Use the Sale of Goods Act, 1930

8/2/2019 Use the Sale of Goods Act, 1930

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THE SALE OF GOODS ACT, 1930


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Definition of Sale of goods

A contract where by the seller transfers or

agrees to transfer the property in goods to

the buyer for a price.


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Main features : There must be at least two parties

Transfer or agreement to transfer theownership or property of goods

The subject-matter of the contract mustnecessarily be Goods

The consideration is price

A contract of sale may be absolute orconditional

All other essentials of a valid contract must

be present 3


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Essential Characteristics of Sale

of Goods1. Two parties: There should be two parties namely

the buyer and seller.

2. Transfer of Property: Property here means

ownership. Transfer of property in the goods is

another essential of a contract of sales of goods.

A mere transfer of possession of the goods

cannot be termed as sale.


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of Goods (contd)3. Goods: The subject-matter of the contract

of sale must be goods.

goods means every kind of movable

property other than actionable claims and

money; and includes stock and shares,growing crops, grass etc.


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of Goods (contd)4. Price: The consideration for a contract of sale

must be money consideration called the price .

5. Sale: Where under a contract of sale the propertyin the goods is immediately transferred at the timeof making the contract from the seller to the buyer,

the contract is called sale.


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of Goods (contd)6. No formalities to be observed: A contract of sales

of goods can be made by mere offer and

acceptance. Neither payment nor delivery isnecessary at the time of making the contract of

sale.

7. Includes both a sale and an agreement to sell.

The term contract of sale is a generic term and

includes both a sale and an agreement to sell


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Sale and Agreement to Sell


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Points of Distinction

Transfer of property (ownership): In a salethe property in goods passes to the buyer

immediately at the time of making thecontract.

In an agreement to sell there is no transfer ofproperty to the buyer at the time of thecontract.


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Points of Distinction (contd..)

Risk of loss: The general rule is that unless otherwise

agreed, the risk of loss passes with property

Thus in case of sale, if the goods are destroyed the loss falls on

the buyer even though the goods may never have come into

his possession.

On the other hand, in case of an agreement to sell where the

ownership in the goods is yet to pass from the seller to the

buyer, such loss has to be borne by the seller.


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Consequences of breach: In case of sale, if the

buyer wrongfully neglects or refuses to pay the

price of the goods, the seller can sue for the price,even though the goods are still in his possession.

In case of an agreement to sell, if the buyer fails to

accept and pay for the goods, the seller can only

sue for damages and not for the price.


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Right of resale: In a sale, the property is with the

buyer and as such the seller (in possession of

goods after sale) cannot resell the goods.

In an agreement to sell, the property in the goods

remains with the seller and as such he can disposeof the goods as he likes and the original buyer can

sue him for the breach of contract only.


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Insolvency of buyer before he pays for the goods In a

sale, if the buyer is adjudged insolvent before he pays

for the goods, the seller, must deliver the goods tothe Official Receiver or Assignee.

But in an agreement to sell, in these circumstances, the

seller may refuse to deliver the goods to the Official

Receiver or Assignee unless paid for, as ownership

has not passed to the buyers.


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Insolvency of seller if the buyer has already paid the price:

In a sale, if the seller is adjudged insolvent, the buyer is

entitled to recover the goods from the Official Receiver orAssignee, as the property in the goods rests with the buyer.

On the other hand, in an agreement to sell, if the buyer has

already paid the price and the seller is adjudged insolvent,

the buyer can only claim as a creditor and not the goods

because property in them still rests with the seller.


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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 theland, which are agreed to be severed before sale or under the contract of sale.Actionable claims and money are not included in the definition of goods.Thus, goods include every kind of moveable property other than actionableclaim ormoney. Example - goodwill, copyright, trademark, patents, water, gas,

and electricity are all goods and may be the subject 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`.Which documents are considered as `DOCUMENTS OF TITLE TO GOODS`

A document of title to goods may be described as anydocument used as proof of the possession or controlof goods, authorising orpurporting to authorise, eitherby endorsement or by delivery, the possessor of thedocument to transfer or receive goods therebyrepresented.


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The following are documents of title to goods:

Bill of Lading;Dock Warrant;Warehousekeeper's Certificate;Wharfinger's Certificate;Railway Receipt;Warrant ororder forthe delivery of goods; and

any other document used in the ordinary course ofbusiness as a document of title .


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CLASSIFICATION OF GOODSGoods may be classified into:

1. Existing Goods - Existing goods are those, which are owned orpossessedby the seller at the time of the contract. Instances of sale of goods possessedbut not owned by the sellers fire sales by agents and pledgees.Existing goods may be either:(a) Specific /Ascertained - goods identified and agreed upon at thetime a contract ofsale is made; or(b) Unascertained - goods arc goods indicated by description and notspecifically identified.2. Future Goods - Future goods" means goods tobe manufactured or

produced or acquired by the seller after making the contract ofsale.3. Contingent Goods -Contingent goods are the goods the acquisition ofwhich by the seller depends upon a contingency which mayor may not happen.Contingent goods are a part offuture goods.


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CONDITIONS AND

WARRANTIES


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In a contract of sale of goods various termsor stipulations regarding quality of the

goods, price mode of payment, delivery ofgoods etc. are very important.

In law of sales major terms are calledConditions and minor terms are calledwarranties


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Condition

Condition Sec. 12 (2) defines as A

condition is a stipulation essential to the

main purpose of the contract, the breach ofwhich gives the aggrieved party a right to

repudiate the contract itself. In addition he

can claim damages from the guilty party.


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Warranty

Warranty Sec. 12(3) defines A warranty is

a stipulation collateral to the main purpose

of the contract, the breach of which givesthe aggrieved party a right to sue for

damages only, and not to avoid the contract

itself.


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Example

A man buys a particular horse which is warranted quiet toride and drive. If the horse turns out to be difficult toride, the buyers only remedy is to claim damages.

But if instead of buying a particular horse, a man asks adealer to supply him with a quiet horse and the dealersupplies him with a diificult one, the stipulation is acondition, and the buyer can return the horse and can

also claim damages for breach of contract.


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How to determine whether a

stipulation is condition/warrantySec 12(4) lays down whether a stipulation in a

contract of sale is a condition or a warranty.

ExampleP goes to R, a horse dealer, and asks, I want a horsewhich can run at a speed of 30 kilometers perhour. The horse dealer points out a particular

horse and says, This will suit you. P buys thehorse. Later on P finds that the horse can run onlyat a speed of 20 kilometers per hour. There is abreach of condition, P can repudiate the contract,return the horse to R and get back the price.


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But if P says to R, I want a good horse. R showshim a horse and says, This is a good horse and itcan run at a speed of 30 kilometers per hour, andP buys the horse and finds later on that it can runat a speed of 20 kilometers per hour only, there abreach of warranty because the stipulation madeby the seller did not form the very basis of the

contract and was only subsidiary one. The sellergave the assurance about the running speed of thehorse of his own without being asked by the buyerhence it is only of secondary important.


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Distinction between condition

and warranty1. As to value.

A condition is a stipulation which is essential

to the main purpose of the contract, whereasa warranty is a stipulation which is

collateral to the main purpose of the

contract.


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2. As to breach.

The breach of a condition gives the aggrieved

party the right to repudiate the contract andalso to claim damages, whereas the breach

of warranty gives the aggrieved party a right

to claim damages only.


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3. As to treatment.

A breach of condition may be treated as a

breach of warranty. But a breach ofwarranty can not be treated as a breach of

condition.


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When breach of condition is to be

treated as breach of warranty Voluntary waiver by buyer.

Acceptance of goods by buyer

Example:A agrees to supply B 10 bags of first quality sugar @

Rs. 625 per bag but supplies only second qualitysugar, the price of which is Rs. 600 per bag. There

is a breach of condition and the buyer can rejectthe goods. But if the buyer so elects, he may treatit as a breach of warranty,

Accept the second quality sugar and claim damages

@ Rs. 25 per bag.

V l t i f diti Wh t t f l i


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Voluntary waiver of condition: Where a contract of sale is

subject to any condition to be fulfilled by the seller, the buyer

may (a) waive the condition, or (b) elect to treat the breach of

the condition as a breach of the warranty [Sec 13 (1)]. If thebuyer once decides to waive the condition, he cannot

afterwards insist on its fulfilment.

Acceptance of goods by buyer: Where a contractof sale is not severable and the buyer has accepted the goods

or part thereof, the breach of any condition to be fulfilled by

the seller can only be treated as breach of warranty, unless

there is a term of contract, express or implied, to the contrary

[Sec 13 (2)].


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EXPRESS AND IMPLIED CONDITIONS AND

WARRANTIESConditions and Warranties may be either express or implied.

They are said to be "express" when the terms of the contractexpressly 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.

(A) IMPLIED CONDITIONSThe following are the implied conditions

(1)Condition as to Title

(2) Sale by Description

(3) Sale by sample

(3) Condition as to Quality or Fitness

(4) Merchantable Quality

IMPLIED CONDITIONS


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IMPLIED CONDITIONS1.Condition as to title: [Sec. 14(a)]. In a contract of sale, unlessthe circumstances of the contract are such as to show a differentintention, there is an implied condition on the part of the seller that In the case of a sale, he has a right to sale the goods, and

In the case of an agreement to sell, he will have a right to sell thegoods at the time when the property is to pass.2.Sale by description: [ Sec. 15] Where there is a contract for thesale of the goods by description, there is an implied condition thatthe shall correspond with the description.

Example: A ship was contracted to be sold as a copper-fastenedvessel to be taken with all faults, without any allowance for anydefect whatsoever. The ship turned out to be partially copper-fastened. Held, the buyer was entitled to reject.3.Condition as to quality or fitness: [ Sec. 16 (1)] Normally, in a

contract of sale there is no implied condition as to quality or fitness ofthe goods for a particular purpose. The buyer must examine thegoods thoroughly before he buys them in order to satisfy himself.Example: An order was placed for some lorries to be used for heavytraffic in a hilly area. The lorries supplied were unfit and breakdown.There is a breach of condition as to fitness.

4.Condition as to merchantability: [ Sec. 16 (2)]. This means


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4.Condition as to merchantability: [ Sec. 16 (2)]. This meansgoods should be such as are commercially saleable under thedescription by which they are known in the market at their full value.Example: A firm of Liverpool merchants contracted to buy from aLondon merchant a number of bales of Manilla hemp to arrive from

Singapore. The hemp was damaged by sea water in such a way thatit would not pass in the market as Manilla hemp. Held, the goodswere not of merchantable quality.

5. Sale by sample (Sec 17): [Sec. 17 (1)] An implied condition in

which the bulk shall correspond with the sample in quality and shallhave a reasonable opportunity of comparing the bulk with thesample.By condition, [Sec. 17 (2)] The goods shall be free from anydefect, rendering the unmerchantable. The defect should not howeverbe apparent on a reasonable examination of the sample.

Example: In a contract of sale of brandy by sample, brandycoloured with a dye was supplied. Held, the buyer was not bound tothe contact even though the goods supplied are even to the samples,as the defects were not apparent on reasonable examination of thesample.


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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 thebulk with the sample; and

3. That the goods shall be free from any defects rendering themunmerchantable, which would not be apparent on reasonable examination ofthe sample.Ex-Certain shoes were sold by sample for the French Army. The shoes werefound to contain paper not discoverable by ordinary inspection. Held, the buyerwas entitled to the refund of price plus damages.In a contract for the sale of brandy by sample, the brandy that was suppliedhad 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 havebeen located on reasonable examination of the sample [Mody v. Gregson

(1868) L.R.4Ex. 49.].

IMPLIED WARRANTIES


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IMPLIED WARRANTIES

1.Warranty of quiet possession: [Sec. 14(b)]. In a contract ofsale, unless there is a contrary intention, there is an implied

warranty that the buyer shall have and enjoy quiet possession ofthe goods. If the buyer is in any way disturbed in the enjoyment ofthe goods in consequence of sellers defective title to sell, he can

claim damages from the seller.

2.Warranty of freedom from encumbrances: [Sec. 14 (c). Thegoods are not subject to any change or right in favour of a thirdparty.3.Warranty as to quality or fitness by usage of trade: [Sec. 16(4)]. An implied warranty as to quality or fitness for a particular

purpose may be annexed by the usage of trade.

D i f C E


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Doctrine of Caveat Emptor

The maxim of caveat emptor means Let the buyer bewareaccording to this it is the duty of the buyer to be careful while

purchasing goods of his requirement, and in the absence ofany inquiry from the buyer, the seller is not bound to discloseevery defect in goods of which he may be aware.

Example

A buys a horse from B for ridingbut did not mention this. Thehorse was found fit only for carriage. A cannot claimdamage.

Pigs were sold "subject to all faults", and these pigs, being

infected, caused typhoid to other healthy pigs of the buyer, itwas 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


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p

1. Where the seller makes a false representation and buyer relies on thatrepresentation. The rule of "Caveat Emptor" will not apply and the buyer willbe 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 isbuying the goods, and the seller happens to be a person whose business isto sell goods of that description, then there is an implied condition that thegoods 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 ofmerchantable quality. However, if the buyer has examined the goods, thiscondition of "merchantability" extends only to hidden or latent defects. Thedefects, 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 heldthat manufacturers owed a duty to the ultimate consumer to take care inmaking their goods where there is no likelihood of their being examined beforethey reach the ultimate consumer.


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Transfer of property

Unless otherwise agreed, the goods remain at the sellers risk

until the property therein is transferred to the buyer, but when theproperty therein is transferred to the buyer, but when theproperty therein is transferred to the buyer, the goods are at thebuyers risk whether delivery has been made or not.

Provided also that nothing in this section shall affect the dutiesor liabilities of either seller or buyer as a bailee of the goods ofthe other party.

Section 26 Risk prima facie passes withproperty


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2. The defendant purchased 975 bales of rice, being the wholecontents of a gola, paid earnest money, and took part delivery of therice. The rest was afterwards destroyed by fire. The property in thewhole had passed to him and he was held liable to pay the balance

of the price. The Union of India Vs. The West Punjab FactoriesLtd. AIR 1966 SC

3. The defendant contracted to purchase 30 tons of apple juice.The plaintiff crushed the apples, put the juice in casks and kept itpending d3elivery. The defendant delayed taking delivery and the

juice went putrid and had to be thrown away. The defendant wasliable to pay the price; the seller had been in a position to sell thegoods elsewhere and acquire other goods for the postponed time ofdelivery and he had not done so and there was some loss in themeanwhile, the responsibility for the loss would have fallen on

him, but in the present case the seller had to keep the goods readyfor delivery as and when the buyer proposed to take them. DembyHammilton & Co. Ltd. Vs. Barden (Endeavour Wines Ltd)1949


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Section 20 Specific goods in a deliverable state

Where there is an unconditional contract for the sale of specific

goods in a deliverable state, the property in the goods passes tothe buyer when the contract is made, and it is immaterial whetherthe time of payment of or the time of delivery of goods, or both,is postponed.Examples

This section may be illustrated by the followingexamples:1. Sale on the 4th January of a haystack on the sellers land at theprice of 145 to the paid on the 4th February, the hay to beallowed to remain on the sellers land until the 1st May: no hay to

be cut until the price was paid. The property in the haystackpassed on the making of the contract and on the stack beingdestroyed by fire, the buyer must bear the loss Tarling Vs.Baxter (1827)


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Section 21 Specific goods to be put into a deliverable state

Where there is a contract for the sale of specific goods and the

seller is bound to do something to the goods for the purpose ofputting them into a deliverable state, the property does not passuntil such thing is done and the buyer has notice thereof.Example

This section may be illustrated by the following example:

Sale of the whole contents of a cistern of oil, the oil to be putinto casks by the seller and then taken away by the buyer. Someof the casks are filled in the presence of the buyer, buy beforeany are removed, or the remainder are filled, filled, fire destroysthe whole of the oil. The buyer must bear the loss of the oil

which had been put into the casks, the seller that of theremainder .Rugg Vs. Minett (1089)


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Section 23 : Sale of unascertained goods and

appropriation.

1. Where there is a contract for the sale of unascertained or

future goods by description and goods of that descriptionand in a deliverable state are unconditionally appropriatedto the contractassent of the buyer or by the buyer with theassent of the seller, the property in the goods there uponpassed to the buyer. Such assent may be expressed or

implied, and may be given either before or after theappropriation made.

2. Delivery to the carrier - Where in pursuance of the contractthe seller delivers the goods to the buyer or to the carrier or

other bailee (whether named by the buyer or not) for thepurpose of transmission to the buyer, and does not reservethe right of disposal, he is deemed to have unconditionallyappropriated the goods to the contract.


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ExampleThis section may be illustrated by the following example:1. Sale of 20 hogsheads of sugar out sugar out of a larger

quantity. The seller fills four hogsheads which the buyertakes away. Subsequently the seller fills sixteen morehogsheads, and informs the buyer of this asking him tocome and take them away. The buyer promises to do so.The property has passed to the buyer.

2. Mr A contracts to sell to Mr B a certain quantity ofliquor out of a big cask containing a much larger

quantity. The required quantity is not separated orbottled. The property in the liquor does not pass to thepurchaser.


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Section 24 Goods sent on approval or on sale or

return

When goods are delivered to the buyer on approval oron sale or return or other similar terms, the propertytherein passes to the buyer

(a) when he signifies his approval or acceptance to theseller or does any other act adopting the transaction:(b) if he does not signify his approval or acceptance tothe seller but retains the goods without giving notice of

rejection, then, if a time has been fixed for the return ofthe goods, on the expiration of such time, and, if notime has been fixed, on the expiration of a reasonabletime.


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ExamplesThe section may be illustrated by the

following examples:1.Goods delivered on sale or return arepledged by the deliveree. He thereby becomesthe buyer of the goods, and the original owner

cannot recover the goods from the pledgee.2. Goods delivered on sale or return to thedefendant are delivered by him on similarterms to another. The latter in turn hands them

to a fourth person, who loses them. Thedefendant, being unable to return the goods,must pay for them as if he had actually agreedto become the buyer.


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S ti 32 P t d d li


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Section 32 Payment and delivery are

concurrent conditions :


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REMEDIES IN CASE OF BREACH

BY BUYER AND SELLER


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Coverage

The rights of an unpaid seller

against the goods, and

against the buyer personally

The rights of buyer


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Who is Unpaid Seller?

The seller of goods is deemed to be an

unpaid seller

(a) when the whole of the price has not beenpaid or tendered; or

(b) where a bill of exchange or other negotiable

instrument has been received as a conditional

payment


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Following are the characteristics of

and unpaid seller. He must sell goods on cash terms and not

on credit, and

He must be unpaid, either wholly or partly.

He must not refuse to accept payment when

tendered


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Rights of an Unpaid Seller

I. Rights of unpaid seller against the goods,

and

II. Rights of unpaid seller against the buyer

personally.


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1. Rights of Unpaid Seller against

the Goods Right of lien;

Right of stoppage of goods in transit;

Right of resale


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Right of lien

Lien is the right to retain possession of

goods and refuse to deliver them to the

buyer until the price due in respect of themis paid or tendered.


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Right of lien (Contd..)

An unpaid seller in possession of goods sold is entitled to exercisehis lien on the goods in the following cases:

(a) Where the goods have been sold without any stipulation asto credit;

(b) Where the goods have been sold on credit, but the term of

credit has expired:

(c) Where the buyer becomes insolvent, even though theperiod of credit may not have yet expired.


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Right of Stoppage of Goods in Transit

The unpaid seller can exercise the right of stoppage in

transit only if the following conditions are fulfilled:

(i) The seller must have parted with the possessionof goods

(ii) The goods must be in the course of transit.

(iii) The buyer must have become insolvent.


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Right of Resale

The unpaid seller a limited right to resell the goods in the followingcases:

(a) Where the goods are of a perishable nature; or

(b) Where such a right is expressly reserved in the contract

in case the buyer should make a default; or

(c) Where the seller has given a notice to the buyer of hisintention to resell and the buyer does not pay or tender

the price within a reasonable time.


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Rights of Buyer


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Rights of Buyer

Suit for Damages for Non-delivery

Suit for Specific Performance

Suit for Breach of Warranty

Suit for Recession of the contract and for

the damages for the breach of condition

Suit for Interest

Documents

Use the Sale of Goods Act, 1930