3.1 Contract of Sale | unit 3 sale of goods act 1930

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BRF

Unit -III

The Sale of Good Act, 1930

3.1 Contract of Sale

Brief history

• Sale of Goods act was enacted in 1930.

• Borrowed from English Sales of Goods Act, 1893.

• Came into force in July 01, 1930.

• Prior to the act, the law of sale of Goods was contained in chapter VII of the Indian contract act, 1872.

Meaning

Sec 4(1) of the Indian Sale of Goods Act, 1930 defines the contract of sale of goods as “A contract of sale of goods may be a contract whereby the vendor transfers or agrees to transfer the property in goods to the customer for a price”.

Essential elements of contract of sale

From the above definition, the following essentials of a contract of sale may be noted:

• There must be a minimum of two parties

• Transfer or Agreement to transfer the ownership of Goods.

• The material of the contract must necessarily be 'goods'. Sale of immovable property is not covered under this Act.

• The consideration is Price.

• A Contract of sale may be in writing or oral.

• All other essentials of a legitimate contract must be present.

3.2 Difference between Sale and Agreement to Sell

SALE	AGREEMENT TO SELL
Ownership of goods remains with the buyer.	Ownership of goods remains with the seller.
It is an executed contract.	It is an executory contract.
Risk of loss falls on the buyer.	Risk of loss falls on the seller.
Seller cannot re-sell the goods.	Seller can sell goods to third party.
It can be in case of existing and specific goods.	It can be in case of future and unascertained goods.
In case of breach of a contract, seller can sue for the price of the goods	In case of breach of a contract, seller can sue only for damages and not for the price.
The seller is only entitled to a ratable dividend of the price due if the buyer becomes insolvent.	If the buyer becomes insolvent, the seller may refuse to deliver the goods to the Official Receiver or Assignee unless paid for.
If the seller becomes insolvent, the buyer is entitled to recover the goods from the Official Receiver.	If the buyer finds that the seller has become insolvent, he can only claim a ratable dividend and not the goods because property in them has not yet passed to him.

Difference between Sale and Hire Purchase

Sale	Hire Purchase
Ownership of goods is transferred from the seller to the buyer as soon as the contract is entered into.	Ownership of goods is transferred from the seller to the hire purchaser only when a certain agreed number of installments is paid.
The position of the buyer is that of the owner of the goods.	The position of the hire purchaser is that of a bailee till he pays the last installment.
The buyer in this case cannot terminate the contract and as such is bound to pay the price of the goods.	The hire purchaser is at liberty to terminate the contract at any stage and cannot be forced to pay the remaining installments.
The seller takes the risk of any loss resulting from the insolvency of the buyer.	In case of hire purchase, the owner takes no risk because if the hire purchaser fails to pay an installment, the owner has a right to take back the goods.
The buyer in a sale can resell the goods.	The hire purchaser cannot resell the goods unless he has paid all the installments of hire.

3.3 Types of Goods

The different types of goods are as follows:

Existing goods: Goods which are physically in existence and which are in seller’s ownership and/or possession at the time of entering the contract of sale are called existing goods. Existing goods may be-

Specific goods: Goods identified and agreed upon at the time of making the contract of sale are called specific goods.

Ascertained goods: Goods which become ascertained subsequent to the formation of a contract of sale of specific goods is termed as ascertained goods.

Unascertained goods: Goods which are not separately identified or ascertained at the time of making of the contract of sale are called unascertained goods. They are indicated or defined only by description.

2. Future goods: Goods to be manufactured, produced or acquired by the seller after making the contract of sale are called future goods.

3. Contingent goods: Goods, the acquisition of which by the seller depends upon an uncertain contingency, are called contingent goods.

3.4 Modes of Fixing the Price

As per Section 9 of this Act, the price of the goods can be fixed in the following modes:

Price expressly stated in the contract: The price is generally fixed by the parties while making the contract or agreed to be determined in some manner.

Determined by course of dealing: When parties have not fixed the price or have not agreed upon a manner for determining the same, the price is to be determined according to the course of dealing.

Reasonable price: When the price has not been determined by the above stated manner, the buyer shall have to pay a reasonable price for the goods.

Valuation by a third party: Sometimes it is agreed that a third party will fix the price. If the third party cannot or does not fix it, the agreement is thereby avoided. But if he is prevented from fixing the price by any of the parties to the contract, then the other party can sue that party for damages.

3.5 Conditions and Warranties

A condition is a stipulation essential to the main purpose of the contract of sale, the breach of which gives the aggrieved party a right to repudiate the entire contract.

A warranty is a stipulation, collateral to the main purpose of the contract, the breach of which gives the aggrieved party a right to sue for damages only.

A breach of condition may be treated as breach of warranty and accordingly the aggrieved party may choose not to repudiate the contract, whereas, a breach of warranty can never be treated as breach of condition.

Express and Implied Conditions in a Contract of Sale

Condition is said to be ‘express’ when at the will of the parties it is inserted in the contract and it is said to be ‘implied’ when the law presumes its existence in the contract automatically though they have not been put into it in express words.

Unless otherwise agreed, the law incorporates into a contract of sale of goods, the following implied conditions:

Condition as to title [Section 14(a)]: In every contract of sale, the implied condition is that the seller has right to sell the goods. Consequently, if the seller’s title turns out to be defective, the buyer is entitled to reject the goods and to recover the price and also sue the seller for damages.

Sale by description [Sec. 15]: Where there is a sale by description, there is an implied condition that the goods match the description.

Sale by sample and description [Sec. 15]: Where goods are sold by showing sample and also by giving description and they do not correspond either or both of that, the buyer can repudiate the contract.

Condition as to fitness and quality [Sec. 16 (1)]: Where the buyer makes known to the seller the purpose for which he buys the goods and depends on the skill and judgement of the seller whose business is to supply goods of that description, there is an implied condition that the goods shall be reasonably fit for that particular purpose. This implied condition applies only in case of normal buyers, i.e., who are not suffering from any abnormality. Also, the buyer must examine the goods thoroughly before buying.

Condition as to merchantability [Sec (2)]: When goods are sold by description and the seller trades in similar goods, the goods should be merchantable, i.e., goods should be fit to use and consume or wholesome and not injurious. However, if the buyer could have identified the defect if he had examined the goods with reasonable care and intelligence but he did not and thus suffered loss, then the seller is not held liable.

Sale by sample [Sec. 17]: When the goods are sold by sample and later the buyer found that the bulk does not correspond with the sample, the seller shall be held liable, provided the buyer was not given reasonable opportunity to inspect the bulk and compare with the sample or there exists a latent defect (which cannot be revealed by reasonable inspection).

Implied Warranties in a Contract of Sale

The law incorporates into a contract of sale, the following implied warranties:

Warranty of quiet possession [Section 14 (b)]: in every contract of sale, there is an implied warranty that the buyer shall have and enjoy quiet possession of the goods purchased. If the quiet possession is disturbed by someone claiming to have a superior right than that of the seller, then the buyer can claim damages from the seller.

Warranty of freedom from encumbrances [Section 14 (c)]: if there is a charge or encumbrance or a right on the goods in favor of a third party, and the buyer is not aware of it, then the seller is liable to compensate for the same to the buyer.

Warranty as to quality or fitness by usage of trade [Section 16 (4)]: By the custom of trade, an implied warranty as to quality of product can be annexed.

Caveat Emptor

The doctrine of Caveat Emptor means “Let the buyer beware”, meaning that when the buyer is given a chance of examining the goods before purchasing and he did not discover any defect, other than latent defect, then the buyer cannot blame anyone for his bad selection. This doctrine is based on the presumption that the buyer purchases goods relying on his own skill and judgement.

However, the doctrine of Caveat Emptor is subject to certain exceptions which are enumerated below:

Where the seller makes a misrepresentation and the buyer relies on it, the doctrine of caveat emptor does not apply and the buyer gets a right to rescind the contract.

Where the buyer makes known to the seller the purpose for which he buys the goods and depends on the skill and judgement of the seller whose business is to supply goods of that description, it is the duty of the seller to provide the same.

When goods are sold by description and the seller trades in similar goods, the goods should be merchantable, i.e., goods should be fit to use and consume or wholesome and not injurious. If there was a latent defect and could not be revealed on reasonable examination, then the seller is held liable.

When the goods are sold by sample and later the buyer found that the bulk does not correspond with the sample, the seller shall be held liable, provided that the buyer was not given reasonable opportunity to inspect the bulk and compare with the sample or there exists a latent defect (which cannot be revealed by reasonable inspection).

Where the trade usage attaches an implied condition or warranty as to quality or fitness and the seller deviates from that, the doctrine of caveat emptor does not apply and the seller is held liable.

3.6 Transfer of Property of Goods

The rules regarding transfer of property in goods basically fall under two heads:

Transfer of property in specific and ascertained goods,

Transfer of property in unascertained and future goods.

Transfer of property in specific or ascertained goods: The property in specific and ascertained goods is transferred to the buyer at the same time as the parties to the contract intend it to be transferred. It is only when the intention of the parties is not known from their contract or conduct or other circumstances that the rules laid down hereunder are applicable:

i) When goods are in a deliverable state [Section 20]: 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 as soon as 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 are postponed.

ii) When goods have to be put into deliverable state [Section 21]: Where the seller is bound to do ‘something’ to put the goods in a deliverable state, the property in them does not pass until that ‘something’ is done and the buyer has notice thereof. This something includes packing the goods, loading them on a vehicle, polishing them etc.

iii) When the goods have to be measured to ascertain price [Section 22]: Where the seller is bound to measure, weigh, test or some other act to ascertain the price of the goods, the property does not pass until such act is done and the buyer has notice thereof.

iv) When goods are delivered on approval [Section 24]: When goods are delivered to the buyer on approval or on sale or return basis or on other similar terms, the property therein passes to the buyer:

a) When he signifies his approval or acceptance to the seller or does any other act adopting the transaction i.e., pledges the goods or resells them;

b) If he does not signify his approval or acceptance to the seller but returns the goods without giving notice of rejection, beyond the time fixed for the return, or beyond a reasonable time.

II. Transfer of property in unascertained and future goods [Section 18 and 23]: In case of unascertained goods, their ascertainment and unconditional appropriation to the contract, so as to bring them in a deliverable state either by the seller with the assent of the buyer or by the buyer with the assent of the seller, is necessary. Until goods are ascertained or appropriated, there is merely ‘an agreement to sell’.

Sale by a Person Not the Owner

The general rule relating to transfer of title on sale is the seller cannot transfer to the buyer of goods a better title than he himself has. Section 27 also lays down that “where goods are sold by a person who is not the owner thereof and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had.’ This rule is expressed by the maxim Nemo Dat Quod Non Habet, which means that no one can give which he has not got. This rule aims at protecting the true owner.

However, the above general rule is subject to the following exceptions where the buyer gets a better title to the goods than the seller-

An unauthorized sale by a mercantile agent {Section 27}: In general, a mercantile agent, having the authority to sell goods, conveys a good title to the buyer. However, such agent can convey a better title of goods to the buyer without being authorized by the principal to sell the goods, provided the following conditions are fulfilled:

He should be in possession of the goods or documents of title to the goods in his capacity as mercantile agent and with the consent of the owner;

He should sell the goods while acting in the ordinary course of business;

The buyer should act in good faith without having any notice at the time of the contract, that the agent has no authority to sell.

2. Sale by a joint owner {Section 28}: If one of the several joint owners of goods has the sole possession of goods by permission of other co-owners, the property in the goods is easily transferred to any person who buys them from such joint owner in good faith.

3. Sale by person in possession under voidable contract {Section 29}: Where a person obtains possession of goods under a voidable contract and sells those goods before the contract is rescinded and the buyer buys it in good faith, without notice of the seller’s defect of title, the buyer obtains a better title to the goods than that of the seller.

4. Sale by seller in possession after sale {Section 30 (1)}: if a seller continues to be in possession of the goods or the documents of title even after sale and the buyer buys it in good faith, without notice of the seller’s defect of title, the buyer obtains a good title to the goods.

5. Sale by buyer in possession after ‘agreement to buy’ {Section 30 (2)}: Where a buyer, in case of an agreement to sale, has obtained possession of the goods or the documents of title with the seller’s consent, resells or pledges the goods either himself or through an agent, he will convey a better title to the buyer or the pledge, provided he buys it in good faith, without notice of the seller’s defect of title.

6. Resale by unpaid seller {Section 54 (3)}: Where an unpaid seller who has exercised his rights of lien or stoppage in transit, resells the goods, the subsequent buyer acquires a good title thereto as against the original buyer, even though no notice of resale is given to the original buyer.

3.7 Rules Regarding Delivery

The rules regarding delivery of goods are as follows:

Delivery may be actual, symbolic or constructive [Section 33]: Goods must be delivered according to the terms of the contract. Sold goods may be actually delivered to the buyer (actual delivery), or put in the possession of the buyer (symbolic delivery) or of any person authorized to hold them on his behalf (constructive delivery).

Payment and delivery are concurrent [Section 32]: Unless otherwise agreed, the payment of price and delivery of goods must be concurrent i.e., the seller and buyer should be ready to exchange the goods for a price simultaneously.

Effect of part delivery [Section 34]: When the goods are delivered in part with the intention of delivering the rest also, the property in the whole goods is deemed to pass to the buyer as soon as some portion is delivered.

But when a part of the goods is delivered with the intention of severing it from the whole, it is not regarded as delivery of the whole of the goods and the property is deemed to pass to the buyer in that portion only which has been delivered.

4. Buyer to apply for delivery [Section 35]: It is the duty of the buyer to apply for delivery and if he fails to do so, he cannot blame the seller for non-delivery.

5. Time for delivery [Section 36 (2) & (4)]: In the absence of a fixed time for delivery, the seller must deliver the goods within a reasonable time.

6. Place of delivery [Section 36 (1)]: In the absence of an agreed place for delivery, the goods are to be delivered at the place at which they are at the time of sale. In case of agreement to sell, the goods are to be delivered at the place where they are at the time of agreement to sell. And in case of future goods, the goods are to be delivered at the place at which they are manufactured or produced.

7. Delivery of goods when they are in possession of a third party [Section 36 (3)]: Where the goods, at the time of sale, are in possession of a third person, there is no delivery by the seller to the buyer unless and until such third party acknowledges to the buyer that he holds the goods on his behalf. Such delivery needs the consent of all three parties. But where the goods were sold on a document of title of goods then such acknowledgement by third party is not required.

8. Expense of delivery [Section 36 (5)]: Unless otherwise agreed, the expenses of putting the goods into a deliverable state must be borne by the seller.

9. Delivery of wrong quantity or different quality [Section 37]: A seller is bound to deliver the goods to the buyer strictly in accordance with the terms of the contract. A defective delivery i.e., delivery of a quantity less or more than that contracted for or delivery of goods mixed with the goods of a different description not included in the contract, entitles the buyer to reject the whole or to accept the whole or to accept the quantity and quality he ordered and reject the rest.

10. Installment deliveries [Section 38]: Delivery of goods may be made in installments only if agreed for and not otherwise.

11. Delivery at a distant place [Section 40]: Where goods are delivered at a distant place, the liability for deterioration necessarily incidental to the course of transit will fall on the buyer, though the seller agrees to deliver at his own risk.

3.8 Unpaid Seller

Meaning

A seller of Goods is deemed to be an unpaid seller when-

• The whole of the price has not been paid or tendered;

• When a bill of exchange or other negotiable instrument has been received as conditional payment and the condition has not been fulfilled by reason of the dishonor of the instrument or otherwise.

The seller must sell the goods on cash terms and not on credit and he must be unpaid, either wholly or in part.

Rights of an Unpaid Seller

An unpaid seller has two-fold rights,

Against goods, and

Against the buyer personally.

Rights of an unpaid seller against the goods:

a) Where the property in goods has passed to the buyer [Section 46 (1)]:

i) Right of lien [Section 47]

ii) Right of stoppage in transit [Section 50],

iii) Right of resale [Section 54].

b) Where the property in goods has not passed to the buyer [Section 46 (2)]:

i) Withholding delivery.

2. Rights of an unpaid seller against the buyer personally:

i) Suit for price. [Section 55]

ii) Suit for damages for non-acceptance. [Section 56]

iii) Suit for special damages and interest. [Section 61]

iv) Repudiation of contract. [Section 60]

Right of lien (Sec. 47-49)

Lien is the right to retain the possession of the goods until the complete price is received. An unpaid seller is entitled to exercise his right of lien in the following three cases:

Where the goods are sold with no stipulation to credit;

Where the Goods are sold on credit, but the term of credit has expired;

Where the customer becomes insolvent.

Right of stoppage of Goods in transit (Sec. 50-52)

Right of stoppage in transit is the right of stopping the goods while they are in transit, to regain possession and to retain them till the complete price is paid. This right can be exercised when the following conditions are fulfilled:

The seller must be unpaid.

Seller must have parted with the possession of Goods.

The goods must be in course of transit.

Buyer must become insolvent.

Right of resale (Sec. 54)

An unpaid seller can resell the goods under the following circumstances:

Where the Goods are of a perishable nature,

Where the vendor expressly reserves the right of resale if the customer commits a default in making payment,

Where the unpaid seller who has exercised his right of lien or stoppage in transit gives a notice to the customer about his intention to resell and buyer does not pay or tender within a reasonable time.

Right of withholding delivery (Sec. 46 (2)]

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

3.9 Auction Sale

An auction may be a public sale. The goods are sold to all or any member of the general public at large who are assembled in one place for the auction. Such interested buyers are the bidders. Goods are sold to the highest bidder. The person conducting the auction is the auctioneer. He is the agent of the vendor. So, all the principles of the Law of Agency apply to him. But if an auctioneer wishes to sell his own property because the principal he can do so.

The usual procedure in case of auction sale is a follows:

The proposed auction is duly advertised and a printed catalogue of the goods together with the terms of sale is circulated. On the appointed day and time, the intending buyers assemble and the auctioneer puts the different lots to auction and invites bids from the intending buyers. Every bid is an offer. The highest bid is accepted by the auctioneer at the fall of the hammer, or by using the words “one, two, three” or “going, going, gone”. The highest bid constitutes the offer. Before the final acceptance of the bid or falling of the hammer, it is always open to the bidder to withdraw his bid.

Key Takeaways

Sale of moveable goods are governed by Sale of Goods Act, 1930.

A contract of sale of goods may be a contract whereby the vendor transfers or agrees to transfer the property in goods to the customer for a price.

A sale is different from an agreement to sell and also from hire purchase.

Goods may be ascertained or unascertained, existing or future goods.

A condition is a stipulation essential to the main purpose of the contract of sale whereas a warranty is a condition collateral to the main purpose. Condition may be treated as warranty but warranty can never be treated as a condition.

The doctrine of “Caveat Emptor” meaning “Let the buyer beware” is based on the presumption that the buyer purchases goods relying on his own skill and judgement. However, the doctrine does not apply to certain exceptional circumstances.

In certain situations, goods may be sold by persons who are not owners.

The rights of an unpaid seller are protected under the Act, as against the goods and also against the buyer personally.

An auction is a public sale where the goods are sold to all or any member of the general public at large who are assembled in one place for the auction. Such interested buyers are the bidders and goods are sold to the highest bidder. The person conducting the auction is the auctioneer who acts as an agent of the vendor.

References

Dam, B.B. Business Law. Gayatri Publications, Guwahati (Assam), 2020.

Dhingra, J. Business Law. Kalyani Publishers, Delhi, 2019.

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