The Sale of Goods Act 1930

Dr. Amita Singhvi*

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. Sec.4(1)There may be a contract of sale between one part owner and another.A contract of sale may be absolute or conditional.*

Applicable toA Contract only if the ownership of goods is transferred from one person to another immediately at the time of formation of contract or subsequent to formation of contract;*

Sale of Goods Act shall not apply toBailment of goods;Pledge of goods ;Any contract relating to immovable property ;Contract of work and skill

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Importance of the Contract of sale of good:A contract of sale of goods is essential for the smooth operations andexchange of goods in the economy. It is always preferred to have written contractas it serves as proof in legal proceedings. A written and attested contract ensuresquality of the subject matter. The Seller, thus is duty-bound to warrant that thegoods are merchantable, conforms to Industry Standards and specifications. Itprevents fraud and deception on behalf of the subject-matter of price by either ofthe parties. It assigns specific responsibilities upon the buyer and seller which theyare bound to perform. The Buyer has a responsibility to reasonably examine goodsprior to acceptance and to notify the seller of any defect of the goods hence itmake a buyer more aware of what s/he is buying, thus preventing flaw. A writtencontract ensures transfer of ownership of the goods to the buyer. The sellerthrough the contract warrants that the goods are free from any security interestliens, outstanding titles, claims or any other outstanding encumbrances. Acontract ensures authenticity of the two parties involved in the exchange. It alsoserves as a proof of a legal transaction and prevents the selling party to make anunlawful mark-up on any product sold. In a nutshell, a contract binds and well asbenefits both the parties in the contract.*

Essential of Contract Of SaleThere must be at least 2 parties.The subject matter of contract must necessarily be goods.A price in money (not in kind) should be paid or promised.A transfer of property in goods from seller to buyer must take place.A contract of sale must be absolute or conditional. Section 4(2).All other essential elements of a valid contract must be presented in contract of sale.*

Sec. 5Offer to buy or sellGoodsPriceAcceptanceDeliveryPayment of priceWritten, oral & implied*

Sale and Agreement to Sale

When property is transferred from seller to buyer at the time of formation of contract, an absolute sale occurs.When property in the goods is to be transferred at some future date and not at the time of contract, the contract of sale is termed as an agreement to sell. *

Difference Between Sale And Agreement To Sale SaleThe Property in the goods passes to the buyer and along therewith the risk.It is an executed contract.The seller can sue the buyer for the price of the goods because of the passage of the property therein to buyer.A subsequent loss or destruction of goods is liability of buyer.Breach on the part of the sellers gives the buyer double remedy; a suit for damages against the seller and a proprietary remedy of recovering the goods from third parties who bought them.Agreement To SaleSince property in the goods does not pass to buyer, the risk also does not pass to him.It is an executory contract.The aggrieved party can sue for damages only and not for the price, unless the price was payable at a stated date.Such loss or destruction is the liability of the seller.

The seller, being still the owner of the goods, may dispose of them as he likes, and the buyers remedy would be to file a suit for damages only.

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Formalities Of Contract Of Sale Contract can be made in any of the following modes:There may be immediate delivery of goods.There may be immediate payment of price, but it may be agreed that the delivery is to be made at some future date.There may be immediate delivery of goods and immediate payment of price.It may be agreed that delivery or payment or both are to be made in installments.It may be agreed that delivery or payment or both are to be made at some future date.*

Goods Goods means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass and things attached and forming part of lands which are agreed to be served before sale or under the contract of sale. Section 2(7).*

Things not included in goodsActionable Claims (A claim or right which can be enforced through the court)Money*

Kinds Of Goods

Existing goods- Section 6(1) These are the goods which are in existence and are physically present in the sellers possession. Specific goods- Section 2(14) These are the goods identified and agreed upon at the time the contract is made. Ascertained goods- These are identified after the formation of the contract. Unascertained goods- These are the goods which are not specifically identified or agreed upon at the time of the contract of sale.*

Kinds Of GoodsFuture goods Section 2(6) Goods which are to be manufactured or produced or acquired by the seller after making contract of sale. Contingent goods- Section 6(2).

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Destruction of GoodsGoods perishing before making of contractGoods perishing after the agreement to sell but before the sale is effected

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Effect of perishing of goodsSection 7 and 8 deal with the effect of perishing of goods on the rights and obligations of the parties to a contract of sale.

Under these sections the word perishing means not only physical destruction of the goods but it also covers:

Damage to goods so that the goods have ceased to exist in the commercial sense, ie, their merchantable character as such has been lost, eg, where cement is spoiled by water and becomes almost stone or where sugar becomes sharbat and thus are unsaleable as cement or sugarLoss of goods by theftWhere the goods have been lawfully requisitioned by the government

Effect of perishing of goodsIt may also be mentioned that it is only the perishing of specific and ascertained goods that affects a contract of saleWhere unascertained goods form the subject matter of a contract of sale, their perishing does not affect the contract and the seller is bound to supply the goods from wherever he likes, otherwise be liable for breach of contract

Example:Where A agrees to sell to B ten bales of Egyptian cotton out of 100 bales lying in his godown and the bales in the godown are completely destroyed by fire, the contract does not become void. A must supply 10 bales of cotton after purchasing them from the market or pay damages for the breach

Effect of perishing of goodsPerishing of specific goods at or before making of the contract (Sec 7)In case of the perishing of the whole of goods: Where specific goods form the subject-matter of a contract of sale (both actual sale and agreement to sell), and they , without the knowledge of the seller , perish at or before the time of the contract , the agreement is void .This provision is based either on the ground of mutual mistake as to a matter of fact essential to the agreement , or on the ground of impossibility of performance, both of which render an agreement void.

ILLUSTRATION. (a) A sold to B a specific cargo of goods supposed to be on its way from England to Bombay. It turned out, however , that before the day of the bargain, the ship conveying the cargo had been cast away and the goods were lost. Neither party was aware of the fact. The agreement was held to be void.

(b) A agrees to sell to B a certain horse . It turns out that the horse was dead at the time of bargain, though neither party was aware of the fact. The agreement is void.

Effect of perishing of goods2. In case of perishing of only a part of the goods: where in a contract for the sale of specific goods, only part of the goods are destroyed or damaged, the effect of perishing will depend upon whether the contract is entire or divisible.

If it is entire contract for sale is indivisible and only part of the goods has perished, the contract is void. If the contract is divisible, it will not be void and the part available in good condition must be accepted by the buyer.

Effect of perishing of goodsExample:There was a contract for the sale of a parcel containing700 bags of Chinese groundnuts of different qualities. Unknown to the seller 109 bags had been stolen at the time of the contract. The seller delivered the remaining 591 bags and, on the buyers refusal to take them, brought an action for the price. It was held that the contract being indivisible had become void by reason of the loss of the goods and the buyer was not bound to take delivery of 591 bags or pay for the goods.

Note: Had there been all bags of the same weight and quality for certain price per bag, the contract would have been divisible and the buyer could only have avoided the contract as to those goods which had actually perished.

Effect of perishing of goods3. Perishing of specific goods before sale but after agreement to sell (sec.8).

Where there is an agreement to sell specific goods, and subsequently the goods , without any fault on the part of the seller or buyer, perish before the risk passes to the buyer, the agreement is thereby avoided, i.e., the contract of sale becomes void, and both parties are excused from performance of the contract.

This provision is based on the ground of supervening impossibility of performance which makes a contract void.

Effect of perishing of goodsIf only part the goods agreed to be sold perish, contract becomes void if it is indivisible. But if it is divisible then the parties are absolved from their obligations only to the extent of the perishing of the goods (i.e., the contract remains valid as regards the part available in goods condition ). It must further be noted that if fault of either party causes the destruction of the goods, then the party in default is liable for non-delivery or to pay for the goods, as the case may be (sec.26).Again, if the risk has passed to the buyer, he must pay for the goods, though undelivered [ unless otherwise agreed risk prima facie passes with the property (sec. 26)].

Effect of perishing of goods Examples:

(a) A buyer took a horse on a trial for 8 days on condition that if found suitable for his purpose the bargain would become absolute. The horse died on the 3rd day without any fault of either party. Held, contract, which was in the from of an agreement to sell, becomes void and the seller should bear the loss ( Elphick vs Barnes).

(b) A, had contracted to erect machinery on Ms premises, the price to be paid on completion. During the course of the work, there was a fire which completely destroyed premises and the machinery. It was held that both parties were excused from further performance and A was not entitled to any payment as the price was payable on the completion of entire work (Appleby vs Myers.19).

Effect of perishing of goodsEffect of perishing of future goods. As observed earlier, a present sale of future goods always operates as an agreement to sell [sec. 6(3)]. As such there arises a question as to whether section 8 applies to a contract of sale of future goods. (amounting to an agreement to sell) as well? The answer is found in the leading case of Howell vs Coupland, where it has been held that future goods, the destruction of which makes the contract void . The facts of the case are as follows:

Example: C agreed to sell to H 200 tons of potatoes to be grown on Cs land. C sowed sufficient land to grow the required quantity of potatoes, but without any fault on his part, a disease attacked the crop and he could deliver only about ten tons. The contract was held to have become void.

PriceSec.2(10) defines the price as the money consideration for the sale of goods.Price has to be in terms of money.

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Fixing the pricePrice may be mentioned in the contract.The manner of fixing the price may be mentioned in the contract.It may be determined by the course of dealings of the parties. When price is not fixed by any of the above modes a reasonable price is considered as the price of the contract.

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Fixing the priceBy the governmentBy third partyFailure of third party to fix the price*

Subject Matter Of Contract Of Sale The subject matter of contract of sale is always the goods. This is enshrined in the Sale of Goods Act 1930, under Section 6, 7 and 8.Under Section 6:The subject matter of contract must always be goods. The goods may be existing or future goods.Like an ordinary contract, a contract of sale of goods can also be made with regard to the goods, the acquisition of which by sellers depends upon a contingency, which may or may not happen. Thus, a contract for sale of certain cloth to be manufactured by a certain mill is a valid contract. Such contracts are called contingent contracts.When the seller purports by his contract of sale to effect a sale of future goods, the contract will operate only as an agreement to sell the goods and not as sale.*

Under Section 7 & 8

Goods not existing at the time of contract: If at the time a sale is entered into, the subject- matter of a contract being specific goods, which without the knowledge of the seller have been destroyed or so damaged as not to answer to the description in the contract, and then the contract is void ab initio.Goods perishing after contract is made: Where there is an agreement to sell specific goods and the goods, subsequently without any fault of seller or the buyer perish or suffer such damages as not to answer to the description in the agreement before the risk passes to the buyer. *

Document of Title to GoodsDocument of title to goods includes a bill of lading, dock-warrant, warehouse-keeper's certificate, wharfingers' certificate, railway receipt, warrant or order for the delivery of goods and any other document used in the ordinary course of business as proof of the possession or control of goods, or authorising or purporting to authorise, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented.

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Condition Or Warranties Condition: It is a stipulation essential to main purpose of the contract, the breach of which gives right to the repudiate the contract and to claim damages. Warranty: It is a stipulation collateral to main purpose of the contract, the breach of which gives rise to claim for damages but not the right to reject the goods and treat contract as repudiated.*

Difference Between Condition and WarrantyConditionA condition is essential to the main purpose of the contract.The aggrieved party can repudiate the contract or claim damages or both in case of breach of condition.A breach of condition may be treated as breach of warranty.WarrantyIt is only collateral to main purpose of contract.The aggrieved party can claim only the damages in case of breach of warranty.

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

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Types of Conditions and Warranties1) Express which are expressly provided in the contract.

2) Implied- which the law implies into the contract unless the parties stipulate to the contrary.

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Implied ConditionsCondition as to title [sec.14(a)] - seller has the right to sell.Sale by description (sec.15)- goods shall correspond with the description.Condition as to quality or fitness [sec16(1)] Condition as to merchantability [sec.16(2)]Condition implied by custom- fitness for a particular purpose may be annexed by the usage of trade [sec.16(3)]Sale by sample (sec.17)Condition as to wholesomeness

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Implied Warranties1. Warranty of quiet possession [sec.14(b)].2. Warranty of freedom from encumbrances [sec.14(c)].3. Warranty as to quality or fitness by usage of trade [sec16(4)].4. Warranty to disclose dangerous nature of goods.

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When is a condition considered to be a warrantyAccording to the Sale of Goods Act, a condition is taken as warranty forrepudiation purpose under the following:i. Where a contract of sale is subject to any condition to be fulfilled by theseller, the buyer may waive the condition or elect to treat the breach ofthe condition as a breach of warranty and not as a ground for treatingthe contract as repudiated. Section 13(1)ii. Where a contract of sale is not severable and the buyer has accepted thegoods or part thereof, the breach of any condition to be fulfilled by theseller can only be treated as a breach of warranty and not as a groundfor rejecting the goods and treating the contract as repudiated, unlessthere is a term of the contract, express or implied, to that effect. Sction13(2)iii. Nothing in this section shall affect the case of any condition or warranty fulfillment of which is excused by law by reason of impossibility orotherwise. Section 13(3)*

CAVEAT EMPTORLet the buyer beware In a contract of sale of goods the seller is under no duty to reveal unflattering truths about the goods sold. Therefore, when a person buys some goods, he must examine them thoroughly. If the goods turn out to be defective or do not suit his purpose, he cannot blame anybody excepting himself.

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ExceptionsFitness for buyers purposeSale under a patent or trade nameMerchantable qualityUsage of tradeConsent by Fraud*

Transfer of PropertyTime at which property in goods passes from seller to buyer is very important as:Risk follows ownershipAction against third party can be taken only by the ownerSuit for priceInsolvency of seller/buyer

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Rules relating to Transfer of PropertyTransfer of property in specific or ascertained goodsTransfer of property in unascertained goodsTransfer of property in goods sent on approvalTransfer of property in goods sent or delivered when right of disposal is reserved

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Transfer of Property in Specific or Ascertained Goods

Where specific goods are in a deliverable stateWhere specific goods to be put in a deliverable stateSpecific goods in a deliverable state when the seller has to do anything thereto in order to ascertain price

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Transfer of Property in Unascertained Goods

Goods are appropriated either by the seller or the buyerConsent of the other partyOf the same description In deliverable stateUnconditional*

Transfer of Property in Goods Sent on Approval

When buyer signifies his approvalWhen buyer adopts the goodsWhen buyer retains the goods without signifying approvalWhen buyer makes the return of goods impossible

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Transfer of Property When Right of Disposal is Reserved

When goods are deliverable to the order of the seller or agentWhen documents to the title are sent along with B/E

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Transfer of Title by Non-OwnersNemo dat quad non habet - no one can give that which one has not gotSale by person not the owner effect of estoppelSale by mercantile agentSale by one of joint ownersSale by person in possession under voidable contractSeller in possession after saleBuyer in possession after saleSale by an unpaid sellerSale by PawneeSale by official receiver/assignee/liquidator

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Unpaid SellerThe seller of goods is deemed to be unpaid (Sec. 45-1)I. When whole of the price has not been paid or tendered.II. When the bill of exchange or negotiable instrument has been received as a condition of payment and the condition on which it was received has not been fulfilled by the reason on dishonor of the instrument or otherwise.*

Features of the Unpaid SellerI. He must sell goods on the cash basis and must be unpaid.II. If he sells on credit basis, he is not an unpaid seller during the period of credit.III. The term of credit has expired and the price has not been paid to him.IV. He must be unpaid wholly or partially. If a part of price remains unpaid, he is unpaid.V. When the price is paid in the form of negotiable instruments and it has been dishonored.VI. If buyer offers payment and seller refuses to accept, the seller is not an unpaid seller.*

Example:

I. Party A sells a car on cash basis to party B and the price has not been received yet.II. A sells good to B on 5 months credit period and B turns insolvent after 2 months.III. A sells TV set to B on the same day on cheque basis, the cheque is dishonored due to insufficient funds. A is an unpaid seller.

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Rights of an Unpaid SellerThe unpaid seller has following rights:1) Rights against the goods.i. Rights of lienii. Right of stoppage of goods in transitiii. Right of resale2) Rights against buyer personallyi. Suit for priceii. Suit for damages for non-acceptanceiii. Suit for special damages and interest*

Rights of lienThe right of lien means lawfully right to retain the goods possession until the full price is received. An unpaid seller can exercise his right of lien in following cases. Sec 47-49 :I. Where the goods have been sold on the cash basis.II. Where the goods have been sold on credit basis and the term of credit has expired.III. Where the buyer has become insolvent even if the period of credit has not been expired.*

Other rules to satisfy the conditions for lien

I. The unpaid seller must be in actual possession of the goods sold.II. It can be exercised even if the documents of title have been delivered to the buyer.III. It can be exercised for the price and not for other expensesIV. If the seller delivers some goods, it can be exercised on the remaining.

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Termination of right of lienSellers right of lien is terminated in following cases.I. When he delivers the goods to the carrier or other bailee for transmission to the buyerII. When the buyer or his agent lawfully obtains the possession of the goodsIII. When seller waives his right of lien on the goodsIV. The right of lien once lost will not be restoredV. When the buyer further sells the goods and the seller agreesExample:A seller S sells a TV set to B and delivers it to B and since the TV set was not functioning properly, B delivered it back to S for the repairs. It was held that S can not exercise his right of lien over TV set.*

Right of stoppage of goods in Transit:It means stoppage of goods while they are in transit to take possession until the price is paid (sec. 50-52). Unpaid seller can stop the goods in transit in the following cases.I. While the buyer becomes insolvent.II. While the goods are out of actual possession of seller, but have not reached buyers possession i.e. goods are in transit with career.III. The unpaid seller can stop the goods in transit only for payment of the price of the goods and not for any other charges.*

The unpaid seller can not stop goods in transit in following cases:I. When the goods reaches the destination.II. While the buyer or his agent takes possession of delivery even if it is not reached destination.III. In case the carrier is agent of the buyer, the transit comes to an end the instance carrier receives the goods and seller can not stop the transitionIV. Carriers wrongful refusal to deliver goods to the buyer.Example:A sells TV set to B. A delivers the TV to the carrier to carry it to B. Later on gets news that B has become insolvent; A can stop delivery.*

Right of Resale:If a buyer fails to pay or offer the price within a reasonable time, the unpaid seller has the right to resell the goods in the following circumstances.a) Where the goods are of perishable nature.b) Where the unpaid seller has exercised his right of lien or stoppage in transit and gives a notice to buyer of his intention to resell the goods.c) Where the unpaid seller has expressly reserved his right of resale.d) Where seller gives notice to the buyer of his intention to resell and the buyer does not pay within a reasonable time, he cana. Recover loss on resale of the goods, if anyb. Retain any surplus on resale of goods, if any*

However if the seller sells without the notice to the buyer, he can not:

a. Recover any loss of the goods, if anyb. Retain any surplus on the resale of the goods, if anyExample:a) X sells vegetable to Y on credit, Y does not pay, X can resell to any other person.b) M sells 100 blankets to N and gives him one week for payment. N does not pay. M can resell those to any other person.*

Suit for Price:Where ownership of the goods has passed to the buyer and the buyer refuses to pay the price according to the terms of the contract, the seller can sue the buyer for price, irrespective of delivery of the goods. (Sec. 55).*

Suit for damages for non-delivery:Where the buyer refuses to accept and pay for the goods, the seller may sue him for damages for nonacceptance. The seller can recover damages only and not the full price (Sec. 56)*

Suit for Special Damages and Interest:The seller can sue the buyer for special damages where the parties are aware of such damages at the time of contract. The unpaid seller can recover interest at a reasonable rate on the total unpaid price of goods, from the time it was due until it is paid. (Sec. 61).*

Buyers right against seller:Suit for damages for non-deliverySuit for specific performanceSuit for damages for breach of warrantySuit for cancellation and damages for breach of contractSuit for recovery of price with interest.*

Suit for damages for non-delivery:When the seller wrongfully refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non-delivery (Sec. 57)*

Suit for specific performanceWhere there is a breach of contract for sale of specific goods, the buyer may file a suit for specific performance. The remedy is granted when subject matter of the contract is rare goods, say, a picture by a dead painter (Sec. 58)*

Suit for damages for breach of warrantyWhere there is a breach of warranty, the buyer is entitled to sue for damages if he had paid the price to the seller. But if he has not paid the price yet, he may ask the seller for a reasonable reduction in the price. (Sec. 59)*

Suit for cancellation and damages for breach of contractWhere there is a breach of contract by the seller, the buyer may avoid the contract and claim damages.*

Suit for recovery of price with interest.If the buyer has already paid the price to the seller and the seller does not deliver the goods to the buyer, he can sue the seller for refund of price and interest at a reasonable rate. (Sec. 61)*

Rules as to delivery of goodsPlace of deliveryTime of deliveryGoods in the possession of a third personExpenses of deliveryDelivery of wrong quantityInstallment deliveriesDelivery to carrier or wharfingerRisk where goods are delivered at a distant placeBuyers right of examining the goodsAcceptanceBuyer not bound to return rejected goodsLiability of buyer for neglecting or refusing delivery of goods

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Thank You*

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