonored. If any above acts have been done by the buyer the seller has following remedies: Right against goods Right against buyer personally

1. 2.

Rights of Unpaid Seller against goods

Right of Lien: The unpaid seller can exercise the right of lien wherein he has right to retain possession on the goods which are under his actual possession until he is paid the price. Right of stopping the Goods in Transit : he can exercise this right when the goods are in the course of transmission to the buyer and the buyer has not taken the delivery of the goods. If the buyer of the goods has become insolvent. Right of Resale: The seller after taking any of the above actions, he can give notice to the buyer that he going resale the goods which are there in his possession.

Rights against the Buyer personally

1. Suits for the Breach of Contract: Suit for price (Sec.55) : The seller can file a suit against the buyer when the buyer after taking the delivery of goods and not paid the price or fails to pay on the date fixed under a contract. Damages for non-acceptance: Where the buyer willfully refuses to accept and pay for the goods the seller can file suit for damages. Effect of increase or decrease in taxes (Sec. 64): The seller can recover from the buyer if the taxes has been increased but not when there is decrease in the tax.

2.

3.

Remedies for the Buyer

The buyer can file a suit against the seller for the damages when the seller neglects or refuses to deliver the goods to the buyer. In case the seller has given warranty about the goods and the buyer found that the goods are not according to the warranty given can file a case against the seller. Repudiation of contract before due date. Interest by way of damages and special damages.

Auction Sale

1. 2. 3.

Auction Sale means a public sale where the goods are generally sold to the highest bidder. The sale is complete when the auctioneer announces its completion by the fall of the hammer. Implied warranties in an Auction Sale is the auctioneer when he conducts the sale he is responsible for the following: He warrants his authority to sell He knows of no defects in his principals title He guarantees to give quiet and undisturbed possession against payment of price

Contd.
The seller has to bear the loss in case goods are damaged before completion of sale. If the seller appoints employs to make pretended bids to raise the price, the sale is voidable. The persons employed for above purpose are known as puffers, by-bidders, white bonnets or decoy ducks. Knockout Agreement means : A bona fide agreement can be entered between the persons not to bid against each other at an auction sale. But preventing the would be purchasers from bidding is illegal and is known as damping. The auctioneer can withdraw the auction sale.