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Sale of goods Act, 1930

March 12th, 2017

Sale of Goods Act is one of very old mercantile law. Sale of Goods is one of the special types of Contract. Initially, this was part of Indian Contract Act itself in chapter VII (sections 76 to 123). Later these sections in Contract Act were deleted, and separate Sale of Goods Act was passed in 1930.

The Sale of Goods Act is complimentary to Contract Act. Basic provisions of Contract Act apply to contract of Sale of Goods also. Basic requirements of contract i.e. offer and acceptance, legally enforceable agreement, mutual consent, parties competent to contract, free consent, lawful object, consideration etc. apply to contract of Sale of Goods also.

Contract of Sale 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. There may be a contract of sale between one part-owner and another. [section 4(1)]. A contract of sale may be absolute or conditional. [section 4(2)]. 

Thus, following are essentials of contract of sale – * It is contract, i.e. all requirements of ‘contract’ must be fulfilled * It is of ‘goods’ * Transfer of property is required * Contract is between buyer and seller * Sale should be for ‘price’ * A part owner can sale his part to another part-owner * Contract may be absolute or conditional.

How Contract of sale is made A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of such offer. The contract may provide for the immediate delivery of the goods or immediate payment of the price or both, or for the delivery or payment by instalments, or that the delivery or payment or both shall be postponed. [section 5(1)]. Subject to the provisions of any law for the time being in force, 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. [section 5(2)]. Thus, credit sale is also a ‘sale’.  – – A verbal contract or contract by conduct of parties is valid. e.g. putting goods in basket in super market  or taking food in a hotel.

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Two parties to contract – Two parties are required for contract. – – “Buyer” means a person who buys or agrees to buy goods. [section 2(1)]. “Seller” means a person who sells or agrees to sell goods. [section 2(13)].  A part owner can sale his part to another part-owner. However, if joint owners distribute property among themselves as per mutual agreement, it is not ‘sale’ as there are no two parties.

Contract of Sale includes agreement to sale – Where 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 condition thereaf­ter to be fulfilled, the contract is called an agreement to sell. [section 4(3)]. An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred. [section 4(4)]. The provision that contract of sale includes agreement to sale is only for the purposes of rights and liabilities under Sale of Goods Act and not to determine liability of sales tax, which arises only when actual sale takes place.

Transfer of property –  “Property” means the general property in goods, and not merely a special property. [section 2(11)]. In layman’s terms ‘property’ means ‘ownership’. ‘General Property’ means ‘full ownership’. Thus, transfer of ‘general property’  is required to constitute a sale. If goods are given for hire, lease, hire purchase or pledge, ‘general property’ is not transferred and hence it is not a ‘sale’.

Possession and property – Note that ‘property’ and ‘possession’ are not synonymous. Transfer of possession does not mean transfer of property. e.g. – if goods are handed over to transporter or godown keeper, possession is transferred but ‘property’ remains with owner. Similarly, if goods remain in possession of seller after sale transaction is over, the ‘possession’ is with seller, but ‘property’ is with buyer.

Goods – “Goods” means every kind of movable property other than actionable claims and money; and includes stock 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. [section 2(7)].

Price“Price” means the money consideration for a sale of goods. [section 2(10)]. Consideration is required for any contract. However, in case of contract of sale of goods, the consideration should be ‘price’ i.e. money consideration. 

Ascertainment of price The price in a contract of sale may be fixed by the con­tract or may be left to be fixed in manner thereby agreed or may be determined by the course of dealing between the parties. [section 9(1)]. Where the price is not determined in accordance with the foregoing provisions, the buyer shall pay the seller a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each particular case. [section 9(2)].

Conditions and Warranties – Opening para of section 16 makes it clear that there is no implied warranty or condition as to quality of fitness of goods for any particular purpose, except those specified in Sale of Goods Act or any other law. – – This is the basic principle of caveat emptor’ i.e. buyer be aware. However, there are certain stipulations which are essential for main purpose of the contract of sale of goods. These go the root of contract and non-fulfilment will mean loss of foundation of contract. These are termed as ‘conditions’. Other stipulations, which are not essential are termed as ‘warranty’. These are collateral to contract of sale of goods. Contract cannot be avoided for breach of warranty, but aggrieved party can claim damages. – – A breach of condition can be treated as breach of warranty, but vice versa is not permissible.

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A stipulation in a contract of sale with reference to goods which are the subject thereof may be a condition or a warranty. [section 12(1)]. 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. [section 12(2)]. 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. [section 12(3)]. Whether a stipulation in a contract of sale is a condition or a warranty depends in each case on the construction of the con­tract. A stipulation may be a condition, though called a warranty in the contract. [section 12(4)].

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Where a particular stipulation in contract is a condition or warranty depends on the interpretation of terms of contract. Mere stating ‘Conditions of Contract’ in agreement does not mean all stipulations mentioned are ‘conditions’ within meaning of section 12(2).

When condition to be treated as warranty Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may waive the condition or elect to treat the breach of the condition as a breach of warran­ty and not as a ground for treating the contract as repudiated. [section 13(1)]. Where a contract of sale is not severable and the buyer has accepted the goods or part thereof, the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty and not as a ground for rejecting the goods and treating the contract as repudiated, unless there is a term of the con­tract, express or implied, to that effect. [section 13(2)]. Nothing in this section shall affect the case of any condition or warranty fulfillment of which is excused by law by reason of impossibility or otherwise. [section 13(3)].

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Time of payment is not essence of contract but time of delivery of goods is, unless specified otherwise Unless a different intention appears from the terms of the contract, stipulations as to time of payment are not deemed to be of the essence of a contract of sale. Whether any other stipula­tion as to time is of the essence of the contract or not depends on the terms of the contract. [section 11]. As a general rule, time of payment is not essence of contract, unless there is specific different provision in Contract. In other words, time of payment specified is ‘warranty’. If payment is not made in time, the seller can claim damages but cannot repudiate the contract.

Caveat Emptor – The principle termed as ‘caveat emptor’ means ‘buyer be aware’. Generally, buyer is expected to be careful while purchasing the goods and seller is not liable for any defects in goods sold by him. This principle in basic form is embodied in section 16 that subject to provisions of Sale of Goods Act and any other law, there is no implied condition or warranty  as to quality or fitness of goods for any particular purpose. As per section 2(12), “Quality of goods” includes their state or condition.

Transfer of property as between seller and buyer – Transfer of general property is required in a sale. ‘Property’ means legal ownership. It is necessary to decide whether property in goods has transferred to buyer to determine rights and liabilities of buyer and seller. Generally, risk accompanies property in goods i.e. when property in goods passes, risk also passes. If property in goods has already passed on to buyer, seller cannot stop delivery of goods even if in the meanwhile buyer has become insolvent. – – – Where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained. [section 18].

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Property passes when intended to pass Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. [section 19(1)].  For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. [section 19(2)]. Unless a different intention appears, the rules contained in sections 20 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer. [section 19(3)].

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Specific goods in a deliverable state Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes 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. [section 20].

Auction saleAuction sale is special mode of sale. The sale is made in open after making public announcement. Buyers assemble and make offers on the spot. Person offering to pay highest price gets the goods. Usually, auctioneer is appointed to conduct auction. Higher and higher bids are offered and sale is complete when auctioneer accepts a bid.- – – In the case of a sale by auction— (1) where goods are put up for sale in lots, each lot is prima facie deemed to be the subject of a separate contract of sale; (2) the sale is complete when the auctioneer announces its completion by the fall of the hammer or in other customary man­ner; and, until such announcement is made, any bidder may retract his bid; (3) a right to bid may be reserved expressly by or on behalf of the seller and, where such right is expressly so re­served, but not otherwise, the seller or any one person on his behalf may, subject to the provisions hereinafter contained, bid at the auction;  (4) where the sale is not notified to be subject to a right to bid on behalf of the seller, it shall not be lawful for the seller to bid himself or to employ any person to bid at such sale, or for the auctioneer knowingly to take any bid from the seller or any such person; and any sale contravening this rule may be treated as fraudulent by the buyer; (5) the sale may be notified to be subject to a reserved or upset price; (6) if the seller makes use of pretended bidding to raise the price, the sale is voidable at the option of the buyer. [section 64].

Delivery of goods to buyerThe Act makes elaborate provisions regarding delivery of goods to buyer. It is the duty of the seller to deliver the goods and of the buyer to accept and pay for them, in accordance with the terms of the contract of sale. [section 31]. Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions, that is to say, the seller shall be ready and willing to give possession of the goods to the buyer in exchange for the price, and the buyer shall be ready and willing to pay the price in exchange for possession of the goods. [section 32]. – – Note that this is ‘unless otherwise agreed’, i.e. buyer and seller can agree to different provisions in respect of payment and delivery.

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Acceptance of goods by buyer – Contract of Sale is completed not by mere delivery of goods but by acceptance of goods by buyer. ‘Acceptance’ does not mean mere receipt of goods. It means checking the goods to ascertain whether they are as per contract. – – –  Where goods are delivered to the buyer which he has not previously examined, he is not deemed to have accepted them unless and until he has had a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conform­ity with the contract. [section 41(1)]. – – Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound, on request, to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity with the contract. [section 41(2)].

Buyer’s and Seller’s duties  – The Act casts various duties and grants certain rights on both buyer and seller.

Rights of unpaid seller against the goods – After goods are sold and property is transferred to buyer, the only remedy with seller is to approach Court, if the buyer does not pay. Seller has no right to take forceful possession of goods from buyer, once property in goods is transferred to him. However, the Act gives some rights to seller if his dues are not paid.

Suits for breach of the contract Unpaid seller can exercise his rights to the extent explained above. In addition, seller can exercise following rights in case of breach of contract. Buyer has also rights in case of breach of contract.

Measure for compensation and  damages – The Sale of Goods Act does not specify how to measure damages. However, since the Act is complimentary to Contract Act, measure of compensation and damages will be as provided in sections 73 and 74 of Contract Act.

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