THE SALE OF GOODS ACT, 1930

THE SALE OF GOODS ACT,1930DEFINITION Definition of contract of sale : According to section 4 of the Act 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. Essentials of a contract of sale :

The seller and buyer must be different persons.There is a transfer or agreement to transfer the ownership of goods as against transfer of mere possession ,custody or limited interest in the goods .The subject matter of the contract must be goods. As per section 2 (7 ) the term Goods mean every kind of moveable property other than actionable claims and money and includes stock and shares, growing crops, grass and things attached to and forming part of the land and agreed to be severed before sale or under the contract of sale. Goods thus excludes immovable property.Price forms the consideration . Price means the money consideration for sale of the goods. If price is not fixed or is not capable of being fixed ,the whole contract is void. But , where goods are sold for a definite sum and the price is paid partly in kind and partly in cash ,it is considered as sale . Essentials of a contract of sale :In a contract of sale ,all other essentials of a valid contract must be present as laid down in section 10 of the Indian contract Act ,1872.The Contract of sale includes both a sale (An executed contract ) and Agreement to sell ( An executeory contract )

Formalities of a contract of sale:Section 5 lays down the following formalities of a contract of sale :-There may be immediate delivery of goods or-There may be immediate payment of price but delivery may take place at a future date or-There may be immediate delivery of goods and an immediate payment of price or-There may be an agreement between parties that the delivery or payment or both are to be made in instalments or -There may be agreement between the parties that the delivery or payment or both are to be made at some future date. DISTINCTION BETWEEN SALE AND AGREEMENT TO SELLContract Of SellAgreement to sellWhere under a contract of sale ,the property ( ownership ) in the goods is transferred from seller to the buyer ,it is termed as a sale {section 4(3) }. Even when payment of the price or delivery of goods or both have been postponed , the transaction is a sale and can not be classified as an agreement to sell. Where under a contract of sale the transfer of property in goods is to take place at a future date or subject to some conditions thereafter to be fulfilled ,the contract is called an agreement to sell.{ section 4 (3 ) }A sale creates a right in favor of the buyer against the whole World. So , a sale is contract plus conveyance

In a sale since the property has passed to the buyer ,the seller can sue the buyer for the price of the goods even though the goods are in his possession.An agreement to sale is merely a contract ,pure and simple ,and creates a right perso nam i.e right against the seller to sue for damages. In agreement to sell ,in case of breach ,the seller can only sue for damages and not for the price , unless the price was payable at a particular date.

CLASSIFICATION OF GOODS Existing Goods: Goods which are owned or possessed by the seller at the time of the contract of sale (sec.6 ) .Such goods may be either specific goods , Ascertained Goods or Unascertained Goods. Specific Goods : According to section 2 (14 ) the goods which are identified and agreed upon at the time a contract for sale is made are called specific goods. Ascertained Goods : The goods which are ascertained subsequently to the formation of the contract of sale are called ascertained goods. Unascertained Goods: The goods which are not identified and agreed upon at the time of making of contract of sale are called unascertained goods .Such goods are indicated by description and not specifically identified.FUTURE GOODS : According to section 2 (6 ) ,the goods which a seller does not posses at the time of contract of sale ,but which will be manufactured , produced or acquired by the seller after making the contract of sale.

RULES FOR FIXING PRICE OF GOODS ( SECTION 9 AND 10 )As per section 9 the price may be (1) either fixed by the contract of sell. The parties to the contract may fix any price for the goods as they may think fit. But the price should be definite. (2 ) May be agreed to be fixed in a manner provided by the contract between the seller and buyer e.g. by appointing a Valuer or it may be agreed that the buyer would pay a fair market value of the goods (3 ) It may be determined by the course of dealings between the buyer and the seller (4 ) In case price is incapable of being fixed in any of the above ways ,the buyer is bound to pay a reasonable price.In case price is agreed to be fixed by a valuer and the valuer fails to fix the price then the agreement of sale becomes void for uncertainity. PERISHING OF GOODSPerishing of goods means not only physical destruction of goods but also includes-( I ) Damage to goods in such a way that their merchantable character as such has been lost (although they are not physically destroyed.)(ii ) Where the goods has been lawfully requisitioned by the government(Iii) Where the goods are lost by way of theft. The effect of perishing of goods in a contract of sale takes place only in case of specific and ascertained goods. Effect of Perishing of goods at or before making of the contract (section 7 )Where specific goods forms the subject matter of the contract and they ,without the knowledge of the seller , perish at or before the time of the contract , the contract is void. where only a part of the goods are destroyed or damaged but ,the contract is indivisible ,then the whole contract is void. In case of divisible contract , the contract is not void and the part available in good condition must be accepted by the buyer. Contd..Effect of Perishing of goods before sale but after agreement to sale :In case of specific goods, when the goods , without any fault on the part of the seller or buyer, perish before the risk passes to the buyer, the agreement is avoided i.e. the contract of sale becomes void and both the parties are excused from performance of contract.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. Again, if the risk has passed to the buyer, he must pay for the goods, even though undelivered. DOCTRINE OF CAVEAT EMPTOR This is the fundamental principle of the law of sale of goods. It means Let the buyer be aware . Generally it is no part of the sellers duty to point out the defects of his own goods . The buyer must inspect the goods to ensure suitability of goods for his purpose.Exception to above principle : i)Where the seller makes a false representation and buyer relies on such representation then the rule of caveat emptor will not apply and the buyer will be entitled to goods according to that representation as made by the seller.Ii) The seller actively conceals a defect in the goods so that on a reasonable examination the same could not be detected.iii) Section 16 (1 ) provides that Where the buyer informs to the seller the purpose for which is buying the goods and the seller deals in goods of such descriptions then there is an implied condition that the goods shall be reasonably fit for the purpose of the buyer . The rule of caveat emptor does not apply. Doctrine of Caveat Emptor : iv )Section 16 ( 2 ) provides that in case of sale of goods by description ,there is implied condition that the goods are of merchantable quality . But if the buyer has inspected the goods then this condition of merchantable quality extends only to hidden or latent defects in the goods. v)Section 16 (3 ) provides that an implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade.

CONDITIONS AND WARRANTIES : In a contract of sale , parties agree to certain terms called stipulations. some of such stipulations may be intended by the parties to be of a fundamental nature ,e.g. quality of goods to be supplied ,the breach of which ,therefore, will be considered as breach of whole contract and so, the aggrieved party can repudiate the contract itself and may refuse the goods. The buyer can also claim damages for breach of contract. On the other hand , some stipulations may be intended by the parties to be binding ,but of a inferior character or such stipulations are collateral to the main purpose of the contract e.g. time of payment so that the breach of such terms will not put an end to the contract but will make the party committing the breach ,liable for damages The former are called conditions and the latter warranties

Conditions and warranties :According to section 12 (2 ) A condition is a stipulation essential to the main purpose of the contract , the breach of which gives rise to a right to treat the contract as repudiated. It means the breach of a condition gives a right to the aggrieved party to rescind the contract and claim damages for the breach of condition According to section 12 (3 ) A warranty is a stipulation collateral to the main purpose of the contract ,the breach of which give rise to a claim for damages ,but not the right to reject the goods and treat the contract as repudiated.

CONDITIONS WHEN TREATED AS WARRANTIES: As per section 13 under the following cases ,a breach of condition is treated as a breach of warranty and as a consequence of which the buyer losses his right to rescind the contract and he can claim for damages only.1 Where the buyer voluntarily waives the condition or elects to treat the breach of condition as a breach of warranty. It is important to note that once the buyer decides to waive the condition ,he can not afterwards insist on its fulfillment.2) Where the contract of sale is not severable and the buyer has accepted the goods or parts thereof ,the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty. However , the agreement may provide otherwise ,i.e. Buyer may be permitted to repudiate the contract in spite of his accepting the goods.

EXPRESS CONDITIONS AND WARRANTIES :The terms of the contract of sale may expressly provide for certain conditions and warranties which may be of any kind that the parties may choose to agree upon e.g. the seller may require the buyer not to sale the goods below a certain price or that the delivery shall be made or taken on or before a certain date. IMPLIED CONDITIONS AND WARRANTIES : When the law deems the existence of certain conditions or warranties in a contract of sale even without their actually having been put in the contract , such conditions or warranty are called implied condition or warranty. .An implied condition or a warranty may be made ineffective by an express term to the contrary Section 62 of the Act recognizes that what is expressed in a contract makes what is implied to cease . In a contract of sale , sometimes ,custom and agreement overrule law. Implied conditions and warranties are deemed to be included in every contract of sale of goods unless the terms of the contract show a contrary intention. Implied Conditions and warranties:(A )IMPLIED CONDITIONS---Condition as to tittle : Section 14 (a ) provides that in a contract of sale unless the circumstances of the contract are such as to show a different intention there is an implied condition on the part of the seller that in the case of a sale , he has the right to sale the goods and that in case of an agreement to sell he will have a right to sell the goods at the time when the property in goods is to pass.. So , in case if the tittle turns out to be defective ,the buyer is entitled to reject the goods and claim refund of price ,if paid plus damages. This will be allowed even where the buyer has used the goods. It may be noted that the implied condition as to tittle makes it obligatory upon the seller that he must not only be the owner but also must be able to uphold the validity of the contract , For instance , if the goods sold bears labels infringing the trade mark of another , the seller is guilty of breach of this condition although he had full ownership of the goods.

Implied Conditions and warranties :Sale by description ( section 15 ) :In case of contract of sale of goods by description ,there is an implied condition that the goods shall correspond with the description and in case of sale by sample as well as by description , the goods must not only correspond to the sample but also with the description.Conditions as to quality and fitness : Generally , a buyer is supposed to satisfy himself as to the quality of goods he buys and to ensure that goods fit for his purpose. So , if later on goods turn out to be unsuitable for his purpose , he can not claim on the seller for compensation. There are ,however, a few exceptions to this general rule and implied condition as to quality or fitness arises- Implied conditions and warranties : Section 16 (1 ) provides that if the buyer expressly or by implication ,makes known to the seller ,the particular purpose for which he needs the goods and depends upon the skill and judgement of the seller whose business is supply goods of that description ,there is an implied condition that the goods shall be reasonably fit for that purpose. The above exception does not apply where the specific goods are sold under their patent or trade name. The implied conditions as to fitness applies only in case of sale of goods to a normal buyer. If the buyer is suffering from any abnormality ,and it is not made known to the seller at the time of sale this condition as to fitness or quality does not apply.

Implied conditions and Warranties :Condition as to merchantability : Merchantable quality means the quality of the article should be such that reasonable men would accept the article as performance of a promise. If the goods have certain latent defects which no examination could reveal ,the implied condition subsits.Sale by Sample (section 16 ) :A contract of sale is a contract for sale by sample where there is a term in the contract to that effect .In a sale by sample the implied conditions arei)The bulk shall correspond with the sample in quality .ii)The buyer shall have a reasonable opportunity of comparing the bulk with the sample andiiiThe goods shall be free from any defects rendering them unmerchantable ,which would not be apparent on reasonable examination of the sample. Implied conditions and warranties :In the case of eatables and provisions ,there is an implied condition that the goods must not only answer to description and be merchantable but must also be wholesome.Section 16 (3 ) provides that an implied condition as to quality or fitness for a particular purpose may be attached by the usage of trade. (B) IMPLIED WARRANTIES: Warranty of quiet possession :As per section 14 (b ) there is an implied warranty that the buyer shall have and enjoy quiet possession of the goods. Thus ,if the right of enjoyment or possession of the buyer is disturbed by the seller or any other person ,the buyer is entitled to sue the seller for damages. Warranty of freedom from encumbrances : The buyer is entitled that the goods are free from any charge or encumbrance in favour of a third person ,not declared or known to the buyer. If the goods are later on found to be subject to a charge and the buyer has to discharge the same ,there is a breach of warranty and the buyer is entitled to damages.Warranty as to quality or fitness by usage of trade : Section 16 provides that an implied warranty as to quality or fitness for a particular purpose may be attached by the usage of tradeWarranty to disclose dangerous nature of goods : If a seller knows that the goods have inherent dangerous or likely to be dangerous to the buyer and the buyer is not aware o the danger nature of goods ,the seller is duty bound to warn the buyer of the probable danger ,otherwise the seller will be liable for damages. TRANSFER OF PROPERTY IN GOODS The rules regarding passing of property in goods are contained in sections 18 to 25. Passing of property in goods implies passing of ownership in goods .There may be situations where a person is the owner of certain goods but is not in possession of the same or vice versa. The determination of the exact moment as to when the ownership pass from seller to the buyer is important because: a) If the goods are lost or damaged, who will bear the loss shall depend upon as whether the ownership is with seller or the buyer at the time of loss.Contd. The general rule is risk follows ownership. Section 26 provides that unless otherwise agreed ,the goods remain at the sellers risk until the property therein is transferred to the buyer ,but when the property therein is transferred to the buyer ,the goods are at the buyers risk whether delivery has been made or not b) In the case of damage to the goods by third parties, it is the owner who can take action; and c) In the event of insolvency of either seller or buyer , whether the Official assignee or receiver can claim the goods shall depend upon whether the property has passed to the buyer or not. If the seller becomes insolvent before giving delivery of goods but the property in goods has passed to the buyer ,the official Receiver can have no claim against the goods. WHEN DOES THE PROPERTY PASS FROM THE BUYER TO SELLERSection 18 to 25 lay down the rules which determine when property passes from the seller to the buyer.Specific or Ascertained GoodsIn a sale of specific or Ascertained goods, the property in them is transferred to the buyer at such times as the parties to the contract intend to be transferred. The intention of the parties is ascertained from the terms of the contract, the conduct of the parties and the circumstances of the case. Unless a contrary intention appears, the following rules are applicable for ascertaining the intention of the parties.RULES AS REGARDS ASCERATINING INTENTION Specific goods in deliverable state: In the case of specific goods, in a deliverable state, property in them passes at the time when the contract (unconditional is made section 20). The fact that the time of payment or the delivery of goods, or both, is postponed does not affect the passing of the property.What is deliverable state?Section 2(3) states Goods are said to be in a deliverable state when they are in such state that the buyer would under the contract be bound to take delivery of them.Example: X agreed to sell S a standing stock of hay for a fixed price payable on 4th February next. The delivery was to be made on 1st of May following.Held: Y became the owner immediately the contract was made.Rules as regards ascertaining intention :Specific goods not in a deliverable state:In case of a specific goods to which something has to be done by the seller to put them in a deliverable state, property passes only when such thing is done, and the buyer has notice thereof(section 21).Where there is contact for sale of specific goods in a deliverable state but the seller is bound to weigh, measure, test to do something with reference to them, for ascertaining the price, the property does not pass till such act or thing is done and the buyer has notice of it.(section 22).However it should be noticed that the section applies only where , by the contract, the seller has to do something mentioned therein. Thus, if the weighing, etc., has to be done by the buyer for his own satisfaction, the section does not apply.

Rules as regards ascertaining intention Unascertained or future goodsWhen there is a contract for the sale of unascertained goods, property in the goods is not transferred to the buyer unless and until the goods are ascertained (section 18)On the analysis of the above provisions of section 23, it will be noted that, in such a case, for property to pass, the following conditions must n=be fulfiled:Goods of contract description must be produced or obtained.They must be in a deliverable state, i.e.. the goods are in such state that the buyer would under the contract be bound to take delivery of them.They must be unconditionally appropriated to the contract. Thus, where the seller did not separate the goods contracted for from the general stock with them or put them in any receptacle sent by the buyer , it was held that an inspection of the general stock by the buyer and approval of quality of goods , fixation of price and agreement regarding payment of freight and tax charges between the parties, was not sufficient to pass the property to buyers. General rule of law A seller can not convey a better tittle to the buyer than he himself has Section 27 lays down that Where goods are sold by a person who is not the owner thereof and who does not sale them under the authority or with the consent of the owner ,the buyer acquires no better tittle to the goods than the seller had. This rule is made to protect the interests of true owner e.g. if a thief disposes of the stolen property ,the buyer acquires no tittle though he may have purchased the goods bona-fide for value ,and the real owner of the goods is entitled to recover possession of goods without paying anything to the buyer.However, the above general rule as to tittle is subject to the following exceptions(a ) Sale by a joint owner ( sec. 28 ) If one of the several joint owners of goods has the sole possession of goods with the permission of other co-owners ,the property in goods is validly transferred to any person who buys from such joint owner in good-faith. Contd(b )An unauthorised sale by a mercantile Agent (SEC 27 ): It is valid if(i ) He sells goods while acting in the ordinary course of business. ( ii) The buyer acts in good faith without notice of the lack of authority of the agent. (iii ) The Mercantile agent is in possession of the goods or documents of tittle to the goods in his capacity as mercantile agent and with consent of the Principal. (c )Resale by unpaid seller: An unpaid seller who has excercised his right of lien or stoppage in transit resells the goods ( of which the ownership of goods has passed to the buyer ) ,the subsequent buyer acquires a good tittle thereto as against the original buyer ,even though the resale may not be justified in the circumstances i.e. no notice of resale has been given to the original buyer.

Contd..Sale by seller in possession after sale (section 30(1) : Where a seller having sold the goods ,continues to be in possession of the goods or documents of tittle to the goods and sells them either himself or through a mercantile agent to a person who buys them in good-faith and without notice of the previous sale ,the buyer gets a good tittle .For the application of this exception , it is necessary that the possession of the goods with the seller must be as a seller and not as hirer or bailee.Exceptions under other Acts: Under the Negotiable Instruments Act ,a holder in due course obtains a better tittle than what his endorser had. A person who takes a negotiable instrument in good faith and for value becomes the true owner even if he takes it from a unauthorised person may be a thief or a finder of lost goods. Contd.Sale by official Receiver or Assignee in case of insolvency of an individual and liquidators of companies These persons are not the owners of goods ,they deal in ,but convey a better tittle to the buyers than they themselves possess.Sale by pledgee under certain circumstances.Sale by finder of lost goods under certain circumstances.UNPAID SELLER:In a contract of sale ,if the seller is under an obligation to deliver goods, buyer has to pay for the goods. In case buyer fails to pay or refuses to pay ,the seller as an unpaid seller ,shall have certain rights against the buyer under the law. By virtue of section 45 of the Act ,the seller of goods is deemed to be an unpaid seller in the following cases- (a) When whole of the price has not been paid or tendered.(b)When a bill of exchange or other negotiable instrument has been received as conditional payment ,and the condition on which it was received has not been fulfilled by reason of the dishonour of the instrument or otherwise. The term seller includes any person who is in the position of a seller , e.g. ,an agent of the seller , or a consignor .UNPAID SELLER:RIGHTS OF AN UNPAID SELLER : An unpaid seller has two rights namely Rights against the goods An unpaid seller has the following rights against the goods notwithstanding the fact that the property in the goods has passed to the buyer or not : (a ) When property in goods has passed (section 46 (1 ) ) : ( I ) Right of lien on the goods- Under section 47 an unpaid seller who is in possession of goods ,is entitled to retain them in his possession until payment or tender of the price in the following cases,namely: (a ) where the goods has been sold without any stipulation as to credit ( b ) where goods has been sold on credit ,but the terms of credit has expired. (c ) where the buyer becomes insolvent.Lien can be exercised only for non- payment of the price and not for any other charges due against the buyer

An unpaid seller loses his lien in the following cases-(a) When the seller delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer ,withot reserving a right of disposal of the goods to himself, e.g.,the seller takes R/R OR Transport receipt in buyers name or his agent .(b ) By waiving the right of lien.(c ) where he takes a security from the buyer for payment of the price ,in place of his lien.(d ) where the buyer or his agent lawfully obtains possession of the goods. (ii ) Right of Stoppage in transit(sec 50 ) Section 50 provides subject to the provisions of the sale of goods act, when the buyer of goods become insolvent , the unpaid seller who has parted with the possession of the goods has the right of stopping them in transit , that is to say , he may resume the posession of the goods as ling as they are in the course of transit, and may retain them until payment or tender of the price.Goods are deemed to be in course of transit from the time when they are delivered to a carrier or other bailee for the purpose of transmission to the buyer or his agent in that behalf takes delivery of them from such carrier or other bailee.Once the goods reach the hands of buyer or his agent or servent the transit is at an end.

The unpaid seller may exercise his right of stoppage in transit:Either by taking actual possession of the goods, orBy giving notice of his claim to the carrier or other bailee in whose possession the goods are.On receipt of the notice from the seller , the carrier or other bailee in possession must re-deliver the goods o, or according to the directions of the seller. The expenses of such re-delivery shall be borne by the seller.

(iii) Right of Re -sale (sec.54 )The unpaid seller, who has retained possession of the goods in exercise of his right of lien or who has resumed possession from the carrier upon insolvency of the buyer , can resell the goods :If the goods are of a persihable nature, without any notice to the buyer; andIn other cases , after notice to buyer calling upon him to pay or tender the price within reasonable time and upon failure of the buyer to do so.The seller is entitled to recover from the original buyer damages caused to him by the resale.

In case, the seller resells the goods without giving notice to the buyer ,he shall not be entitled to recover damages from the buyer for any loss on resale , nor shall he be entitled to pocket any profit that may accrue on the resale. The profits in such a case shall go to the buyer.However, the buyer (who buys in case of resale) acquires a good title to the goods as against the original buyer, notwithstanding that no notice of re-sale has been given to the original buyer.Right of resale is also available where, by the contract , seller has expressly reserved a right of resale in case the buyer makes a default (section 54 clause 4). In case the seller exercises his right of resale under this clause, the original contract is rescinded but, without prejudice to the sellers right to recover damages for its breach.( b ) When property in the goods has not passed (Sec 46 (2 ) ) (I ) Withholding delivery

UNPAID SELLER :Rights against the buyer personally : (i) Suit for Price (sec,55 ) (ii ) Suit for damages ( sec. 56 ) (iii) Suit for special damages and interest ( sec,61 (iv ) Repudiation of contract ( sec. 60 )Sale by Auction: The Auctioneer who sells the goods by auction is an agent of the seller i.e. the owner. Hence, Auctioneers relationship with the owner of goods is governed by law relating to AgencyWhere goods are put up for sale in lots, each lot is deemed ,prima facie ,to be the subject matter of a separate contract of saleAt an auction the sale is complete when the auctioneer announces its completion by fall of hammer or in other customary manner ,until such completion any bidder may withdraw his bid .