SALE OF GOODS ACT, 1930

 

Introduction:

The Sale of Goods Act, 1930 governs the contracts relating to sale of goods. It applies to the whole of India except the State of Jammu & Kashmir. The contacts for sale of goods are subject to the general principles of the law relating to contracts i.e. the Indian Contact Act. A contract for sale of goods has, however, certain peculiar features such as, transfer of ownership of the goods, delivery of goods rights and duties of the buyer and seller, remedies for breach of contract, conditions and warranties implied under a contract for sale of goods, etc. These peculiarities are the subject matter of the provisions of the Sale of Goods Act, 1930.

 

FORMATION OF CONTRACT OF SALE

 

CONTRACT OF SALE OF GOODS; A contract of goods is a contract whereby the seller transfers or agrees to transfer the property or goods to the buyer for a price. There may be a contract of sale between one part-owner and another [Sec. 4(1)]. A contract of sale may be absolute or conditional [Sec 4(2)].

 

\The term ‘contract of sale’ is a generic term and includes both a sale and an agreement to sell.

 

Sale and Agreement to sell: when under a contract of sale, the property in the goods is transferred from the seller to the buyer, the contract is called a ‘sale’, but where the transfer of the property in the goods is to take place at a future time or subject to some conditions thereafter to be fulfilled, the contract is called an ‘agreement to sell’ [Sec. 4(3)]. An agreement to sell becomes a sale when time elapses or the conditions, subject to which the property in the goods is to be transferred, are fulfilled [Sec. 4(4)].

 

 

BASIS FOR COMPARISON	SALE	AGREEMENT TO SELL
Meaning	When in a contract of sale, the exchange of goods for money consideration takes place immediately, it is known as Sale.	When in a contract of sale the parties to contract agree to exchange the goods for a price at a future specified date is known as an Agreement to Sell.
Nature	Absolute	Conditional
Type of Contract	Executed Contract	Executory Contract
Transfer of risk	Yes	No
Title	In sale, the title of goods transfers to the buyer with the transfer of goods.	In an agreement to sell, the title of goods remains with the seller as there is no transfer of goods.
Right to sell	Buyer	Seller
Consequences of subsequent loss or damage to the goods	Responsibility of buyer	Responsibility of seller
Tax	VAT is charged at the time of sale.	No tax is levied.
Suit for breach of contract by the seller	The buyer can claim damages from the seller and proprietary remedy from the party to whom the goods are sold.	Here the buyer has the right to claim damages only.

 

 

• ESSENTIAL ELEMENTS OF A CONTRACT OF SALE

1. Two parties: there must be 2 distinct parties i.e. a buyer and a seller, to affect a contract of sale and they must be competent to contract. ‘Buyer’ means a person who buys or agrees to buy goods [Sec. 2(1)]. ‘Seller’ means a person who sells or agrees to sell goods [Sec. (13)].
2. Goods: there must be some goods the property in which is or is to be transferred from the seller to the buyer. The goods which form the subject-matter of the contract of sale must be movable. Transfer of immovable property is not regulated by the Sale of Goods Act.

 

3. Price: Price is an essential ingredient for all transactions of sale and in the absence of the price or the consideration, the transfer is not regarded as a sale. The transfer by way of sale must be in exchange for a price. It has been held that price normally means money. The price can be paid fully in cash or it can be partly paid and partly promised to be paid in future. The price can be fixed by the agreement between the parties before the conveyance of the property
4. Transfer of general property: There must be a transfer of general property as distinguishes from special property in goods from the seller to the buyer. For e.g. if A owns certain goods he has general property in the goods. If he pledges them with B, B has special property in the goods.

 

• Essential elements of a valid contract:

 

All essential elements of a valid contract must be present in the contract of sale.

 

The Sale of Goods Act came into effect on 1st July 1930 and deals with the contracts or agreements related to sale/purchase of goods. The contract of sale of goods, whereby a seller transfers or agrees to transfer the property in the goods to the buyer for a specific consideration, i.e. price, has following main essentials for its validity:

 

Two consenting parties:

• Buyer – A person who buys or agrees to buy goods.
• Seller – A person who sells or agrees to sell goods.
• Goods- Form the subject-matter for the contract of sale.
• Transfer of the property- may or may not involve physical delivery of the goods.
• Price – The consideration for the goods.

 

All the essentials of a valid contract (1)

 

GOODS: Section 2(7) of the Sale of Goods Act, 1930 defines Goods as any kind of moveable property (which is not an actionable claim or money) or land (including stock and shares, growing crops, grass, and things that are attached to or form a part of the land) which is agreed to be sold, under the contract of sale.

Goods form the subject-matter for the contract of sale against which the buyer pays a consideration (price for the good) at the time of completion of the contract.

 

Goods can be classified into 3 types on the basis of their quality:

 

• Existing goods– The goods that are agreed to be the subject matter of the contract by the parties and are under the possession of the seller at the time of formation of the contract are referred to as existing goods. These can further be divided into two categories:
• Ascertained or Specific Goods– The goods that are specifically a part of, are identified and agreed upon at the time when a contract of sale is made, are ascertained goods .For example, when a customer selects a particular painting/artwork to buy from the seller at the time of formation of the contract, the painting/artwork is an ‘ascertained good’ since the customer contracted to purchase that specific painting/artwork only.
• Unascertained Goods– The goods that are not explicitly identified among similar goods at the time of formation of the contract are unascertained goods. For example, A contracts to buy one sack of rice from B. Here, the subject-matter of the contract, i.e. rice is not identified specifically by the buyer at the time of formation of contract but is under the possession of the seller.
• Future goods– The goods that are not present with the seller or are not under his possession at the time of formation of the contact but promises to produce, manufacture or acquire the same in order to fulfil the contract (4). When the seller has produced/manufactured/ acquired the goods, as agreed upon during the formation of the contract and are suitable to be transferred to the buyer, the goods are said to be in a deliverable state (5), and the buyer is bound to take delivery of the goods, so produced. For example, A contracts to buy a car from B after it is manufactured by B.
• Contingent goods– Section 31 of the Indian Contract Act 1872 defines contingent contract as, ‘a contract to do or not to do something, if some event collateral to such contract, does or does not happen’ which means such contracts which are dependent on some other event or contract. A contingent good in a similar sense means, a good, the acquisition of which by the seller depends upon a contingency which may or may not happen (6). For example, A agrees to deliver a T.V. set to B when he receives the same from the vendor upon fulfilment of his contract with the vendor (between the seller and the vendor).

The central concept of condition and warranty with respect to the subject matter of the contract of sale, i.e. goods is explained in section 12 of the Sale of Goods Act, 1930 as a ‘stipulation’ in the contract of sale which may be a condition or warranty.

Deliverable State

Section 20 and 21 of the Sale of Goods Act 1930 elaborate on the concept of ‘Specific goods in a deliverable state’ and ‘Specific goods to be put into a deliverable state’ respectively

 

‘Deliverable state’ refers to the condition of the goods such that the buyer under the contract is bound to accept the goods delivered to him by the seller according to the contract. ‘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’ (7) whereas for the ascertained goods that are not in their deliverable state at the time of formation of the contract, and the seller needs to do something in order to put the good in a deliverable state, the possession of the good in deliverable state passes to the buyer as soon as he receives the notice of the same.

 

Condition

‘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’.

A condition is referred to as, an essential element attached to the subject matter of an agreement which is mentioned by the buyer to the seller and is either expressed or implied while entering into the contract. The buyer can refuse to accept the goods delivered by the seller, in case of non-compliance with the condition mentioned by the seller in the contract. The condition may be express or implied.

 

If while entering into a contract, the buyer mentions (in words or writing) that the goods are to be delivered to him before a given date, the date is taken as a condition to the contract since the buyer expressed it. Whereas, if a buyer contracts to buy a red-colored saree for her ‘wedding’ which is to be held on a date mentioned to the seller, then the time is the implied condition for the contract. Even if the buyer doesn’t mention the date of delivery (but has mentioned the date of the wedding or occasion), it is implied on the part of the seller that the garment is to be delivered before the mentioned date of the wedding. In this case, the seller is bound to deliver the garment before the date of the wedding as the delivery of the garment after the said date of the wedding is of no use to the buyer and the buyer can refuse to accept the same since the condition to the contract is not fulfilled.

 

Warranty

‘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 to a right to reject the goods and treat the contract as repudiated’9.

A warranty is referred to as extra information given with respect to the desired good or its condition. The warranty is of secondary importance to the contract for its fulfillment. Non-compliance of the seller to the warranty of the contract does not render the contract repudiated and hence, the buyer cannot refuse to buy the good but can only claim compensation from the buyer.

 

 

CONDITION/    WARRANTY

• A condition is of primary importance. A warranty is of secondary importance.
• Breach of condition leads to termination of the contract. In case of a breach of warranty, the injured party is liable to be compensated.
• The injured party can refuse to accept the goods as well as claim damages in case of breach of condition. The Injured party can only claim damages in case of breach of warranty.
• The injured party can refuse to accept goods not fulfilling the condition of the contract. The Injured party cannot refuse to accept the goods not fulfilling the warranty.
• A condition can be treated as a warranty on the wish of the buyer. A warranty cannot be treated as a condition.

Implied Conditions and Warranties under the Sale of Goods Act

Section 14-17 of the Sale of Goods Act, 1930 deal with the implied conditions and warranties attached to the subject matter for the sale of a good which may or may not be mentioned in the contract.

 

Implied Condition

Condition as to Title [Section 14(a)]

Section 14(a) of the Sale of Goods Act 1930 explains the implied condition as to title as ‘in the case of a sale, he has a right to sell the goods and that, in the case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass’.

 

This means that the seller has the right to sell a good only if he is the true owner and holds the title of the goods or is an agent of the title holder. When a good is sold the implied condition for the good is its title, i.e. the ownership of the good. If the seller does not own the title of the said good himself and sells it to the buyer, it is a breach of condition. In such a situation the buyer can return the goods to the seller and claim his money back or refuse to accept the good before delivery or whenever he learns about the false title of the seller.

 

CASE LAW: Rowland v Divall, 192210 – The plaintiff had purchased a car from the defendant and was compelled to return it to the true owner after having used it for a while. The plaintiff then sued the defendant for the purchase money, since the defendant didn’t receive the consideration as per the condition of the title of ownership.

 

Sale by Description (Section 15)

Section 15 of the Sale of Goods Act, 1930 explains that when a buyer intends to buy goods by description, the goods must correspond with the description given by the buyer at the time of formation of the contract, failure in which the buyer can refuse to accept the goods.

Sale by Sample (Section 17)

When the goods are to be supplied on the basis of a sample provided to the seller by the buyer while the formation of a contract the following conditions are implied:

Bulk supplied should correspond with the sample in quality

Buyer shall have a reasonable opportunity to compare the goods with the sample

The good shall be free from any apparent defect on reasonable examination by the buyer.

Sale by sample as well as Description (Section 15);When the sale of goods is by a sample as well as a description the bulk of the goods should correspond with both, i.e. description and sample provided to the seller in the contract and not only sample or description.

 

Condition as to Quality or Fitness (Section 16)

The doctrine of Caveat Emptor is applicable in the case of sale/purchase of goods, which means ‘Buyer Beware’. The maxim means that the buyer must take care of the quality and fitness of the goods he intends to buy and cannot blame the seller for his wrong choice. However, section 16 of the Sale of Goods Act 1930 provides a few conditions which are considered as an implied condition in terms of quality and fitness of the good:

 

When the buyer specifies the purpose for the purchase of the good to the seller, he relied on the sound judgment and expertise of the seller for the purchase there is an implied condition that the goods shall comply with the description of the purpose of purchase.

 

When the goods are bought on a description from a person who sells goods of that description (even if he doesn’t manufacture the good), there is an implied condition that the goods shall correspond with the description. However, in case of an easily observable defect that is missed by the buyer while examining the good is not considered as an implied condition.

 

Implied Warranty

Section 14(b) of the Act mentions ‘an implied warranty that the buyer shall have and enjoy quiet possession of the goods’ which means a buyer is entitled to the quiet possession of the goods purchased as an implied warranty which means the buyer after receiving the title of ownership from the true owner should not be disturbed either by the seller or any other person claiming superior title of the goods. In such a case, the buyer is entitled to claim compensation and damages from the seller as a breach of implied warranty.Goods are free from any charge or encumbrance in favour of any third party [Section 14(c)]

Any charge or encumbrance pending in favour of the third party which was not declared to the buyer while entering into a contract shall be considered as a breach of warranty, and the buyer is be entitled to compensation and claim damages from the seller for the same.

 

Conclusion

The provision of implied conditions and warranties are provided in the Sale of Goods Act in order to protect the buyers in case of any fraud by the seller. However, it is seller’s duty in the first place to look for the obvious defects and enquire about the quality of the product before entering into a contract of sale of goods since a seller cannot be held guilty for a customer’s wrong choice.

In order to ensure purchase of an appropriate good by the seller, it is suggested that the buyer conveys the purpose and gives a reasonable description of the goods so desired

 

Ownership

The idea of ownership follows the idea of possession.

• The ownership is the de jure recognition of the right over the property.
• Ownership is the subjective and objective. It signifies the externally and internally.
• The right of alienation is an essential characteristic feature of ownership.
• The concept of ownership is used in widest meaning. The owner has the right to consume, destroy and alienate with his free will.
• The residuary power is vested in the owner.
• Ownership is the guarantee of the law.
• Ownership without possession is right, unaccompanied by that environment of fact in which it normally realizes itself.
• Ownership strives to realize itself in possession.
• The ownership is left to seek “proprietary remedies”.
• The law of prescription determines the process by which, through the influence of time, ownership without possession withers away and dies.
• Transfer: the ownership generally can be transferred by the way of convincing and registration in case of immovable properties and by way of delivery in case of movable properties.

A right in rem can be owned and possessed. But a right in personam can only be owned.

“Ownership is a matter of multiple rights”. Salmond says: “Whereas ownership is strictly a legal concept…..

 

Possession

• First the idea of possession came into existence in the human civilization.
• Possession is the de facto exercise of a claim over the property.
• Possession is the objective realization of ownership. It is the external significance of ownership.
• This right is not seen in possession.
• The concept of possession is narrower in this sense. The possession has limited rights to consume, destroy and alienate.
• The residuary power is not given to possessor.
• Possession is the guarantee of the facts.
• Possession without ownership is the body of fact, uniformed by the spirit of right which usually accompanies it.
• Possession to Endeavour’s to justify itself as ownership.
• The possessor is left with “possessory remedies”.

The law of prescription determines the process by which, through the influence of time, possession without title ripens into ownership. Transfer: the possession, comparatively, can easily be transferred. It does not require convincing. A right in personam can only be owned, and it cannot be possessed. “Whereas possession in singular, but stronger”. “Possession is both a legal and a non-legal or pre-legal concept”.

 

Difference between Transfer of Property and Possession

 

Sr. No.	Ownership	Possession
1.	Ownership is an absolute authority over the property.	Possession is physical control over the property.
2.	It holds unlimited and uncontrolled rights over the property.	It is a limited concept of right.
3.	It is a union of ownership and possession	It is a single concept giving no right of ownership.
4.	Ownership right is a wider concept.	Possession is a right of consumption only.
5.	It is a perfectly legal right. It shows legal situation.	It is a possessory right only. It shows real position.
6.	Transfer of ownership is not an easy process, but it needs legal or formal procedures, prerequisites of registration.	Possession is a comparatively easy process and practically no need to register and such formalities like ownership.
7.	It has no technical obstructions to transfer.	It faces the technical obstacles for transfer.
8.	Ownership cannot be carried out practical use in the absence of possession.	Possession may be a ground for the ownership as well.
9.	It consists the bundle of rights and all the rights are right in rem.	It is prima facie a proof or evidence of ownership.
10.	It is a guarantee by the law.	It is a physical control over it.

 

NEXT TOPIC

 

Right of Unpaid seller:

 

Who is unpaid seller?

He is the seller to whom:-

 

1. Whole of the price is not paid

 

2. Conditional payment

 

Bill of exchange/ promissory note/ cheque has been received by seller but it dishonours. Till the time bill of exchange/ promissory note/ cheque is with the seller so, till that time he is only called as seller but when any of the mentioned instruments dishonours then after this seller is called unpaid seller.

 

Features of an unpaid seller

 

1. Seller must sell the goods on cash basis and must be unpaid (in cash transactions payment becomes due instantly)

 

2. Seller must be unpaid either wholly or party

 

3. The decided period has expired and the price has not been paid to seller

 

4. Seller must not refuse to accept the payment

 

5. Where the price paid through negotiable instrument (bill of exchange/ promissory note/ cheque) and the same has been dishonored

 

Example: A sells his bike to B for Rs. 60,000 and receives a cheque for the price. Till this time seller will only be called as seller. But when subsequently, the cheque is dishonored due to insufficiency of funds in B’s bank account, then only A becomes an unpaid seller.

 

Right (Remedies) of Unpaid Seller

(The unpaid seller has the rights/ remedies against goods and buyer both)

Rights of unpaid seller against goods                Rights of unpaid

                                                                             Seller against buyer

 

1. Right of possession/ lien Suit for price

 

2. Right of stoppage of goods in transit Suit for interest and special damages

 

3. Right of resale

 

4. Suit for damages for non- acceptance

 

5. Suit for breach of contract

 

 

Rights of unpaid seller against goods

1.Right of possession/ lien

If the buyer fails to pay the price within the decided time, then unpaid seller has the right to keep the goods in his possession and he can refuse to deliver the goods until the due payment is paid.

 

When right of possession can be exercised:-

 

à When goods are sold on cash basis, but payment is unpaid

 

à When goods have been sold on credit basis and the term of credit has expired

 

à When the buyer becomes insolvent even within the decided period for payment

 

à So, far as the goods are in the possession of unpaid seller, he can exercise this right. If goods are lost/ given up then right of possession/ lien is also lost/ given up

 

Termination of Right of Possession

 

à By delivery of goods to the buyer/ his agent

 

à By delivery of goods to the carrier/ courier company

 

à By waiver

 

This means that it’s specifically mentioned in the contract that seller can’t retain the possession of the goods even if the price has not been paid

 

à When buyer has obtained the possession of goods lawfully

 

Right of stoppage of goods in transit

 

If a buyer fails to pay the price within the decided time, then unpaid seller has the right to stop the goods in transit.

 

Conditions for stoppage of goods:-

 

à When seller is unpaid either wholly or partially

 

à When the buyer becomes insolvent

 

à Goods must be in the course of transit- This means that goods must not be in the possession of the seller and have not reached the buyer’s possession as well

 

Termination of Transit

 

à By delivery to the buyer/ his agent

 

à Interception by the buyer (Interception means the act of catching/ receiving)

 

When buyer or his agent obtains the delivery of the goods before their arrival at the appointed destination hence, the transit comes to an end

 

à Acknowledgement to the buyer by the carrier/ courier company that they are holding the goods on buyer’s behalf, then also transit comes to an end

 

à Part delivery of goods

 

If part of the goods are delivered to the buyer then the transit comes to an end for the remainder of the goods as well

Right of resale

 

The unpaid seller has the right to resell the goods.

 

Conditions for resale:

 

à When goods are of perishable nature- Then unpaid seller can resell them immediately without the notice to the buyer. But in case of non-perishable items unpaid seller needs to send notice to the buyer for reselling them

 

à Where unpaid seller gives the notice to buyer and buyer still don’t pay for it

 

à Where the right of resale is reserved/ mentioned in the contract If contract clearly specifies that reselling can’t be done or vice versa

à Buyer becomes insolvent

 

à Buyer fails to pay the price of the goods

Rights of unpaid seller against buyer

 

1. Suit for price

 

2. Suit for interest and special damages

 

Here, suit can be filed for interest and special damages.

 

Where, interest will be paid on the amount of the deal between seller and buyer on the choice/ discretion of the court.

 

3. Suit for damages for non-acceptance

 

Suit can be filed against the buyer if the buyer wrongfully refuses to accept the goods.

4. Suit for breach of contract

 

 

Rights (Remedies) of Buyer against Seller

 

1. Suit for damages for non-delivery
2. Suit for interest and special damages 3.Suit for specific performance
3. Suit for breach