Sale of goods act

SALE OF GOODS ACT

The sale of goods is the most common of all the commercial contracts. The law relating to it is contained in the sale of goods Act, 1930. Prior to this Act, the law of sale of goods was contained in chapter VII of the Indian Contract Act, 1872

Contracts for the sale of goods are subject to the general legal principles applicable to all contracts, such as offer & acceptance, the capacity of the parties, free & real consent, consideration, and legality of the object. The general provision of the Indian Contract Act Continue to apply to contracts for the sale of goods in so far as they are not inconsistent with the express provision of the Sale of Goods Act (Sec.3)

CONTRACT OF SALE OF GOODS

• Sale and Agreement to sell : Where under a contract of sale, the property in the goods is transferred from the seller to the buyer, the contract is called ‘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 sale’[Sec.4 (3)]. An agreement to sell becomes a sale when the time elapses or the conditions, subject to which the property in the goods is to be transferred are fulfilled [sec.4 (4)].

Essentials of a contract of sale. Two Parties. There must be two distinct parties. i.e., a buyer and

seller, to effect 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)]

Example: A partnership firm was dissolved and the surplus assets, including the stock in trade, were divided among the partner, in specie (in the same form). Held, it was not a sale as the partners themselves were the joint owners of the goods and they could not be both sellers and buyers [State of Gujarat v.Raman Lal& co., A.I.R. (1965) Guj.60]

• 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 from the subject-matter of the contract of sale must be movable. Transfer of immovable property is not regulated by the Sale of Goods Act.

• Example: A hotel company provided residence and food making a consolidated charged for both the services. No rebate was allowed if food was not taken by the customers. Held, supply of food was not sale of goods but simply a service as the transaction was an indivisible contract of multiple services and did not involve any sale of food [Associated Hotels of India v. Excise & Taxation Officer, A.I.R.(1996) Punj.449].It was observed in the case that the “position is akin to that of a steamship or airline company which serves food to passengers”

• Price: the consideration for the contract of sale, called price, must be money. When goods are exchanged for goods, it is not a Sale but a ‘Barter’. There is, however, nothing to prevent the consideration from being partly in money and partly in goods

• Example: A agreed to exchange with B 100 quarters of barley At Rs. 2 per quarter for 52 bullocks valued at Rs. 6 per bullock and difference in cash. Held, the contract was a contract of sale [Aldridge v. Johnson,(1857) 7E. & B.385].

Transfer of general property.

There must be a transfer of general property as distinguished from special property in goods from the seller to the buyer. If A own 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 the essential elements of a valid contract must be

present in the contract of sale

Contract of sale how made

No particular form is necessary to constitute a contract of sale. It is, like any other contract, made by the ordinary method of offer (to buy or sell goods) by one party and its acceptance ( to sell or buy goods respectively) by the other party. It may also implied from the conduct of the parties.[Sec.5(2)] or from the course of dealing between the parties

Point of Distinction

Sale Agreement to sell

Transfer of ownership Transfer of ownership of goods take place immediately at the time of making the contract.

Transfer of ownership take place at a future time or subject to fulfillment of certain conditions.

Type of contract Executed contract Executory contract

Nature of Right JUS IN REM JUS IN PERSONAM

Distinction between Sale and Agreement to Sell


Sale Agreement to sell

Risk of loss Risk of loss or damage of goods is transferred to the buyer immediately

Risk of loss or damage of goods is not transferred to the buyer immediately as ownership has not transferred

Right of seller against buyer’s breach

Seller can sue the buyer for the price of goods even though the goods are in his possession

Seller can sue the buyer for the damages only

Right of buyer against seller breach

Buyer can sue the seller for damages and also the third party who bought the goods

Buyer can sue the seller for the damages only

Meaning of hire-purchase Agreement:Hire purchase agreement means an agreement under which goods are let on hire and under which the hirer has an option to purchase them in accordance with the terms of the agreement and includes the agreement under which:

• Possession of goods is delivered by the owner thereof to a person on a condition that such person pays the agreed amount in periodical installments

• The property in the goods is to pass to such person on the payment of the last installment; and

• such a person has a right to terminate the agreement at anytime before property so passes

• Until the final payment, the hirer is merely a bailee of the goods and ownership remains vested in the bailor

Distinction between sale and Hire Purchase agreement


Sale Hire Purchase Agreement

Regulating Law All contracts of sale are governed by Sale of Goods Act, 1930

The Hire Purchase Agreements are governed by Hire Purchase Act, 1972

Nature of Contract

It is a contract of Sale

It is an agreement of hiring and hence an agreement to sell



Possession of goods

Possession of goods need not necessarily be transferred immediately

Possession of goods is necessarily transferred immediately

Transfer of ownership of goods

Ownership of goods is transferred immediately

Ownership of goods is transferred on the payment of the last instalment when the option to purchase is exercised.



Right to terminate

The buyer has no right to terminate the contract of sale

The hirer has a right to terminate the agreement at anytime before the ownership is transferred.

Right to repossess the goods.

The seller has no right to repossess the goods. He can sue for the price

The hire- vendor has a right to repossess the goods if the hirer defaults.



Transfer of good title to third party

The buyer can transfer a good title to third party because ownership of goods has been transferred

The hirer cannot transfer a good title to third party because ownership of goods has not been transferred

Compulsion as to be in writing

A contract of sale need not necessarily be in writing

The hire purchase agreement must be in writing

Treatment of payment made by installment

The payment made by the buyer is treated as payment towards the price of goods

The payment made by the hire purchaser s treated as hire charges for the use of goods till the option to purchase the goods is exercised

Goods (Section 2(7))“Goods” means every kind of movable property other than actionable claims and money, and includes the following•Stocks and shares•Growing crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.

It Includes It Excludes

Stock and shares Actionable claims

Growing crops Money

Grass and things attached to or forming part of the land, which are agreed to be severed before sale or under the contract of sale.

Immovable property

• Example of Goods:Old rare coins, stock, share, debenture, goodwill, patents, trademarks, copyright, water, gas, electricity, grass, growing crops, tree to be cut and their log wood delivered etc.

• Things excluded from the term ‘goods’:The term ‘goods’ does not include the following :

a) Actionable claims means claims, which can be enforced only by an action or suit. For instance, a debt due to a man from another s an actionable claim and hence cannot be sold as goods.

b) Money, which means the legal tender or current money and not the old rare coins .

c) Immovable property.

Types of Goods

Goods

Existing Goods Future Goods Contingent Goods

Unascertained GoodsSpecific Goods Ascertained Goods

Existing GoodsExisting Goods means the Goods which are either owned or possessed by the seller at the time of contract of sale. The existing Goods may be specific or ascertained or unascertained

• Specific Goods: These goods the which are identified and agreed upon at the time when a contract of sale is made. Example: A specified T.V., V .C.R., Car and Ring.

• Ascertained Goods: Goods are said to be ascertained when out of a mass of unascertained goods, the quantity extracted for is identified and set aside for a given contract. Thus, when part of the goods lying in bulk are identified and marked for sale, such goods are termed as ascertained goods.

• Unascertained Goods: These are the goods which are not identified and agreed upon at the time when a contract of sale is made. Example: Goods in stocks or lying in lots.

Future GoodsFuture goods means goods to be manufactured or produced or acquired by the seller after the making of the contract of sale. There can be an agreement to sell only. There can be no sale respect of future goods because one cannot sell what he does not possess.Example:X agrees to sell to Y all the crops to be grown at his farm in Haryana during the year 2013 season for a sum of Rs.1,00,000/-. This is an agreement to sell future goods and not a sale.

Contingent GoodsThese are the goods the acquisition of which by the seller depends upon a contingency which may or may not happen.Example:X agrees to sell to Y all crops to be grown at Z’s farm in Haryana during the year 2013 to X. This is an agreement to sell contingent goods because the availability of crops depends on its sale by Z.

Effect of Perishing of Goods

Goods perishing before making a contract: Where in a contract of sale of specified goods, the goods, without the knowledge of the seller, have, at the time of making the contract, perished or destroyed or become so damaged as no longer to answer to their description in the contract, the contract is void.

Goods perishing after the contract is made: Where there is an agreement to sell specific goods and subsequently the goods, without any fault of either party, perish or are so damaged as no longer to answer to their description in the agreement before the risk passes to buyer the agreement becomes void.

Document of title to goods and document showing Title to GoodsThe expression ‘document of title to goods’ has been explained under Section 2(4) of Sale of Goods Act, 1930. According to this, a document of title is any written document that is treated in the regular course of business as adequate evidence that the person in possession of document is entitled to receive, hold and dispose of the document and a right to transfer or receive goods thereby represented. Bill of lading, railway receipts, warehouse receipts are type of document of title of goods.

It may be noted that there is difference between a ‘document of title’ and ‘document showing title’ . For instance, a share certificate is a ‘ document showing title’ as it merely shows that the person named in the share certificate is entitled to the share represented by it, but it does not allow that person to transfer the share mentioned therein by mere endorsement on the back of the certificate and the delivery of the certificate.

• Price: No sale can take place without a price. Thus, if there is no

valuable consideration to support a voluntary surrender of goods by the real owner to another person, the transaction is a gift and hence not governed by the Sale of Goods Act. Therefore, price, which is money consideration for the sale of goods, constitutesthe essence for contract of sale.

The price may be:

1. At the time of contract, fixed by the parties themselves; or2. Left to be determined by the course of dealings between

parties; or3. Left to be fixed in some way stipulated in the contract; or 4. Left to be fixed by some third party.

Where the contract states that the price is to be fixed by a third party and he fails to do so, the contract is void. Where nothing is said by the parties regarding price, the buyer must pay a reasonable price, and the market price would be a reasonable price.

PASSING OF

PROPERTY

• Meaning of passing of property: The sole purpose of the contract of sale is the transfer of ownership of

goods from the seller to the buyer. Thus it is important to know the precise moment of time at which the property in goods passes from the seller to the buyer.

Passing of property in specific or ascertained goods: In a sale of specific or ascertained goods, the property passes to the

buyer, as and when the parties intended to pass. The intention of the parties must be gathered from the terms of the contract; the conduct of the parties; and the circumstances.

Unless a contrary intention appears, the following rules are applicable for,

ascertaining the intention of the parties or ascertaining the precise moment of time at which the property in specific goods passed from seller to the buyer.

1. Where there is an unconditional contract for the sale of specific goods in a

deliverable state, the property passes to the buyer when the contract is made (i.e. when the offer is accepted). Deliverable state means goods are in such a state that the buyer would be bound to take delivery of the goods. The fact that the time of delivery of the goods or time of payment of price is postponed does not prevent the property from passing at once.

2. Where there is a contract for sale of a specific goods not in a deliverable state, i.e. the seller has to do something to the goods to put them in a deliverable state, the property dose not pass until that thing is done and the buyer has notice of it

3. Where there is a contract for sale of specific goods in a deliverable state, but the seller is bound to weigh, measure, test or do something with a reference to the goods for the purpose of ascertaining the price, the property to the goods, for the purpose of asatcertaining the price, does not pass until that thing is done and the buyer has notice of it.

• Passing of property in unascertained or future goods The following rules are applicable for ascertaining the precise

moment of time at which the property in unascertained or future goods passes from seller to the buyer

1. The property in unascertained or future goods dose not pass until the goods are ascertained.

2. The property in unascertained or future goods sold by description passes to the buyer, when goods of that description and is deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller. Such assent may be expressed or implied and may be given either before or after the appropriation is made

• Passing of property in goods sent “on approval or on sale or return”

When goods are delivered to the buyer “on approval” or on sale or return” basis, the property therein passes to the buyer:

1. When the signified his approval or acceptance to the seller, or does any other act adopting the transaction: or

2. If he retains the goods, without giving notice of rejection, beyond time fixed for the returen of goods, or if no time is fixed, beyond a reasonable time.

It may be noted that where the goods have been delivered by a person “on sale or return” with the terms that the goods were to remain the property of the seller till they are paid for, then the property therein does not pass to buyer until the terms are complied with, i.e., cash is paid for. This is called “sale for cash only or Return”.

Example: I. X delivers some goods to Y on “sale or return” for 7 days.

State the legal position in each of the following alternative case:Case (a) such goods are destroyed by fire on the third day itself

without any fault of Y.

Case (b) Y inform X on telephone on the third day itself that he has accepted the goods and immediately after the receiver is put off, the goods are destroyed by fire.

Case (c) such goods are further delivered b Y on the third day itself

to Z and then by Z to A on similar terms. The goods are stolen while in the custody of A

Case (d) Y neither returns nor give notice of rejection even after the expiry of 7 days. Goods are destroyed by fire on the eighth day

Case (e) Y retains the goods but gives the notice of rejection on the expiry of 7 days. Goods are destroyed by fire on the eighth day.

Solution :Case (a): X shall bear the loss because the ownership has not yet

passed to the buyer.Case (b): Y shall bear the loss because the ownership has passed to

the buyer.Case (c): X can recover the loss from Y because the ownership passed

to Y as Y has adopted the transaction by delivering the goods to Z.Y can recover the loss from Z because the ownership has passed to Z as Z has adopted the transaction by delivering the goods to A.Z cannot recover the loss from A because the ownership has not yet passed.

Case (d) : Y shall bear the loss because the ownership has passed to the buyer.

Case (e): X shall bear the loss because the ownership has not yet passed.

Reservation of Rights of Disposal The property in goods, whether specific or unascertained,

does not pass to the buyer, if the seller reserves the rights of disposal of the goods.A seller have expressed as well as deemed reservation of he right of disposal.

CAVEAT EMPTOR

• Doctrine Of Caveat Emptor:

The term “caveat Emptor” is a Latin word which means “let the buyer beware”. This principal states that it is for the buyer to satisfy himself that the goods, which he is purchasing, are of the quality, which he requires. If he buys goods for a particular purpose, he must satisfy himself that they are fit for that purpose. It is not the seller’s duty to give to the buyer the goods, which are fit for a particular purpose of the buyer. If the buyer makes the wrong selection, he can not blame the seller, if the goods turn out to be defective or do not serve his purpose

In Ward v. Hobbs, certain goat were sold by auction. The buyer paid but they were ill and all except one died of fever. It was held that there was no implied condition or warranty that the goat were of good health. It was the buyer’s duty to satisfy himself regarding the health of goat.

H bought oats from S a sample of which had been shown to H. H erroneously thought that the oats were old. The oats were, however, new. Held, H could not avoid the contract [Smith v. Hughes]

Exceptions to the Doctrine of caveat Emptor: the doctrine of caveat emptor is subject to the following

exceptions:1. In case of Misrepresentation by the seller: where the seller

makes a misrepresentation and the buyer relies on that representation.

2. In case of concealment of latent Defect: where the seller knowingly conceals a defect which would not be discovered on

a reasonable examination.

3. In case of sale by Description: where the goods are sold by description and the goods supplied by the seller do not correspond to the description.

4. In case of sale by sample: where the goods are sold by sample and the supplied by the seller do not correspond with the sample.

5. Fitness for a particular purpose: where the seller or a manufacturer is a dealer of the type of goods sole by him and the buyer has disclosed the purpose for which goods are required and relied upon the seller’s skills or judgment.

6. Merchantable quality: where the goods are bought by description from a seller who deals in goods of that description (whether he is the manufacturer or producer or not), there is an implied condition that the goods shall be of merchantable quality.

Relevance Of Caveat Emptor the rule of caveat emptor appeared to play an important role in

the past when trade was conducted on local scale and the buyer had every opportunity to examine the goods before buying. However, in the modern context, the rigours of the rule have been mitigated because of global dimensions of trade, government legislation on consumer protection, professional management, and instance competition and consumer awareness. In fact, the rule of caveat emptor should be replaced by the ‘rule of caveat vendor’ (Let the seller beware)

UN PAID SELLER

Definition of unpaid seller : Section 45 of sale of goods act, 1930 defines the term ‘unpaid seller’. According to this, the seller of the goods is deemed to be an unpaid seller in the following cases, namely :-

a) When the whole of the price has not been paid or tendered; b) when a conditional payment was made by bill of exchange or

other negotiable instrument, and the instrument has been dishonored.

Right of an unpaid seller against the goods An unpaid seller has the following rights against the goods:-a) Right of Line b) Right to stoppage-in-transit c) Right of re-sale; and d) Right to withhold delivery.

Right of Lien: An un paid seller, in possession of goods sold, may exercise his lien on the goods, i.e., keep the goods in his possession and refuse to deliver them to the buyer until payment of the price.

An unpaid seller is entitled to lien in the following three case, namely:-

i. Where goods have been sold without any stipulation as to credit;ii. Where goods have been sold on credit, but the term of credit has

expired;iii. Where the buyer become insolvent.

The right of lien is lost in the following three cases:

i. When the seller delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer, without reserving the right of disposal of the goods;

ii. When the buyer or his agent lawfully obtains possession of the goods;

iii. When the unpaid seller waives his right of lien.

Where an unpaid seller has made a part delivery of the goods, he may exercise his lien on the remainder; unless such part delivery has been made under such circumstances as to show an agreement to waive the lien

Right of stoppage-in-transit:An unpaid seller has the right of stopping the goods in transit, after he has parted with their possession to a carrier. Thus, right to stoppage-in-transmit means right of stopping the goods while they are in transit, resuming possession of them and retaining possession until payment of the price

The right is exercisable by unpaid seller, only if the following

condition are fulfilled

1.The seller must have parted with the possession of the goods2.The goods must be in transit; and 3.The buyer must have become insolvent.

Duration of transit:The goods are in transit form the time they are delivered to a carrier or other bailee, for the purpose of transmission to the buyer, and until the buyer takes the delivery of them.

The transit comes to an end in the following cases:-

1. If the buyer obtains delivery before arrival of the goods at their destination.

2. If after the arrival of the goods at their destination, the carrier acknowledges to the buyer that he holds the goods on his behalf:

3. If the carrier wrongfully refuses to deliver the goods to the buyer.

Right to Re- Sale:An unpaid seller may re- sell the goods in the following cases:-1. Where the goods are perishable 2. Where the right of re- sale is expressly reserved in the

contract3. Where in exercise of the right f lien or stoppage in transit,

the unpaid seller gives notice to the buyer of his intension to re -sell, and the buyer does not pay the price within a reasonable time.

If on re-sale, there is a deficiency between the price due and the amount realised, the seller is entitled to recover it from the original buyer. If there is a surplus, he can keep it. The seller will have these rights, only if he has given notice to the original buyer. Thus, if the notice of re sale has not been given to the original buyer, then seller can neither ask for the deficit amount nor is he entitled to keep the surplus.

Right to Withhold delivery:

Where the property in goods has not passed to the buyer, an unpaid seller has a right of withholding delivery of goods; similar to and co-extensive with his rights of lien and stoppage in transit, where the property in goods has passed to the buyer.

Distinction between ‘Right of Lien’ and ‘ Right of Stoppage in – transit’

Basis of distinction

Right of Lien Right of Stoppage in transit

Possession of Goods

The goods must be in actual possession of the seller

The goods must be in the possession of a carrier or other bailee who is acting as an independent person



Solvency The Right can be exercised even when the buyer is solvent but refuses to pay the price

The Right can be exercised only when the buyer has become insolvent.

End vs Commencement delivery to carrier

The Right comes to an end when the seller delivers the goods to the carrier

This Right commences only when the seller delivers goods to a carrier



Purpose The purpose of the Right is to retain possession of the goods

The purpose of this right is to regain the possession of the goods

Mode of exercising the Right

This Right can be exercised by the seller himself

This Right can be exercised by the seller through the carrier or the other bailee

Right of an unpaid seller against the buyer personally: An unpaid seller has the following right against the buyer

personally:-a) Suit for the price;b) Suit for the damages

Suit for the price : an unpaid seller may sue the buyer for the price of the goods in the following case:-

1. Where the property in goods has passed to the buyer.

2. Where the price is payable on a certain day, even if the property in the goods has not passed;

3. Where the buyer has wrongfully neglected or refused to pay according to the terms of the contract

Suit for the damages: An unpaid seller may sue the buyer for damages for non-acceptance, if the buyer wrongfully neglects or refuses to accept and pay for the goods.

Sale of goods act

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Transcript of Sale of goods act