Sale of Goods Act, 1930

(i) Definition (ii) Applicability(iii) Essentials of a Contract of Sale

Definition

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”

The Sale of Goods Act extends to whole of India except the State of Jammu and Kashmir

Essentials of a Contract of Sale

(i) All requirements of a valid contract must be fulfilled

(ii) Two Parties – inter vivos(iii) Goods(iv) Transfer of Property(v) Price(vi) Includes both a ‘sale’ and ‘agreement to

sale’(vii) No formalities are required

(i) Requirement of a valid contract(ii) Two Parties

- inter vivos-undivided joint owners-part owners

Exception: Where a person’s goods are sold in execution of a decree, he may himself buy them, so as to save them from a transfer of ownership to some one else. (Moore vs Singer Manufacturing Company)

(iii) GoodsThe subject matter of a contract of sale of goods is goods. According to Sec 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 landwhich are agreed to be severed before sale or under the contract ofsale.

ACTIONABLE CLAIM – ‘Actionable claim’ means a claim to any debt or to any beneficial in movable property not in possession (either actual or constructive) of the claimant. The debt should be other than a debt secured by mortgage of immovable property or pledge of movable property. The claim should be such be such as Civil Court would recognize as affording grounds for relief. Such debt or beneficial interest be existent, accruing, conditional or contingent. [section 3 Para 6]. Such transfer of an actionable claim shall be effected only by execution of an instrument is writing. [section 130]. - - One normal example is that receivable from a person is ‘actionable claim’, which can be transferred to another (e.g. one bank may transfer some of its receivables to another).

Destruction of the subject matter

(i) Goods perishing before making of the contract

(ii) Goods perishing after making an agreement but before the sale is completed.

e.g. sale of a car after trial.

Examples of Goods:Goodwill, Trade Mark, Copyright, Patent right, water, gas, electricity, decree of a court of law are all example of goods.

Classification of Goods(i) Existing Goods

(ii) Future Goods- agreement to sale, not sale.

(iii) Contingent Goods- goods arriving by ships etc.

(iv) Transfer of Property-ownership of property- special property i.e. limited right

in property e.g. right of a Pawnee (he who receives a pawn or pledge). Pawn means to pledge an item of personal property as security for a loan, (v) Price

- barter, exchange and sale. In Albridge v Johnson (1857) A delivered B 52 bullocks valued at Rs 1000 per bullock. In exchange of it B delivered to A 100 quintals of barley valued at Rs 300 per quintal and paid difference in cash.

Sale & Agreement to Sale

The ownership is transferred immediately

Executed contract The buyer is

responsible for any loss or destruction of the goods even if goods are in the possession of the seller.

At some future date Executory Contract The seller is

responsible for any loss or destruction of goods even if goods are in the possession of the buyer. The seller remains the owner until the agreement to sale

Sale & Agreement to Sale

The seller ceases to be the owner immediately on the completion of the sale

If the seller refuses to deliver the goods buyer may recover the goods from the seller by filing a suit.

becomes sale Seller remains

owner

Can not recover goods can only claim damages.

Sale & Agreement to Sale

Sometimes the possession of goods remains with seller in such case seller can not resale the goods. If he does so the buyer can sue for damages. Bonafide subsequent buyer not liable otherwise liable.

Owner can not sale the goods. It shall amount to breach of contract and buyer can sue for damages. Subsequent buyer not liable.

Sale & Agreement to Sale

It creates jus in rem. Sometimes the

possession of goods is with the seller and If buyer becomes insolvent, in the absence of seller’s right of lien, the seller must deliver the goods to the Receiver or official assignee.

It creates jus in personam

If buyer becomes insolvent, the seller may refuse to deliver the goods.

Sale & Agreement to Sale

In such case seller can claim rateable dividend in the insolvency for the price of the goods.

If the seller becomes insolvent, the buyer who has paid has right to recover goods from the Receiver or official assignee.

The buyer can not recover the goods even if price has been paid by him as he is not the owner of the goods.

Conditions and WarrantiesAt the time of selling of goods, a seller usually makes certain statements of representations with a view to induce the intending buyer to purchase the goods. These representations may be a mere expression of opinion of the seller and may not form a part of the contract. But sometimes, these may also form a part of the contract and the intending buyer may rely upon such representations. When these representations form a part of contract of sale and the buyer rely upon them, they have legal effect on the contract.

Stipulation, Condition & WarrantyA representation which forms part of the contract of sale and affects the contract, is called a stipulation.

A stipulation which is most important for formation of the contract of sale is known as a ‘condition’.

A stipulation which is of least importance for the formation of the contract of sale, is known as a ‘warranty’.

Conditions

Section 12(2) of the Sale of Goods Act, 1930 defines condition as, “a condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to right to treat the contract as repudiated.”

Example: Buyer wanted a horse which could run at a speed of 45 m.p.h.

Types of Conditions

(i) Express Condition; & (ii) Implied Condition

(i) Express ConditionIt is a condition, which has been expressly agreed upon by both the parties at time of the contract of sale.

(ii) Implied Condition It is the condition which has not been included

in the contract of sale in express words, but the law presumes that the parties have incorporated it into contract.

Implied Conditions(i) Condition as to Title [Sec 14(a)](ii) Condition as to Description [Sec 15](iii) Condition as to Sample [Sec 17(2)](iv) Condition as to sample as well as description

[Sec 15](v) Condition as to quality or fitness for buyer’s

purpose [Section 16(1)](vi) Condition as to Merchantability

[Section 16(2)](v) Condition as to wholesomeness

Condition as to Title [Sec 14(a)]

It is the most important implied condition in a contract of sale that seller has the right to sell the goods.

- Case study- Rowland v Divall (1923) sale of stolen car.

Condition as to Description[Section 15]

Whenever the goods are sold by description, the implied condition is that the goods shall correspond with the description.

Case- Varley v Whipp (1900) sale of used car by telling it is brand new car.

- Ward v Hobbs (1878) sale of pigs ‘with all faults’

Condition as to SampleIn a sale by sample there is a implied condition that the goods shall correspond with the sample in quality, and the goods shall be free from the defects which render them unmerchantable.Sale by sample has following three conditions:(i) Correspondence of Goods with sample in quality [sec 17(2)(a)](ii) Reasonable opportunity of comparing goods with the sample [Sec 17(2)(b)](iii) Merchantability of Goods [Sec 17(2)(c)]

Condition as to sample as well as description [Sec 15]

Sometimes, the seller shows sample to the buyer and also gives him description. In such case, the implied condition is that the goods shall correspond with both, the sample as well description.Case: Azemar v. Carella (1867)Quality was of the sample but it was western Madras Cotton not ‘Long Staple Cotton’ as per the description.

Condition as to Quality or Fitness for Buyer’s Purpose [Section 16(1)]

This implied condition will be there only if the following requirements are fulfilled:

(i) The buyer requires the goods for a particular purpose.

(ii) The buyer should make it known to the seller about that particular purpose.

(iii) The buyer should rely on the seller’s skill and judgment.

(iv) The seller’s business is to supply such goods whether he is the manufacturer or producer or not.

Case: Priest V Last (1903) 2 KB [sale of hot water bottle]

Dr Baretto v TT Pruce AIR 1939 Nag 19-set of false teeth from the dentist

Condition as to Merchantability [Section 16(2)]

The term merchantability means two things:(i) If goods are purchased for resale, they should

be immediately re-saleable; &(ii) If goods are purchased for self use then they

should be reasonably fit for the purpose for which they are generally used.

Case: Wilson v Rickett Cockerrel & Co. (1954) - Cooking coal exploded caused injury.

Condition as to wholesomeness

It is applicable in cases of eatables i.e. food stuffs and other goods of human consumption. As per this condition goods sold must be fit for human consumption.

WarrantyThe term warranty may be defined as a representation made by seller which is not of that importance. It is a stipulation which is not essential to the main purpose of the contract of sale, it is only subsidiary or collateral to the main purpose.

Sec 12(3) of the Sale of Goods Act defines warranty as ‘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 a right to reject the goods and treat the contract as repudiated.

Example: A went to B, a horse dealer and told him that he wanted to buy a healthy horse. B shown a particular horse and said it to be healthy. Moreover, B informed A that the particular horse could run at 40 kmph. A bought that horse. Subsequently, A found out that the horse was healthy but could run only at 20 kmph. A wanted to reject the horse and to have the refund of the price.

In this case, the representation made by seller is a warranty because it is only collateral to the main purpose. Therefore, A can not reject the horse on this ground.

Kinds of Warranty

(i) Express Warranties; and(ii) Implied Warranties.Implied Warranties:(i) Warranty as to Quiet Possession [Sec

14(b)](ii) Warranty as to Free from Encumbrance

[Sec 14(c)](iii) Warranty of disclosing the dangerous

nature of goods to the ignorant buyer

(i) Warranty as to Quiet Possession [Sec 14(b)]

If buyer’s right of possession and enjoyment is disturbed by anyone having superior title to the goods, then the buyer can recover damages from the seller.

Mason v Burmingham (1949) 2 K.B. 545- A purchased a second hand typewriter from B. A used it for some time, and spent some money on its repair also. The typewriter turned out to the stolen one. And A had to return it. Held A is entitled to damages from B amounting to money paid and also cost of repair.

(ii) Warranty as to free from encumbrance [Sec 14(c)]

(iii) Warranty of disclosing the dangerous nature of goods to the ignorant buyer

Change of Condition into Warranty

(i) Voluntary Circumstances; &(ii) Compulsory Circumstances.

(i) Voluntary Circumstances [Sec 13(1)](a) Waiver of Condition

(b) Option to treat the condition as a warranty

(ii) Compulsory Circumstances[Sec 13(2)]

Acceptance of Goods by the Buyer: If the contract of sale is indivisible and the buyer has accepted all the goods and subsequently comes to know the certain breach of condition, he cannot reject them, but can only sue for damages.

Acceptance of only part of the goods: When buyer has accepted only part of the goods and the contract is indivisible, there is compulsory treatment of breach of condition as breach of warranty only.

Condition & Warranties

Condition is a stipulation which is essential to the main purpose of the contract.

It is of vital importance

Warranties are subsidiary or collateral to the main purpose of the contract.

It is not of vital importance. The main contract can be completed even if warranty is not fulfilled.

Condition & Warranties

In case of breach of condition, the buyer may put an end to the contract.

A breach of condition may be treated as a breach of warranty.

In case of breach of warranty, the buyer cannot put an end to the contract. He can only claim damages from the seller.

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

Stipulation as to time and payment of price

As regards the time fixed for the delivery of goods, time is usually held to be essence of contract. Thus if time is fixed for the delivery of goods and the seller makes a delay, the contract is voidable at the option of the buyer.

Sec 11- As regards the time fixed for the payment of the price, the general rule is that it is not deemed to be the essence of the contract, unless different intention appears from the terms of the contract.

Stipulation as to time and payment of price

Even if the price is not paid as agreed, the seller cannot avoid the contract on that account. He has to deliver the goods if the buyer tenders the price within reasonable time before resale of the goods. The seller may, however, claim compensation for the loss occasioned to him by the buyer’s failure to pay on appointed day.

Document of Title to Goods [Sec 2(4)]

Any document which is used in the ordinary course of business as proof of the possession or control of goods, or authorizing or purporting to authorize, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented in a document of title to goods. Thus a document of title to goods is a proof of the ownership of the goods. It authorizes its holder to receive goods mentioned therein or to further transfer such right to another person by proper endorsement or delivery.

A document to title of goods contain an undertaking on the part of the issuing authority to deliver the goods to the holder thereof unconditionally. Although such a document can be transferred by mere delivery or endorsement, yet it is regarded as ‘quasi negotiable instrument’ because the title of the transferee (even if bona fide) will not be superior to that of the transferor in the case of transfer of such document. RR, Bill of laden are examples of document of title to goods.

Doctrine of Caveat Emptor [Sec 16]

The doctrine of caveat emptor is a fundamental principle of law of sale of goods. It means ‘Caution Buyer’ i.e. ‘let the buyer beware’. In other words, it is no part of the seller’s duty to point out defects in his own goods. The buyer must inspect the goods to find out if they will suit his purpose e.g. certain pigs are sold ‘subject to all faults’. These pigs being infected cause typhoid to the other healthy pigs of the buyer. The rule of caveat emptor would apply.

Exceptions to the Doctrine of Caveat Emptor(i) Condition as to Quality or Fitness for Buyer’s purpose(ii) Where the seller makes a false representation or obtains consent of the buyer by fraud (iii) Condition as to Merchantability(iv) Condition as to Wholesomeness(v) Condition implied by the Custom or Trade Usage

Condition as to WholesomenessIn Frost v Aylesury Dairy Co. (1905) A purchased milk from B. Milk contained typhoid germs. A’s wife got infected and died.

Condition implied by Custom

Jones v Bowden (1813) – A sold certain drugs by auction. It was a trade usage to declare any ‘sea damage’ in goods. In this case, the goods were sold without such declaration. Subsequently, goods were found sea damaged. It was held that the sale without such declaration meant that the goods were free from any sea damage. B could reject goods and claim the refund of the price.

Effects of the Contract of Sale

Sec 18: Goods must be ascertained- Where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained.

Sec 19: Property passes when intended to pass

Sec 20: Specific Goods in deliverable State

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, and it is immaterial whether the time of payment of the price or the time of delivery of the goods or both is postponed.

Sec 21 Specific Goods to be put into a deliverable State by the Seller

In a contract of sale of specific goods the goods which are the subject matter of the contract are to be put into a deliverable state by the Seller.

Sec 26 Risk Prima facie passes with the property

In a contract of sale of goods the risk prima facie passes with the property.

Sec 27 Sale by Person not the owner

Subject to the provisions of this Act and of any other law for the time being in force, where goods are sold by a person who is not the owner thereof and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller's authority to sell.

PROVIDED that, where a mercantile agent is, with the consent of the owner, in possession of the goods or of a document of title to the goods, any sale made by him, when acting in the ordinary course of business of a mercantile agent, shall be as valid as if he were expressly authorised by the owner of the goods to make the same; provided that the buyer acts is good faith and has not at the time of the contract of sale notice that the seller has not authority to sell.

The consent contemplated by this section is consent in fact. If the goods or documents are obtained by fraud or theft there is no consent.

Sec 28 Sale by one of the Joint owner

If one of the several joint owner of goods has the sole possession of the goods by permission of the co-owners, the property in the goods is transferred to any person who buys them from such owner in good faith and has not at the time of the contract of sale noticed that the seller has no authority to sale.Sec 19, Contract Act, 1872 - Consequences of fraud or misrepresentation

Sale by Person in Possession of Goods under Voidable Contract

When the seller of goods has obtained possession under a contract voidable under Sec 19 or Sec 19 A of the Indian Contract Act, 1872, but the contract not being rescinded at the time of sale, the buyer acquires a good title to the goods, provided he buys them in good faith and without notice of the seller’s defect in title.

Sale by the Buyer Where a person, having bought or agreed to

buy the goods, obtains with the consent of the seller, possession of the goods or the document of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him, of the goods or document of title under any sale, pledge or other disposition thereof to any person receiving the same in good faith and without notice of any lien or other right of original buyer in respect of the goods, shall have effect as if such lien or right did not exist.

e.g. A sells 100 bags of sugar to B. B delays in taking the bags away. In the meantime, A sells those bags to another innocent buyer C, who takes it without notice of prior sale and for value, C would get a good title.

- A sells to B. B to C. B becomes insolvent. A can not stop goods in transit.