Unit 3

The Sales of Goods Act,1930

3.1 Contract of Sale

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.

• It extends to whole India except J& K.

Meaning

As per Sec 4(1) of the Indian Sale of Goods Act, 1930 defines the contract of sale of Goods within the following manner: “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”.

ESSENTIALS OF CONTRACT OF SALE

From the above definition, the subsequent essentials of a contract of sale may by 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 isn't covered under this act.

• The consideration is Price.

• A Contract of sale could also be in writing or by words

• All other essentials of a legitimate contract must be present

Difference between Sale and Agreement to Sell

A. SALE

B. AN AGREEMENT TO SALE

 Where the vendor transfers the ownership rights to the customer immediately on making the contract, it's the contract of sale, but where the ownership rights are to expire some future date upon the fulfillment of certain conditions then it's called an agreement to sell.

DISTINGUISHED BETWEEN “SALE” AND “AGREEMENT TO SELL”

 SALE:

• It may be a contract where the ownership within the goods is transferred by seller to the customer immediately at the conclusion contract. Thus, properly speaking, sale takes place when there's a transfer of property in goods from the vendor to the customer. a purchase is an executed contract.

• It must be noted here that the payment of price is immaterial to the transfer of property in goods.

• Ex - A sells his Yamaha Motor Bicycle to B for Rs. 10,000. it's a purchase since the ownership of the motorcycle has been transferred from A to B.

AGREEMENT TO SALE

• It may be a contract of sale where the transfer of property in goods is to require place at a future date or subject to some condition thereafter to be fulfilled.

• Ex- A agreed to shop for from B a particular quantity of nitrate of soda. The ship carrying the nitrate of soda was yet to arrive. this is often an agreement to sale. during this case, the ownership of nitrate of soda is to be to transferred to A on the arrival of the ship containing the required goods (i.e. nitrate of soda)

• On 1st March 1998, A agreed to sell his car to B for Rs. 80,000. it had been agreed between themselves that the ownership of the car will transfer to B on 31st March 1998 when the car is got registered in Bs name. it's an agreement to sell and it'll become sale on 31st March when the car is registered in the name of B. Other points of distinction between a sale and an agreement to sell are:

DIFFERENCE BETWEEN SALE AND AGREEMENT TO SALE

1.               Under Sale, ownership passes immediately at the time when the contract is made whereas under Agreement to Sell, passing of ownership is postponed i.e., the transfer takes place at a future time or transfer is subject to some conditions.
2.               In case of sale, the buyer becomes the owner immediately whereas, in case of an agreement to sell, the seller remains the owner until that agreement is not converted into a sale.
3.               Sale is executed contact i.e., when both the parties perform their part whereas agreement to sell is an executory contract i.e., which is to perform in the future.
4.               Sale gives right in rem i.e., against the whole world whereas in agreement to sell it gives right in personal i.e., between the parties only.
5.               Sale is always of existing property whereas agreement to sell can be of existing property or future property.
6.               In sale, if after the contract of sale any loss is caused to the goods then the risk is to be borne by the buyer. (s.26) whereas in case of an agreement to sell, the seller is still the owner of goods so if there is any loss then that loss is to be borne by the seller only. (s.26)
7.               in case of sale, if the buyer refuses to pay the money then the unpaid seller may have the right to recover money u/s 46 whereas in case of an agreement to sell, if the buyer refuses to accept and pay then the seller may sue him for damages for non - acceptance.

Key Takeaways:

1.               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.
2.               Where the vendor transfers the ownership rights to the customer immediately on making the contract, it's the contract of sale, but where the ownership rights are to expire some future date upon the fulfillment of certain conditions then it's called an agreement to sell.
3.               Sale and agreement to sale are different.

3.2Conditions and Warranties

MEANING OF CONDITION

Sec 12(2) of Sales of Goods Act, 1930 has defined Condition as: “A condition may be a stipulation essential to the most purpose of the contract, the breach of which provides rise to a right to treat the contract as repudiated”.

• A condition may be a stipulation –

 (a) which is important to the most purpose of the contract

 (b) the breach of which provides the aggrieved party a right to terminate the contract.

• It goes to the basis of the contract.

• Its non-fulfillment upsets the very basis of the contract.

Example -

By charter party (a contract by which a ship is hired for the carriage of goods), it had been agreed that ship m of 420 tons “now in port of Amsterdam” should proceed direct to new port to load a cargo. Actually, at the time of the contract the ship wasn't in the port of Amsterdam and when the ship reached Newport, the charterer refused to load. Held, the words “now within the port of Amsterdam” amounted to a condition, the breach of which entitled the charterer to repudiate the contract.

WARRANTY

Sec 12(3) of Sale of Goods Act, 1930 has defined Warranty as: “A warranty is a stipulation collateral to the most purpose of the contract, the breach of which provides rise to only claim for damages but to not a right to reject the Goods and treat the contract as repudiated”.

• It may be a stipulation collateral to the most purpose of the contract

• It is of secondary importance

• If there's a breach of a guaranty, the aggrieved party can only claim damages and it's no right to treat the contract as repudiated.

DISTINCTION BETWEEN CONDITION AND WARRANTY

EXPRESS AND IMPLIED CONDITIONS AND WARRANTIES (TYPES)

• Conditions and Warranties could also be either express or implied.

• They are said to be "express" once they are expressly provided by the parties.

• They are said to be 'implied' when the law deems their existence in the contract even without their actually having been put in the contract. Sec (14 to17)

IMPLIED CONDITIONS:

• Conditions on title [Sec.14 (a)] [Rowland v. Divall,(1923)]

• Sale by description [Sec.15] [Bowes v.shand,(1877)]

• Condition on quality or fitness. [Sec.16 (1)]

• Conditions on Merchantability [Sec.16 (2)] [R.S.Thakur v. H.G.E. corp., A.I.R.(1971)] 

• Conditions implied by custom [Sec. 16(3)].

• Sale by Sample (Sec.17)

• Condition on wholesomeness.

• Warranty of Quiet possession-Sec.14 (6)

• Warranty against encumbrances-Sec.14(c)

• Warranty to disclose dangerous natures of Goods.

• Warranty on quality or fitness by usage of trade – Sec.16 (4).

DOCTRINE OF PRINCIPLE

• Caveat Emptor may be fundamentals of the law of sale of Goods

• It means "Caution Buyer", i.e. "Let the customer beware".

• It is that the duty of the customer to take care while purchasing goods of his requirement and within the absence of the enquiry from the customer, the vendor isn't sure to disclose every defect within the goods of which he could also be cognizant.

 EXCEPTIONS TO THE DOCTRINE OF principle (SEC16)

• In case of misrepresentation by the vendor

• In case of concealment of latent defect

• In case of sale by description

• In case of sale by sample

• In case of sale by sample and outline

• Fitness for a specific purpose

• Merchantable quality

PASSING / TRANSFER OF PROPERTY

• Transfer of property in goods from the vendor to the customer is that the main object of a contract of sale.

• “property in goods” means the ownership of Goods

• An article may belong to A although it's going to not be in his possession. B could also be in possession of that article although he's not its owner.

• It is vital to understand the precise moment of your time at which the property in goods passes from the vendor to the customer for the subsequent reasons

• Significance – Time of transfer of ownership of Goods decides various rights and liabilities of the vendor and buyer.

• Risk – Owner in touch the danger and not the one that merely has the possession

• Action against third party – Owner can take action and not the one that merely has possession.

Key Takeaways:

1.               A condition may be a stipulation essential to the most purpose of the contract, the breach of which provides rise to a right to treat the contract as repudiated.
2.               A warranty is a stipulation collateral to the most purpose of the contract, the breach of which provides rise to only claim for damages but to not a right to reject the Goods and treat the contract as repudiated.

3.3   Transfer of Ownership in Goods including Sale by Non-Owners

There are three stages in the recital of a convention of auction of commodities by a vendor. Viz.

1.                    Transfer of property in the goods;
2.                    Transfer of possession of the goods; and
3.                    Passing of the risk.

Transfer of assets in goods from the seller to buyer is the main object of a contract of sale. The possession of commodities whereas ownership of the goods refers to the custody or control of goods is known as Transfer of Assets. The assets in the commodities goes by the retailer to the purchaser for the subsequent reasons

1.                    Risk follows ownership: - Generally risk follows ownership. It is not important that the possession of the goods is transferred or not and whether the price has been paid or not. Thus, the risk of loss as a rule lies the owner. Sec 26 of Indian Sale of Goods Act states that goods remain at the sellers until the property there in is transferred to the buyer the goods are at the buyer’s threat, whether release has been ended or not. If deliverance has been deferred through the mistake of the customer or the retailer, the goods are at the risk of the party at fault. Thus ‘risk’ and ‘property’ go together.
2.                    Action against third party: - When the goods are in any why damaged or destroyed by the action of the third parties, it is only the owner who can bring action against third party.
3.                    Suit for price: - The seller can sue for price unless otherwise agreed, only if the goods have been the property of the buyer.
4.                    Bankruptcy of the vendor or consumer: - In the occasion of bankruptcy either the seller or the buyer the question whether the official receiver or assignee can take over the goods or not depends on whether the assets in the goods has approved from the vendor to the purchaser.

Passing of Property

The key systems for ascertaining when the property in commodities passes to the purchaser are as follows:

1.                    Commodities must be ascertained (Sec 18): - Where there is agreement for the deal of unascertained commodities, no assets in the goods is transferred to the buyer unless and until the goods are ascertained.
2.                    Intention of the parties: - Where there is a contract for the sale of specific or ascertained goods, the property in those passes to the buyer at the time when parties intend it to pass. The purpose of ascertaining the target of the parties, regard shall be had to the terms of contract, the conduct of the parties the circumstances of case.  Sec19(2)

These rules are follows: -

1.       Specific Goods: -

a. Passing of goods at the time of agreement - Where there is an unconditional agreement for the auction of specific commodities in a deliverable state, the property in the goods passes to the buyer when the contract is made even though the payment of the price or time of delivery of goods is made or not made.

 A state that the buyer would under the contract be bound to take delivery of the goods is known as Deliverance Sec 2(3).

2.       Passing of property delayed beyond the date of the contract: - Sec21

(a)                   Goods not in a deliverable state: - where there is a contract of sale for specific goods not in a deliverable state in that case the property in the goods passes to the buyer when the seller puts the goods into deliverable state.

(b)                  When the price of goods is to be ascertained by weighting Sec 22: - Where there is a contract of sale of goods in a deliverable state but the seller is bound to weight measure or test for determining price, the property does not pass until, such act is done and the buyer has notice, thereof.

3.       Unascertained goods: - Sec 23: - Where there is a contract for the sale of unascertained goods, the property in the goods does not pass to the buyer until the goods are ascertained. Sec 18. Sec 23(1) provides that where an agreement for sale of ascertained commodities by depiction and commodities of that portrayal and in a deliverable state are unconditionally appropriated to the contract, the assets in the commodities there upon passes to the purchaser.

‘Ascertainment’ is the process by which the goods answering the description are identified and a part. It is a unilateral act of the seller, i.e., be along may set a part of goods.

‘Appropriation’ involves selection of goods with the intention of using them with the mutual consent of the seller and the buyer, the appropriation must be unconditional when the seller does not reserve to himself the right of disposal of goods. If the contract is unvoiced as to the assets which is suitable for the commodities the party who under the contract is first to act is the one who appropriates.

         If the buyer tells the seller to send the goods by some mode of carriage, he is deemed to have given his assent in advance to the subsequent appropriation by the seller of the goods.

Key takeaways:

1.               Transfer of assets in goods from the seller to buyer is the main object of a contract of sale.
2.               ‘Ascertainment’ is the process by which the goods answering the description are identified and a part.
3.               ‘Appropriation’ involves selection of goods with the intention of using them with the mutual consent of the seller and the buyer, the appropriation must be unconditional when the seller does not reserve to himself the right of disposal of goods.

3.4   Performance of Contract of Sale

Performance of contract of sale means as regards the seller, delivery of the goods to the buyer, and as regards the buyer, acceptance of the delivery of the goods and imbursement for them, in, accord by means of the conditions of the Contract of Sale. Sec. (31).

 A contract of sale always involves reciprocal promises.

•                             Seller promises to deliver the goods.
•                             Buyer promises to accept the goods any pay for it.

In the absence of the contract, they are performed simultaneously and each party should be ready and willing to perform his promise.

Key takeaways:

1.  Performance of contract of sale means as regards the seller, delivery of the goods to the buyer, and as regards the buyer, acceptance of the delivery of the goods and imbursement for them, in, accord by means of the conditions of the Contract of Sale.

3.5   Unpaid Seller

Rights of Unpaid Seller against the goods and the buyer

Meaning

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

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

• A bill of exchange or other legal document has been received as a conditional payment, and therefore the condition on which it had been received has not been fulfilled by reason of the dishonor of the instrument or otherwise.

CONDITIONS:

• The term "seller" includes a person who is within the position of a seller, as, as an example, an agent of the vendor to whom the bill of lading has been endorsed or agent who has himself paid, or is directly liable for, the price.

• The seller shall be called an unpaid seller even when only alittle portion of the worth remains to be unpaid.

• It is for the non-payment of the worth and not for other expenses that a seller is termed as an unpaid seller.

• Where the complete price has been tendered by the customer and therefore the seller refused to simply accept it, the vendor can't be called as unpaid seller.

• Where the Goods are sold on credit, the vendor can't be called as an unpaid seller. Unless

• If during the credit period seller becomes insolvent, or

• On the expiry of the credit period, if the worth remains unpaid, Then, only the vendor will become an unpaid seller.

RIGHTS OF AN UNPAID SELLER

• Against goods: Where the property in goods has passed to the buyer: Right of lien, right of stoppage in transit, right of resale

• Against buyer personally: Where the property in goods has not passed to the buyer: Withholding delivery, Stoppage in transit, Resale

Right of lien (sec.47-49)

• The right of lien means the proper to retain the possession of the Goods until the complete price is received.

• Circumstances under the proper of lien are often exercised

• Where the Goods are sold with none 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 means the proper of stopping the Goods while they're in transit, to regain possession and to retain them till the complete price is paid.

• Conditions under which Right of stoppage in transit are often exercised

 (i) Seller must have parted with the possession of Goods,ie, the Goods must not be within the possession of the vendor

 (ii) The goods must be in course of transit

 (iii) buyer must become insolvent

Right of resale (sec.54)

An unpaid seller can resell the Goods under the subsequent circumstances:

 Where the Goods are of a perishable nature

i. Where the vendor expressly reserves the proper of resale if the customer commits a default in making payment

ii. 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 doesn't pay or tender within an inexpensive time.

REMEDIAL MEASURES:

Remedies for Breach of Condition and Breach of Warranty

As has already appeared (52), in the case of a breach of warranty, the injured party is entitled to damages, whereas in the case of a breach of condition, he has the alternative of treating the contract as being completely broken by non-performance.

The fact that the buyer has resold the goods does not necessarily preclude him from exercising his right to reject them for breach of condition if the inspection and rejection take place within a reasonable time.

The injured party may, however, elect to treat a breach of condition as merely a breach of warranty.

The Sale of Goods Act (Ont. s. 13; U.K. s. 11) provides: 13-(1) Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may waive the condition, or may elect to treat the breach of such condition as a breach of warranty, and not as a ground for treating the contract as repudiated.

In this section the word "or" must be read as a conjunction coordinating two phrases which are equivalent one to the other. The meaning seems reasonably plain, namely, that the injured party, instead of insisting on his right to be discharged on account of the other party's breach of condition, and to reject the goods, may waive this right, that is, may content himself with his right of action for damages as on a breach of warranty. Ewart (Waiver Distributed, pp. 148-150) criticizes the wording of the section on the ground that it seems to allow an alternative between waiving the condition (that is treating the condition as non-existent) and treating the breach of condition as a breach of warranty, and doubtless the section would be improved if the word "and" were substituted for "or," or if the words "may waive the condition or" were omitted.

Under a contract for the sale of goods to be delivered within a certain period of time. the buyer's right to require delivery within that period may be waived even after that period has expired; but it would seem that where the contract is within the Statute of Frauds (Sale of Goods Act, Ont. s. 6; U. K. s. 4), the waiver must be evidenced by writing.

Key takeaways:

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

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

• A bill of exchange or other legal document has been received as a conditional payment, and therefore the condition on which it had been received has not been fulfilled by reason of the dishonor of the instrument or otherwise.

References:

1.Commercial Law by John. A. Chamberlain

2. Business Law by B.B. Dam