The Sales of Goods Act, 1930

History of the Act

• Sale Act was originally a part of the Contract act Ss. 76 – 123 of the Indian contract act, 1872.

• Sales of Goods Act, 1930 based on the English Sale of Goods Act, 1893

• Sale of Goods Act, 1930 still part of the Indian contract Act, 1872 repealing Ss. 76 – 123 of the Indian contract Act, 1872 retaining principles of contract Offer, Acceptance. Consideration, Capacity of contract, free consent, legality of consideration & object.

Definitions

1. Buyer S. 2 (1) – “ A person who buys or agree to buy.”

2. Seller S. 2 (13) – “ A person who sells or agree to sell.”• Buyer & Seller complementary to each other parties to

contract.• Buyer is person who buys or agrees to buy.• Seller is person who sell or agrees to sell.

3. Delivery S. 2 (2) – “ voluntary transfer of possession from one person to another.”

• Delivery transfer of possession & not ownership.

Definitions

4. Documents of Titles of Goods S. 2(4) – “ A Document of title to goods’ includes a bill of lading, dock warrant, warehouse-keeper’s certificate, Wharfingers certificate, railway receipts, warrant or order for the delivery of goods and any other document which is used in the ordinary course of business as proof of the possession or control of goods, or authorising or purporting (i.e., having its meaning) to authorise, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented.”

Definitions

5. Goods S. 2 (7) – “Every kind of movable property other than actionable claims and money; and includes stocks and shares, growing crops, grass and things attached to or forming part of the land which are agreed to be served before sale or under the contract of sale.” Goods Include movable property, stock & shares, growing

crops, grass, trees, goodwill, patent, trademarks, ship, water, electricity etc & any thing attached to land or part of land (served form earth) removed within reasonable period of time.

Goods exclude actionable claims (claims enforceable in court), Money (legal tender & not old coins or foreign currency).

Definitions

Classification of goods Existing, future, Contingent.

1. Existing Goods existing at the time of the contract.a) Specific Goods goods identified & agreed by the parties.

b) Ascertained Goods (similar to Specific goods) goods identified after the formation of the contract.

c) Unascertained Goods goods not specifically identified by parties.

2. Future goods not existing at the time of the contract manufactured or produced after entering into the contract its only an agreement to sell.

3. Contingent goods acquisition by the seller depends on contingency type of future goods.

Definitions

6. Price S. 2(10) – “Price means the money consideration for a sale of goods.”

7. Property S. 2 (11) – “the general property in the goods, and not merely a special property.” Property ownership of goods & not interest in goods.

Formation of a contract of sale

• Contract of sale S. 4 (1) Sale – “A contract of sale 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.”

Essential of a contract of sale

1. Number of parties minimum two parties (buyer & seller) transfer of ownership.

law recognises some exceptions partner may buy from a firm & sell it to his partnership firm (firm can do the same), agent can purchase his own goods from principal, one part owner purchasing from other part owner.

Formation of a contract of sale

2. Goods subject matter of the contract.

3. Transfer of property buyer to seller transfer of ownership (transfer of possession not requisite).

4. Price price may be paid or promise to pay exchange of money (partly or fully) any thing other then money (no sales).

5. Absolute (without condition) or Conditional for transfer of property.

6. Form no particular form for sale can be expressed or implied S. 5 (2) states – “a contract of sale may be made in writing or by word of mouth, or partly in writing and partly by word of mouth or may be implied from the conduct of the parties.”

7. Essential of a contract fulfil all the conditions of a contract.

Sale

1. Transfer of ownership takes place immediately

2. Executed contract or Executory contract executed contract

3. Conveyance of property buyer gets the right to enjoy goods against the whole world.

4. Transfer of risk takes place immediately and buyer have to bear the loss even goods are in possession of seller

5. Rights of seller against the buyer’s breach seller can sue the buyer even goods are in his possession

Sale

6. Rights of buyer against the seller’s breach buyer can sue the seller for damages & third party who brought those goods.

7. Effect of insolvency of seller having possession of goods buyer can claim the goods from the official receiver or assignee due to ownership transfer.

8. Effect of insolvency of the buyer before paying the price seller must deliver the goods due to ownership transfer & can claim for rateable divided for unpaid price

9. Right in Rem / Personam it is a right in rem

Agreement to sell

1. Definition S. 4 (3) states – “where under a contract of sale 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.”

S. 4 (4) “An agreement to sell becomes sale when the time lapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.

Agreement to sell

1. Transfer of ownership takes place at future time or subject to fulfillment of some condition.

2. Executed contract or Executory contract executory contract something remains to be done

3. Conveyance of property buyer does not get the rights

4. Transfer of risk transfer of ownership & risk does not takes place risk of loss is born by the seller even if the goods are in the possession of buyer

5. Rights of seller against the buyer’s breach seller can sue the buyer for damages even though goods are in the possession of the buyer.

6. Rights of buyer against the seller’s breach buyer can sue the seller for damages only

7. Effect of insolvency of seller having possession of goods buyer cannot the goods even paid for it & can claim rateable dividend for the paid price

8. Effect of insolvency of the buyer before paying the price seller can refuse the delivery of goods unless full price is paid

9. Right in Rem / Personam it creates a right in personam.

Hire Purchase Agreement

• Hire purchase S. 2 (c) of the Hire Purchase Act, 1972 states – “Hire purchase agreement means an agreement under which goods are let on hire and the hirer has an option to purchase them in accordance with terms of agreement, and includes an agreement under which:

i. Possession of goods is delivered by the owner thereof to another person on condition that such person pays the greed amount in periodical installments, and

ii. The ‘property’ (i.e. ownership) in the goods is to pass to such another person on the payment of the last of such installments, and

iii. Such another person has a right to terminate the agreement at any time before the property so passes.”

Hire Purchase Agreement

1. How made must be writing

2. Transfer of ownership ownership transferred from seller to hirer when all the agreed number of installments are paid.

3. Option to return hirer can terminate the agreement any time cannot be compelled by the seller to buy the goods or pay the remaining installments.

4. Appointment of installment when hired (hired charges) & when purchase ( part payment).

5. Governing Act Hire Purchase Act, 1972.

6. Sales tax not applicable until it becomes sale.

Contract for Work and Labour’

• ‘Contract for work & labour’ or ‘contract for work and materials’ or ‘contract for work and skill’

• Contract for work & labour exercise of skills is primary & delivery of goods is secondary.

• Generally party who wants the work to be done provides material & pay price for labour

• Sometimes the party who exercise skill and labour provides the goods or material.

Effects of Destruction of Goods

1. Goods perishing before making the contract

under S. 7 of Sale of Goods Act contract of sales becomes void if goods gets damaged or perises & are nowhere near the description of goods as per the contract seller not having knowledge about it.

sales contract is void if –i. It must be contract for sale of specific goods.

ii. The goods have perished before making the contract

iii. Seller not aware of perishing or damage.

Effects of Destruction of Goods

2. Goods perishing before sale but after agreement to sell –

S. 8 of Sale of Goods Act, contract to sales becomes void for goods perishing before sale but after agreement to sell under following conditions –

i. Contract of sale must be an agreement of sale & not actual sale’

ii. Agreement to sell must be for some specific goods.

iii. Goods must perish or damaged before ‘agreement of sell’ becomes ‘sale’ i.e. before transfer of ownership to the buyer.

iv. Goods perished or damaged without wrongful act or default on the part of the seller or buyer both are not responsible.

Modes of Ascertainment of Price

• Price consideration for a contract of sale of goods• Prices be fixed by –

1. By the terms of contract

2. Fixed by manner agreed.

3. Determined by the parties during the course of the dealing

4. Reasonable price

5. By valuation of a third party

i. If third party does not fix price contract becomes void.

ii. If before fixing price part delivery done reasonable price will have to be paid.

iii. If one party prevents third party from fixing prices then innocent party file a suit for damages.

Conditions & Warranties

Introduction :-

• Buyer & seller make representations or statements (may or may not form part of contract) if part of contract then is called ‘stipulations’

• Stipulations all are not equally important.• Stipulations very crucial for the contract (primary)

‘condition’• Stipulations which are secondary or lesser important

‘Warranty’.

Conditions

• S. 12 (2) Condition – “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.

• If the above stipulation not true (condition) buyer can terminate the contract & claim for refund or damages.

• Stipulation is essential or important• Treatment breach of condition may be treated as breach of

warranty.

Types of conditions• Conditions may be Expressed or Implied.• Expressed condition specifically spelt by contracting parties.• Implied condition presumed to be implied by law in the contract of

sale unless specifically excluded.• In case of conflict expressed conditions shall prevail.

Types of conditions

Types of implied conditions

1. Condition as to Title transfer of ownership in sale & agreement to sell (time property should be passed) buyer can reject if failed to do so.

2. Condition as to description goods should correspond to descriptions if not buyer can reject. Buyer has not seen the goods buyers buy the description by seller. Buyer has seen the goods buyers buy the description by seller.

1. Condition as to sample Goods supplied similar to the sample Buyer is given reasonable opportunity to compare the sample & the

goods supplied Goods delivered shall be free from defects (seen & unseen)

which can render goods un-merchantable

Types of conditions

4. Condition as to sample & description must correspond as per sample or description failing buyer can reject the goods.

5. Condition as to quality or fitness for buyer’s purpose no implied condition under the contract of sale applies “Caveat Emptor” (buyer beware)

Exceptions – Goods order for specific purpose & purpose known to the seller Buyer relies on sellers skills & judgment Goods are purchase under trade name Goods purchased on description (from the dealer dealing in it )

assuming merchantable quality

Types of conditions

6. Condition as to merchantable quality not defined by the act Goods buyed for consumption then goods reasonable fit for

the purpose or use Goods bought for resale commercial salable as per the

description in the market for full value.

6. Condition as to wholesomeness part of merchantable fir for human consumption.

7. Condition as to trade usage in quality or fitness for particular purpose plus usage of trade printing manufacturing & expiry date for medicines.

Warranties

• Warranties secondary stipulation to the contract• S. 12 (3) warranties – “A stipulation collateral to the purpose of the

contract, the breach of which gives rise to a claim for damages but not a right to reject the goods and treat the contract as repudiated.”

• Breach of warranty buyer can claim only damages but cannot reject the goods.

Types of Warranty Warranties can be expressed or implied. Expressed warranties stipulation specifically laid down by the

contracting parties. Implied warranties implied or presumed to implied by law

unless expressly excluded by the contracting parties.

Warranties

Implied warranties

1. Quite and undisturbed possession right of the buyer if buyers enjoyment is disturbed on account of seller’s defective title buyer can sue the seller.

2. Freedom from encumbrance or charge by the third party on the goods purchased if buyers possession is disturbed on account of any charge buyer can sue the seller.

3. To disclose dangerous nature of goods selling knowing that the goods are inherently dangerous or likely to be then seller should warn the buyer failing to do so he will be liable.

4. Warranty annexed by trade usage similar to implied condition.

How to determine weather a stipulation is a condition or warranty ?

• S. 12 (4) states – “A stipulation in a contract of sale is a condition or warranty depends on the construction of the contract. A stipulation may be a condition thought called a warranty in the contract.”

• Sometimes warranty is treated as condition (primary).• Stipulation is collateral (not that essential or

important)• Treatment breach of warranty cannot be treated as

breach of condition.

Circumstances under which a condition may be treated as a warranty

• Sometimes conditions can be changed to warranty breach of which can be treated as breach of warranty buyer can claim the damages but cannot terminate the contract.

• Breach of such warranty may be “Voluntary” or “Involuntary circumstances”

A. Voluntary circumstances buyer has the right to treat breach of condition as breach of warranty if done so buyer cannot change his mind or repudiate the contract.

1. Waiver of a condition Voluntary relinquish the condition & not reject the goods can claim damages.

2. Option to treat the breach of a condition as breach of warranty can claim damages.

Circumstances under which a condition may be treated as a warranty

B. Involuntary Circumstances buyer has to treat compulsorily breach of condition as breach of warranty.

1. In case of specific goods property if passed on to the buyer (ownership).

2. Contract not severable and acceptance of goods whole or part partly consumed (goods not as per specification).

Stipulations as to time

• S. 11 states – time is a material factor of the contract or not dependent on the nature of the contract.

• Stipulation of time generally not deemed to be essence of the contract unless specifically stated (if so failure leads to end of the contract) stipulated time of delivery.

Caveat Emptor

• Caveat emptor “buyer beware” “the person buying goods, must keep his eyes open, his mind active and conscious while buying the goods.”

• S. 16 states “subject to the provisions of this act and of the other law for the time being in force, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale.”

• This doctrine lost its importance by creating exceptions.

Definition of an unpaid seller

• S. 45 Unpaid seller – “One who has paid or tendered the whole of the price or one who receives a bill of exchange or other negotiable instrument as conditional payment and the condition on which it was received has not been fulfilled by reason of the dishonor of the instrument or otherwise.”

• For unpaid full or part payment for goods then seller can said to be unpaid.

• Expenses other then the price unpaid then seller cannot be said unpaid.

Rights of an unpaid seller

.Right of an unpaid Seller

Against goods Against the buyer

Where the property in goods has passed to the buyer

Where the property in goods has not passed to the buyer

Right of lien

Right of Stoppage in

transit

Right of Resale

With holding delivery of goods

Other remedies

Suit for price Suit for Damages Suit for Interest

Rights of an unpaid seller

I. Against goods

A. Where property in goods has passed to the buyer Seller has transferred the ownership to the buyer.

1. Right to lien (right to retain) possession of goods until full price is paid or tendered.

When can rights to lien be exercised ?i. Goods sold without stipulation of credit.

ii. Good sold on credit credit term of payment has expired.

iii. Buyer becomes insolvent

iv. Seller holds the goods as agent or bailee.

v. Partly delivered goods (unless circumstances show seller has waived his right).

Rights of an unpaid seller

Termination of lieni. Seller deliver the goods to the carrier or bailee without reserving the right

of deposal.

ii. When buyer or his agent acquire possession of goods lawfully.

iii. Seller waivers the right of lien.

iv. Buyer dispose off the goods by sale or other manner with the consent of the seller.

2. Right of stoppage of goods in transit to regain the possession of the goods & retain until price is paid.

Goods should bee in the possession of someone intervening between the seller & buyer.

Rights of an unpaid seller

When can the right to stoppage of goods in transit be exercised ?i. Seller has parted with the possession of goods.

ii. Buyer has taken possession of the goods.

iii. Buyer has become insolvent.

Buyer is considered insolvent (declaration of court not necessary) when he cease to pay debts in normal course of business or when he cannot pay even if the payment is due.

How is stoppage of transit exercised ? By taking actual possession of goods. By giving notice of claim to carrier or bailee having possession of the

goods.

Rights of an unpaid seller

When is right of stoppage in transit lost? Buyer or his agent obtains possession. Carrier or bailee acknowledges (after reaching the appointed

destination) to the buyer that he holds goods on the his (buyers) behalf.

Carrier or bailee wrongly refuses to deliver the goods to buyer or his agent.

In case of part delivered goods remaining goods can be stopped. Transit comes to an end during part delivery circumstances

indicates sellers agreement to give up whole possession of the goods.

Right to resale

• Unpaid seller exercise ‘right to lien’ or ‘right to stoppage of in transit’ he can resale the goods (by resuming possession of goods).

i. Goods are of perishable nature notice not required buyer responsible for the losses profit on resale can be retained by the seller.

ii. Seller has give notice of intention for resale to the buyer still the payment remains unpaid seller loses his right to losses & profits on resale cannot be retained.

iii. Seller can resale the goods in case buyer defaults in payment for goods notice not required buyer responsible for the losses profit on resale can be retained by the seller.

Rights of an unpaid seller

B. Where the property in the goods has not passed to the buyer unpaid seller can exercise right to with hold delivery of the goods.

Other remedies Right to claim for the damages suffered, special damages etc.

II. Right of an unpaid against the buyer personally

1. Suite for price goods transferred to buyer & price not paid by him as per the terms of the contract.

2. Suite for damages when buyer wrongfully refuses to accept the goods or repudiates the contract.

3. Suite for interest buyer breaches the contract seller can file a suite for price & can claim for interest from the date of tender of goods or from the date the price becomes payable.

Delivery of Goods

• Delivery of goods voluntary transfer of possession from one person to another simultaneously (unless parties agree otherwise) seller cannot demand price in advance (unless stipulated),

• S. 33 defines Delivery as “Delivery of goods sold may by doing anything which the parties agree shall be treated as delivery or which has the effect of putting the goods in the possession of the buyer or of any person authorized to hold them on his behalf.”

• Delivery may be actual, symbolic or constructive.• Effect of part delivery

S. 34 states “A delivery of part of goods, in progress of the delivery of the whole, has the same effect, for the purpose of passing the property in such goods, as a delivery of the whole, but a delivery of part of the goods, with an intention of serving it form the whole, does no operate as a delivery of the remainder.”

Delivery of part can be considered as delivery of whole (not always).

Rules of Delivery

• S. 36 states “Whether it is for the buyer to take possession of the goods or for the seller to send them to the buyer us a question depending in each case on the contract, express or implied, between the parties. Apart from any such contract, goods sold are to be delivered at the place at which they are at the time of the sale, and goods agreed to be sold are to be delivered at the place at which they are at the time agreement to sell, or, if not then in existence. At the place at which they are manufactured or produced.”

1. Place of Delivery In absence of specification in contract place of sale Agreement to sell goods not in existence the place at which they are at that

time. Agreement to sell goods not in existence place of manufactured or

produced.

1. Time of delivery time important (depending up on the nature of the contract) not time specified then reasonable time to be considered.

Rules of Delivery

3. Delivery by attornment acknowledgment by the third party to the buyer about possession of goods on his behalf.

4. Time for tender of delivery reasonable for buyer to demand & seller to tender.

5. Expenses of delivery unless agreed expenses incidental to putting the goods in to a deliverable state shall be born by the seller.

Rules regarding wrong Quantity

1. Short quality less then contracted buyer have option to accept or reject short quantity.

2. Excess quantity buyer can ‘accept the contracted quantity & reject the excess’ or ‘reject the whole’ he is not bound to do accept or reject the excess.

3. Delivery of mixed goods (not contracted different description) buyer can accept goods specified by contract & reject the others’ or ‘reject the whole’

Rules of Delivery

4. Installment Deliveries unless agreed buyer not bound to accept goods in installments.

5. Delivery to Carrier or Wharfinger Delivery to carrier by the seller it operates as delivery to the

buyer. Place of delivery specified delivery to the carrier does not

amount to the delivery to the buyer.

Cost, Insurance & Freight (C.I.F) contract

• Such contract are used for sea born commerce.• Seller is bound to the following act

1. To make invoice of the goods sold.

2. Seller bares shipment charges.

3. Seller requires to take insurance as per the terms of current in trade for the benefit of the buyer.

4. To procure a ‘contract of Affreightment’ for delivery of goods at the destination as specified in the contract.

5. Dispatching the seller without reasonable delay Invoice, Bill of lading, policy of insurance and other usual documents I

If seller fails it would amount breach of contract on the part of the seller Buyer refuses to take possession of goods without valid reason

breach of contract on the part of the buyer. In CIF contracts property passes when buyer receives the document

paying the price or arrival of goods or examination of the goods is immaterial.

Free on Board (F.O.B) contract

• Free on Board seller bars the expenses for loading the goods on the ship.

• Buyer’s risk as soon as the goods are loaded becomes responsible for payment of freight (shipment charges), insurance & other expenses presented even if the goods are lost by that time.

Auction Sale

• Auction sale public sale intending buyer come together at a particular place & quote the price at which they are willing to buy.

• Price offered called bid.• Person offering the price called the Bidder.• Goods are sold to the highest bidder.• Auction can be conducted by the seller (principal) or through

Auctioneer (agent for seller & agent for seller & buyer after sale).• Advertisement of action sale invitation to public to make offer.• Intending buyer cannot sue the auctioneer if he cancels or

postpones the auction to sale.

Rule regarding Sale by Auction (Section 64)

1. Goods sold in lot each lot is prima facie subject to a separate contract.

2. Contract of sale is completed when auctioneer announces its completion by fall of hammer or by other customary mode.

3. Bidder can withdraw bid before announcement of completion of sale.

4. Seller of any one on behalf of seller cannot bid unless expressly reserved right to bid agreement not to bid against each other “Knock-Out agreement valid agreement

5. Seller have right to ‘Reserve price’ or ‘upset price’ (price below which auctioneer will not sell).

Rule regarding Sale by Auction (Section 64)

6. Seller have right to make auction subject condition right to sell not at highest bid or any bid without giving any reason for his decision.

7. Fall of hammer or any customary manner bringing contract of sale creates a relationship of Promisor & Promisee under section 20 of the Act.

8. Implied warranties in an auction to sale Auctioneer authority to sell. Auctioneer warrants that he is unaware of any defect in

seller’s title & assure quite & peaceful possession of goods.