THE SALE OF GOODS ACT, 1930

Definition of Sale of goods

A contract where by the seller transfers or agrees to transfer the property in goods to the buyer for a price.

Main features :
There must be at least two parties Transfer or agreement to transfer the ownership or property of goods The subject-matter of the contract must necessarily be Goods The consideration is price A contract of sale may be absolute or conditional All other essentials of a valid contract must be present 3

Essential Characteristics of Sale of Goods

1. Two parties: There should be two parties namely the buyer and seller. 2. Transfer of Property: Property here means ownership. Transfer of property in the goods is another essential of a contract of sales of goods. A mere transfer of possession of the goods cannot be termed as sale.
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Essential Characteristics of Sale of Goods (contd)

3. Goods: The subject-matter of the contract of sale must be goods.
goods means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass etc.
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Essential Characteristics of Sale of Goods (contd)

4. Price: The consideration for a contract of sale must be money consideration called the price .
5. Sale: Where under a contract of sale the property in the goods is immediately transferred at the time of making the contract from the seller to the buyer, the contract is called sale.

Essential Characteristics of Sale of Goods (contd)

6. No formalities to be observed: A contract of sales of goods can be made by mere offer and acceptance. Neither payment nor delivery is necessary at the time of making the contract of sale.
7. Includes both a sale and an agreement to sell. The term contract of sale is a generic term and includes both a sale and an agreement to sell
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Sale and Agreement to Sell

Points of Distinction
Transfer of property (ownership): In a sale the property in goods passes to the buyer immediately at the time of making the contract.
In an agreement to sell there is no transfer of property to the buyer at the time of the contract.
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Points of Distinction (contd..)

Risk of loss: The general rule is that unless otherwise agreed, the risk of loss passes with property Thus in case of sale, if the goods are destroyed the loss falls on the buyer even though the goods may never have come into his possession.
On the other hand, in case of an agreement to sell where the ownership in the goods is yet to pass from the seller to the 10 buyer, such loss has to be borne by the seller.

Points of Distinction (contd..)

Consequences of breach: In case of sale, if the buyer wrongfully neglects or refuses to pay the price of the goods, the seller can sue for the price, even though the goods are still in his possession.
In case of an agreement to sell, if the buyer fails to accept and pay for the goods, the seller can only sue for damages and not for the price.
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Points of Distinction (contd..)

Right of resale: In a sale, the property is with the buyer and as such the seller (in possession of goods after sale) cannot resell the goods.
In an agreement to sell, the property in the goods remains with the seller and as such he can dispose of the goods as he likes and the original buyer can sue him for the breach of contract only.
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Points of Distinction (contd..)

Insolvency of buyer before he pays for the goods In a sale, if the buyer is adjudged insolvent before he pays for the goods, the seller, must deliver the goods to the Official Receiver or Assignee.
But in an agreement to sell, in these circumstances, the seller may refuse to deliver the goods to the Official Receiver or Assignee unless paid for, as ownership has not passed to the buyers.
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Points of Distinction (contd..)

Insolvency of seller if the buyer has already paid the price: In a sale, if the seller is adjudged insolvent, the buyer is entitled to recover the goods from the Official Receiver or Assignee, as the property in the goods rests with the buyer.
On the other hand, in an agreement to sell, if the buyer has already paid the price and the seller is adjudged insolvent, the buyer can only claim as a creditor and not the goods because property in them still rests with the seller.
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Definition of `GOODS` under the Act 'Goods' means every kind of moveable property 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. Actionable claims and money are not included in the definition of goods. Thus, goods include every kind of moveable property other than actionable claim or money. Example - goodwill, copyright, trademark, patents, water, gas, and electricity are all goods and may be the subject matter of a contract of sale. The test is if the property on shifting its situation, does not lose its character, the said property shall be movable and fall within the definition of `Goods`. Which documents are considered as `DOCUMENTS OF TITLE TO GOODS` A document of title to goods may be described as any document used as proof of the possession or control of goods, authorising or purporting to authorise, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented.
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The following are documents of title to goods: Bill of Lading; Dock Warrant; Warehousekeeper's Certificate; Wharfinger's Certificate; Railway Receipt; Warrant or order for the delivery of goods; and any other document used in the ordinary course of business as a document of title .

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CLASSIFICATION OF GOODS
Goods may be classified into: 1. Existing Goods - Existing goods are those, which are owned or possessed by the seller at the time of the contract. Instances of sale of goods possessed but not owned by the sellers fire sales by agents and pledgees. Existing goods may be either: (a) Specific /Ascertained - goods identified and agreed upon at the time a contract of sale is made; or (b) Unascertained - goods arc goods indicated by description and not specifically identified. 2. Future Goods - Future goods" means goods to be manufactured or produced or acquired by the seller after making the contract of sale. 3. Contingent Goods - Contingent goods are the goods the acquisition of which by the seller depends upon a contingency which mayor may not happen. Contingent goods are a part of future goods.
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CONDITIONS AND WARRANTIES

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 In a contract of sale of goods various terms or stipulations regarding quality of the goods, price mode of payment, delivery of goods etc. are very important.
In law of sales major terms are called Conditions and minor terms are called warranties
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Condition
Condition Sec. 12 (2) defines as A condition is a stipulation essential to the main purpose of the contract, the breach of which gives the aggrieved party a right to repudiate the contract itself. In addition he can claim damages from the guilty party.

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Warranty
Warranty Sec. 12(3) defines 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, and not to avoid the contract itself.

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Example
A man buys a particular horse which is warranted quiet to ride and drive. If the horse turns out to be difficult to ride, the buyers only remedy is to claim damages. But if instead of buying a particular horse, a man asks a dealer to supply him with a quiet horse and the dealer supplies him with a diificult one, the stipulation is a condition, and the buyer can return the horse and can 22 also claim damages for breach of contract.

How to determine whether a stipulation is condition/warranty

Sec 12(4) lays down whether a stipulation in a contract of sale is a condition or a warranty. Example P goes to R, a horse dealer, and asks, I want a horse which can run at a speed of 30 kilometers per hour. The horse dealer points out a particular horse and says, This will suit you. P buys the horse. Later on P finds that the horse can run only at a speed of 20 kilometers per hour. There is a breach of condition, P can repudiate the contract, return the horse to R and get back the price. 23

But if P says to R, I want a good horse. R shows him a horse and says, This is a good horse and it can run at a speed of 30 kilometers per hour, and P buys the horse and finds later on that it can run at a speed of 20 kilometers per hour only, there a breach of warranty because the stipulation made by the seller did not form the very basis of the contract and was only subsidiary one. The seller gave the assurance about the running speed of the horse of his own without being asked by the buyer hence it is only of secondary important.
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Distinction between condition and warranty

1. As to value. A condition is a stipulation which is essential to the main purpose of the contract, whereas a warranty is a stipulation which is collateral to the main purpose of the contract.

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2. As to breach. The breach of a condition gives the aggrieved party the right to repudiate the contract and also to claim damages, whereas the breach of warranty gives the aggrieved party a right to claim damages only.

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3. As to treatment. A breach of condition may be treated as a breach of warranty. But a breach of warranty can not be treated as a breach of condition.

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When breach of condition is to be treated as breach of warranty

Voluntary waiver by buyer. Acceptance of goods by buyer Example: A agrees to supply B 10 bags of first quality sugar @ Rs. 625 per bag but supplies only second quality sugar, the price of which is Rs. 600 per bag. There is a breach of condition and the buyer can reject the goods. But if the buyer so elects, he may treat it as a breach of warranty, Accept the second quality sugar and claim damages 28 @ Rs. 25 per bag.

Voluntary waiver of condition: Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may (a) waive the condition, or (b) elect to treat the breach of the condition as a breach of the warranty [Sec 13 (1)]. If the buyer once decides to waive the condition, he cannot afterwards insist on its fulfilment. Acceptance of goods by buyer: 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 breach of warranty, unless there is a term of contract, express or implied, to the contrary [Sec 13 (2)].
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EXPRESS AND IMPLIED CONDITIONS AND WARRANTIES

Conditions and Warranties may be either express or implied. They are said to be "express" when the terms of the contract expressly provide for them. 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. (A) IMPLIED CONDITIONS The following are the implied conditions (1) Condition as to Title (2) Sale by Description (3) Sale by sample (3) Condition as to Quality or Fitness (4) Merchantable Quality

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IMPLIED CONDITIONS 1.Condition as to title: [Sec. 14(a)]. In a contract of sale, unless the circumstances of the contract are such as to show a different intention, there is an implied condition on the part of the seller that In the case of a sale, he has a right to sale the goods, and In the case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass. 2.Sale by description: [ Sec. 15] Where there is a contract for the sale of the goods by description, there is an implied condition that the shall correspond with the description. Example: A ship was contracted to be sold as a copper-fastened vessel to be taken with all faults, without any allowance for any defect whatsoever. The ship turned out to be partially copperfastened. Held, the buyer was entitled to reject. 3.Condition as to quality or fitness: [ Sec. 16 (1)] Normally, in a contract of sale there is no implied condition as to quality or fitness of the goods for a particular purpose. The buyer must examine the goods thoroughly before he buys them in order to satisfy himself. Example: An order was placed for some lorries to be used for heavy traffic in a hilly area. The lorries supplied were unfit and breakdown. There is a breach of condition as to fitness. 31

4.Condition as to merchantability: [ Sec. 16 (2)]. This means goods should be such as are commercially saleable under the description by which they are known in the market at their full value. Example: A firm of Liverpool merchants contracted to buy from a London merchant a number of bales of Manilla hemp to arrive from Singapore. The hemp was damaged by sea water in such a way that it would not pass in the market as Manilla hemp. Held, the goods were not of merchantable quality.
5. Sale by sample (Sec 17): [Sec. 17 (1)] An implied condition in which the bulk shall correspond with the sample in quality and shall have a reasonable opportunity of comparing the bulk with the sample. By condition, [Sec. 17 (2)] The goods shall be free from any defect, rendering the unmerchantable. The defect should not however be apparent on a reasonable examination of the sample. Example: In a contract of sale of brandy by sample, brandy coloured with a dye was supplied. Held, the buyer was not bound to the contact even though the goods supplied are even to the samples, as the defects were not apparent on reasonable examination of the sample.
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Sale by sample - A contract of sale is a contract for sale by sample where there is a term in the contract, express or implied, to that effect. In a sale by sample, the following are the implied conditions: 1. The bulk shall correspond with the sample in quality; 2. That the buyer shall have a reasonable opportunity of comparing the bulk with the sample; and 3. That the goods shall be free from any defects rendering them unmerchantable, which would not be apparent on reasonable examination of the sample. ExCertain shoes were sold by sample for the French Army. The shoes were found to contain paper not discoverable by ordinary inspection. Held, the buyer was entitled to the refund of price plus damages. In a contract for the sale of brandy by sample, the brandy that was supplied had been coloured with a dye. Held, the buyer was not bound by the contract, though the bulk corresponded with sample, since the defect could not have been located on reasonable examination of the sample [Mody v. Gregson 33 (1868) L.R.4Ex. 49.].

IMPLIED WARRANTIES 1.Warranty of quiet possession: [Sec. 14(b)]. In a contract of sale, unless there is a contrary intention, there is an implied warranty that the buyer shall have and enjoy quiet possession of the goods. If the buyer is in any way disturbed in the enjoyment of the goods in consequence of sellers defective title to sell, he can claim damages from the seller. 2.Warranty of freedom from encumbrances: [Sec. 14 (c). The goods are not subject to any change or right in favour of a third party. 3.Warranty as to quality or fitness by usage of trade: [Sec. 16 (4)]. An implied warranty as to quality or fitness for a particular purpose may be annexed by the usage of trade.

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Doctrine of Caveat Emptor

The maxim of caveat emptor means Let the buyer beware according to this it is the duty of the buyer to be careful while purchasing goods of his requirement, and in the absence of any inquiry from the buyer, the seller is not bound to disclose every defect in goods of which he may be aware. Example A buys a horse from B for riding but did not mention this. The horse was found fit only for carriage. A cannot claim damage. Pigs were sold "subject to all faults", and these pigs, being infected, caused typhoid to other healthy pigs of the buyer, it was held that the seller was not bound to disclose that the pigs were unhealthy. The rule of the law being 'Caveat Emptor'. [Goddard v. Hobbs 1878, 4 App. Cas. 13].
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Exceptions 1. Where the seller makes a false representation and buyer relies on that representation. The rule of "Caveat Emptor" will not apply and the buyer will be entitled to the goods according to that representation; 2. Where the seller actively conceals a defect in the goods, so that on a reasonable examination the same could not be discovered; 3. Where the buyer makes known to the seller the purpose for which he is buying the goods, and the seller happens to be a person whose business is to sell goods of that description, then there is an implied condition that the goods shall be reasonably fit for such purpose. The rule of Caveat Emptor will not apply; 4. In case of sale by description, there is implied condition as to their being of merchantable quality. However, if the buyer has examined the goods, this condition of "merchantability" extends only to hidden or latent defects. The defects, which such examination ought to have revealed, are not covered, i.e., the rule of Caveat Emptor will be applicable. Ex In Donoghue v. Stevenson (the `snail in the ginger-beer `case) it was held that manufacturers owed a duty to the ultimate consumer to take care in making their goods where there is no likelihood of their being examined before they reach the ultimate consumer. 36

Transfer of property

Section 26 Risk prima facie passes with property Unless otherwise agreed, the goods remain at the sellers risk until the property therein is transferred to the buyer, but when the property therein is transferred to the buyer, but when the property therein is transferred to the buyer, the goods are at the buyers risk whether delivery has been made or not. Provided also that nothing in this section shall affect the duties or liabilities of either seller or buyer as a bailee of the goods of the other party.

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2. The defendant purchased 975 bales of rice, being the whole contents of a gola, paid earnest money, and took part delivery of the rice. The rest was afterwards destroyed by fire. The property in the whole had passed to him and he was held liable to pay the balance of the price. The Union of India Vs. The West Punjab Factories Ltd. AIR 1966 SC 3. The defendant contracted to purchase 30 tons of apple juice. The plaintiff crushed the apples, put the juice in casks and kept it pending d3elivery. The defendant delayed taking delivery and the juice went putrid and had to be thrown away. The defendant was liable to pay the price; the seller had been in a position to sell the goods elsewhere and acquire other goods for the postponed time of delivery and he had not done so and there was some loss in the meanwhile, the responsibility for the loss would have fallen on him, but in the present case the seller had to keep the goods ready for delivery as and when the buyer proposed to take them. Demby Hammilton & Co. Ltd. Vs. Barden (Endeavour Wines Ltd) 1949
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Section 20 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 or the time of delivery of goods, or both, is postponed. Examples This section may be illustrated by the following examples: 1. Sale on the 4th January of a haystack on the sellers land at the price of 145 to the paid on the 4th February, the hay to be allowed to remain on the sellers land until the 1st May: no hay to be cut until the price was paid. The property in the haystack passed on the making of the contract and on the stack being destroyed by fire, the buyer must bear the loss Tarling Vs. Baxter (1827)
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Section 21 Specific goods to be put into a deliverable state

Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof. Example This section may be illustrated by the following example: Sale of the whole contents of a cistern of oil, the oil to be put into casks by the seller and then taken away by the buyer. Some of the casks are filled in the presence of the buyer, buy before any are removed, or the remainder are filled, filled, fire destroys the whole of the oil. The buyer must bear the loss of the oil which had been put into the casks, the seller that of the remainder .Rugg Vs. Minett (1089)

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Section 22 : Specific goods in a deliverable state , when the seller has to do anything thereto in order to ascertain price :
Where there is a contract for the sale of specific goods in a deliverable state, but the seller is bound to weigh, measure, test or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until such act or thing is done and the buyer has notice thereof. Sale of 289 specified bales of goatskin, containing 5 dozen in each bale, at a certain price per dozen. By the usage of the trade, it was the sellers duty to see whether the bales contain the number specified in the contract. Before the seller had done this the bales were destroyed by fire. The loss fell on the seller. Zagury vs Furnell(1809)
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Section 23 : Sale of unascertained goods and appropriation. 1. Where there is a contract for the sale of unascertained or future goods by description and goods of that description and in a deliverable state are unconditionally appropriated to the contract assent of the buyer or by the buyer with the assent of the seller, the property in the goods there upon passed to the buyer. Such assent may be expressed or implied, and may be given either before or after the appropriation made. 2. Delivery to the carrier - Where in pursuance of the contract the seller delivers the goods to the buyer or to the carrier or other bailee (whether named by the buyer or not) for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract.
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Example This section may be illustrated by the following example: 1. Sale of 20 hogsheads of sugar out sugar out of a larger quantity. The seller fills four hogsheads which the buyer takes away. Subsequently the seller fills sixteen more hogsheads, and informs the buyer of this asking him to come and take them away. The buyer promises to do so. The property has passed to the buyer.
2. Mr A contracts to sell to Mr B a certain quantity of liquor out of a big cask containing a much larger quantity. The required quantity is not separated or bottled. The property in the liquor does not pass to the purchaser.
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Section 24 Goods sent on approval or on sale or return

When goods are delivered to the buyer on approval or on sale or return or 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: (b) if he does not signify his approval or acceptance to the seller but retains the goods without giving notice of rejection, then, if a time has been fixed for the return of the goods, on the expiration of such time, and, if no time has been fixed, on the expiration of a reasonable time.
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Examples The section may be illustrated by the following examples: 1.Goods delivered on sale or return are pledged by the deliveree. He thereby becomes the buyer of the goods, and the original owner cannot recover the goods from the pledgee. 2. Goods delivered on sale or return to the defendant are delivered by him on similar terms to another. The latter in turn hands them to a fourth person, who loses them. The defendant, being unable to return the goods, must pay for them as if he had actually agreed to become the buyer.
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PERFORMANCE OF THE CONTRACT Section 31. Duties of the seller and buyer It shall be 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.

The general rule enunciated in this section follows from the nature of the contract of sale, by which the property in the goods is transferred, or agreed to be transferred, from the seller to the buyer in return for the price. There would be breach of the duty to accept when the buyer unjustifiably rejects the goods. Taking of delivery of the goods is an important aspect of the duty to accept and refusal to do so will constitute rejection of the goods and therefore , would amount to a non-acceptance of the goods. There is however a distinction between acceptance of goods and taking delivery of them. The buyer signifying his approval of the goods accepts them though he may not have taken delivery of the goods. It will be noticed that the Act does not expressly impose any duty to take delivery although it prescribes sanctions when there is delay in taking delivery.
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Section 32 Payment and delivery are

concurrent conditions :

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REMEDIES IN CASE OF BREACH BY BUYER AND SELLER

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Coverage
The rights of an unpaid seller
against the goods, and against the buyer personally

The rights of buyer

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Who is Unpaid Seller?

The seller of goods is deemed to be an unpaid seller
(a) when the whole of the price has not been paid or tendered; or (b) where a bill of exchange or other negotiable instrument has been received as a conditional payment

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Following are the characteristics of and unpaid seller.

He must sell goods on cash terms and not on credit, and He must be unpaid, either wholly or partly. He must not refuse to accept payment when tendered

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Rights of an Unpaid Seller

I. Rights of unpaid seller against the goods, and
Rights of unpaid seller against the buyer personally.

II.

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1. Rights of Unpaid Seller against the Goods

Right of lien; Right of stoppage of goods in transit; Right of resale

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Right of lien
Lien is the right to retain possession of goods and refuse to deliver them to the buyer until the price due in respect of them is paid or tendered.

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Right of lien (Contd..)

An unpaid seller in possession of goods sold is entitled to exercise his lien on the goods in the following cases:
(a) Where the goods have been sold without any stipulation as to credit; (b) Where the goods have been sold on credit, but the term of credit has expired: (c) Where the buyer becomes insolvent, even though the period of credit may not have yet expired.

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Right of Stoppage of Goods in Transit

The unpaid seller can exercise the right of stoppage in transit only if the following conditions are fulfilled: (i) The seller must have parted with the possession of goods (ii) The goods must be in the course of transit. (iii) The buyer must have become insolvent.

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Right of Resale
The unpaid seller a limited right to resell the goods in the following cases:
(a) Where the goods are of a perishable nature; or (b) Where such a right is expressly reserved in the contract in case the buyer should make a default; or

(c) Where the seller has given a notice to the buyer of his intention to resell and the buyer does not pay or tender the price within a reasonable time.
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Rights of Buyer

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Rights of Buyer
Suit for Damages for Non-delivery Suit for Specific Performance Suit for Breach of Warranty Suit for Recession of the contract and for the damages for the breach of condition Suit for Interest
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