Brain Booster Articles
SALES OF GOODS ACT, 1930 -AN OVERVIEW
Author: Ms. Meghul Dixit, V year of B.A.,LL.B.(Hons.) from Chanderprabhu Jain College of Higher Studies and School of Law affiliated to Guru Gobind Singh Indraprastha University, Delhi .
CONTRACT OF SALE
Meaning: The expression 'Contract of Sale", literally means “ a contract where one person transfers absolute interest in the subject matter (movableproperty/goods) to another in lawful consideration for price paid orpromised., partly paid and partlypromised. The transferor is called the Seller or Vendor .Thetransferee is called the Buyeror Purchaser or Vendee., and theconsideration is called “price”.
Definition: Section 4(1) of the Sale of Goods Act, 1930defines "Contract of Sale of Goods, as a contract whereby theseller transfers or agrees to transfer the property in goods to the
buyer for a price".
The person who sells or agrees to sell is called 'Seller orVendor (Sec.2(13).
The person who buys or agrees to buy is called 'Buyer or Purchaser (Sec.2(1).
The contract between theSeller and Buyer is called 'the contract of sale'.
The contract of sale includes both Sale andAgreement to sell.
The sale is an executed or absolute contract whereas ‘an agreement to sell’ is an executory contract and implies a conditional sale.
A contract of sale can be made merely by an offer, to buy or sell goods for a price, followed by acceptance of such an offer. Interestingly, neither the payment of price nor the delivery of goods is essential at the time of making the contract of sale unless otherwise agreed.
Subject to the provisions of the law for time being in force, a contract of sale may be made either orally or in writing, or partly orally and partly in writing, or may even be implied from the conduct of the parties.
To constitute a contract of sale, the following ingredients are to be satisfied-
There must be atleast two parties.
There must be an agreement between the two parties.
The subject matter of the contract must be "goods”.
There must be a transfer of subject matter (goods) from seller to the buyer.
There must be a lawful consideration known as ‘price'.
Two Parties: To constitute Sale, there must be atleast two parties-a seller and a buyer and they must be differentpersonsfor a person cannot buy his own goods.
For example, A and B jointly own a sofa set, A may transfer his ownership in the television set to B, thereby making B the sole owner of the goods. In the same way, a partner may buy goods from the firm in which he is a partner, and vice-versa.
Agreement: To constitute a transaction of sale there should be an agreement express or implied, relating to goods to becompleted by passing ofthe title in those goods. There must be anagreement between the parties for the sale of the very goods inwhich eventually property passes.
Goods: The subject matter of the contract of sale mustalways be goods. The word "goods has been defined in section2(7) of the Sale of Goods Act, 1930. According to it goodsmeans 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 agreedto be severed before sale or under the contract for sale.
Transfer: One of the most essential elements of a contractof sale is the transfer of the property in goods to the buyer. Indeed, it is the essence of a contract of sale. But transfer of property ingoods has to be distinguished from "a mere transfer of goods by the owner from one place to another which does not amount to sale.
When a customer goes to a restaurant and orders food and in respect of which he pays theprice indicated therein and the said food items are supplied to him ,it would clearly be a case of transfer of property in the goods to the customer . Whether the customereats the entire or part of the dish or chooses not to eat at all wouldmake no difference if he pays for the dishes supplied. The moment the dish is supplied and sale price paid, it would amount to a sale.
Price: Yet another essential elements of a contract of sale is price i.e. consideration in terms of money. Since an agreement without consideration is void by Virtue of Section 25 of Indian contract Act, 1872, a contract of sale Will not be complete without some consideration. In case of a contract of sale, the consideration must be some price, i.e., consideration in terms of money. It is this special feature which distinguishes a contract ofSale from a barter or exchange. What is required is that there must be some consideration in money. Therefore, where goods are exchanged partly for goods and partly for money, or for exchange of goods or alternatively the price, it will still constitute a contract of sale.
SUBJECT MATTER OF CONTRACT OF SALE
The subject matter of contract of sale is always the goods. This is enshrined in the Sale of Goods Act, 1930 under Sections 6, 7 and 8. Thus every type of movable property falls within the definition of the ”goods” given under Section 2(7) of the Sales of Goods Act, 1930. Goodwill, patents, trademark, copyrights etc. are considered as movable properties. Though actionable claims and money have been excluded. Money here means current money, but not the rare or old coins which may be treated as goods bought and sold as such.
In re Associated Hotel of India Ltd ,The Supreme Court held that there is no deal when food and drinks are offered to guests in the hotel. In Northern India Caterers v. Lt Governor of Delhi, it was found that the foods provided to the visitors in the club cannot be called a sale deal.
The Section 6 of the Act lays down followingprovisions –
(1) The subject matter of contract must always be goods. The goods may be existing or future goods.
(2) Like an ordinary contract, a contract of sale of goods can also be made with regard to the goods, the acquisition of which by seller depends upon a contingency, which may or may not happen. Thus, a contract for sale of certain cloth to be manufactured by a certain mill is a valid contract. Such contacts are called contingent contracts.
(3) When the seller purports by his contract of sale to effect a sale of future goods, the contract will operate only as an agreement to sell the goods and not as sale.
KINDS OF GOODS
(A) Existing Goods
The goods that are referred to in the contract of sale are termed as existing goods if they are present (in existence) at the time of the contract. In sec 6 of the Act, the existing goods are those goods which are in the legal possession or are owned by the seller at the time of the formulation of the contract of sale. The existing goods are further of the following types:
According to the sec 2(14) of the Act, these are those goods that are “identified and agreed upon” when the contract of sale is formed. For example, you want to sell your mobile phone online. You put an advertisement with its picture and information. A buyer agrees to the sale and a contract is formed. The mobile, in this case, is specific good.
This is a type not defined by the law but by the judicial interpretation. This term is used for specific goods which have been selected from a larger set of goods.
For example, you have 500 apples. Out of these 500 apples, you decide to sell 200 apples. To sell these 200 apples, you will need to separate them from the 500 (larger set). Thus you specify 200 apples from a larger group of unspecified apples. These 200 apples are now the ascertained goods.
These are the goods that have not been specifically identified but have rather been left to be selected from a larger group. For example, from your 500 apples, you decide to sell 200 apples but you don’t specify which ones you want to sell. A seller will have the liberty to choose any 200 apples from the lot. These are thus the unascertained goods.
(B) Future Goods
In sec 2(6) of the Act, future goods have been defined as the goods that will either be manufactured or produced or acquired by the seller at the time the contract of sale is made. The contract for the sale of future goods will never have the actual sale in it, it will always be an agreement to sell. For example, you have an apple orchard with apples in it. You agree to sell 1000 apples to a buyer after the apples ripe. This is a sale that has to occur in the future but the goods have been identified already and the agreement made. Such goods are known as future goods.
(C) Contingent Goods
Contingent goods are actually a subtype of future goods in the sense that in contingent goods the actual sale is to be done in the future. These goods are part of a sale contract that has some contingency clause in it.
For example, if you sell your apples from your orchard when the trees are yet to produce apples, the apples are a contingent good. This sale is dependent on the condition that the trees are able to produce apples, which may not happen.
Destruction of subject matter of a contract (Sections 7 & 8)
a. Goods not existing at the time of contract: If at the time a contract of sale is entered into, the subject-matter of a contract being specific goods, which without the knowledge of the seller have been destroyed or so damaged as not to answer to the description in the contract, and then the contract is void ab initio. The Section is founded on the rule that where both the parties to a contract are under a mistake as to a matter of fact essential to a contract, the contract is void.
b. Goods perishing after the contract is made: Where there is an agreement to sell specific goods and the goods, subsequently without any fault of the seller or the buyer perish or suffer such damages as not to answer to the description in the agreement before the risk passes to the buyer, the agreement becomes void (Section 8). This would apply only if the risk had not passed to the buyer. Generally, risk passes with property i.e., when the property in the goods sold has passed to the buyer bears the risk of subsequent destruction of, or damage to the goods.
CONDITIONS AND WARRANTIES
Section 11 to 13 under Chapter II of the Sales of Goods Act, 1930 lay down the provisions relating to conditions and warranties or express conditions and warranties.
Section 11 deals with Stipulations as to time: Unless a different intention can be ascertained from the contract, stipulations as to the time of payment are not considered 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 will ultimately depend on the terms of the contract.
This means that whether the stipulations as to the time of payment of the price is of the essence of the contract or not depends on the terms of the contract. Unless the terms of the contract specify something different than this.
Aron & Co. v Comptoir Wegmont
There was an offer of sale of goods c.i.f. Antwerp to be shipped in October. The vendor was not to reject delivery even if there was any difference in the type or value or grade specified. The goods couldn’t be transported till November by virtue of strike at the port. It was held that the purchaser could decline to take delivery of the goods.
Section 12 deals with conditions and warranties
(1)A stipulation in a contract of sale with reference to goods which are the subject thereof may be a condition or a warranty.
(2) 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”.
(1) 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.
(2) 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.
A condition is a stipulation essential to the main purpose of the contract, the breach of which gives the right to repudiate the contract and to claim damages. (Sec 12 (2)).
Certain terms, obligations, and provisions are imposed by the buyer and seller while entering into a contract of sale, which needs to be satisfied, which are commonly known as Conditions. The conditions are indispensable to the objective of the contract.
For example ‘X’ wants to purchase a car from ‘Y’, which can have a mileage of 20 km/lt. ‘Y’ pointing at a particular vehicle says “This car will suit you.” Later ‘X’ buys the car but finds out later on that this car only has a top mileage of 15 km/ litre. This amounts to a breach of condition because the seller made the stipulation which forms the essence of the contract. In this case, the mileage was a stipulation that was essential to the main purpose of the contract and hence its breach is a breach of condition.
Types Of Conditions
1) Expressed Condition
The term defines the statement as a condition which says that something should be exist or shouldbe there for the fulfilment of contract. These condition are generally imperative to the functioning and are done only when both the parties are agree on the said or expressed condition.
2) Implied Condition
In this type of contract there are several conditions which are implied to the parties in different kind of contracts of sale. The conditions exists even if they have not been there in contracts.
In Baldry v Marshall
A consulted a car seller for the acquisition of a car appropriate for touring purposes. The vendor sold a car saying that it will deliver the needs of a buyer. The car ended up being unfit for touring purposes. It was held that the purchaser can restore the car and get back the cost as well as damages, on the ground of breach of condition. In this case, the contract will not be void if the purchaser demands for a good car.
WARRANTY (Sec 12(3) )
A warranty is a stipulation collateral to the main purpose of the said contract. The breach of warranty gives rise to a claim for damages. However, it does give a right to reject the goods or treat the contract as repudiated. In other words warranty is a stipulation which is not essential to the main purpose of contract and if it will get breach then buyer can only claim the damages.
A warranty is a guarantee given by the seller to the buyer about the quality, fitness and performance of the product. It is an assurance provided by the manufacturer to the customer that the said facts about the goods are true and at its best. Many times, if the warranty was given, proves false, and the product does not function as described by the seller then remedies as a return or exchange are also available to the buyer i.e. as stated in the contract.
A warranty can be for the lifetime or a limited period. It may be either expressed, i.e., which is specifically defined or implied, which is not explicitly provided but arises according to the nature of sale like:
Warranty related to undisturbed possession of the buyer.
The warranty that the goods are free of any charge.
Disclosure of harmful nature of goods.
Warranty as to quality and fitness.
For example - A man buys a particular car, which is warranted to be quite to drive and very comfortable. It turns out that after some days the car starts to make a very unpleasant noise every time it is operated. Also sitting inside it is also not very comfortable.
Thus the buyer’s only remedy is to claim damages. This is not a breach of the condition but rather a breach of warranty, because the stipulation made by the seller was only a collateral one.
Types of Warranties
1) Expressed warranty
In this the warranty generally both the parties are interested in contracts and warranty is accepted by both the parties expressly.
2) Implied warranty
In this type of warranty the parties generally assumes that the warranties have been incorporated at the time of contract of sale. The warranties which are implied are not specifically mentioned in the contracts.
Section 13 deals with- When condition to be treated as warranty
In the following circumstances, a Condition may be Treated as a warranty –
(1) Voluntary waiver
Where a contract of sale is subject to any condition to the 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 relating the contract as repudiated.
(2) Contract Severable
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.
(3) Difference as to Treatment
Where the aggrieved party has contended with the damages, a breach of condition may be treated as the breach of warranty.
UNPAID SELLER AND RIGHTS OF UNPAID SELLER
The contract of sale is complete and valid, whether the price is fully paid or promised to be paid , partly paid and partly promised. Unpaid vendor or seller is one, whohas not been paid the whole of the price.
According to Section 45(1) of the Sale of Goods Act 1930," a seller is deemed to be an unpaid seller/vendor:
1) when the whole of the price has not been paid ortendered; or
2) when a negotiable instrument (Cheque, Bill of Exchangeetc.) received as a conditional payment has beendishonoured"
Basically ,an unpaid seller is one whose entire price has not been paid or tendered has accepted a bill of exchange for the price, but such bills have been dishonoured.
Rights of Unpaid Seller against goods
Lien is a right which seller of goods can exercise when a buyer has not paid the price of goods, under this right seller can retain the possession of goods as an agent or Bailee for the buyer. The seller can retain his possession as per Section 47 under the following circumstances:
1- In case the buyer is insolvent.
2- When the term of goods sold on credit is expired.
3- Goods sold without any stipulation as to credit.
When the goods are sold on credit the right to lien is suspended during the term of credit and lien exist only for the price of goods, not any additional charges.
When the goods have been transferred to carrier or Bailee for the purpose of transmission to the buyer, who has become insolvent, the seller has the right to stop the goods in transit in order to protect himself against the loss that may arise due to insolvency. As per Section 50, there are four essential requirements for stopping the goods in transit:
Exercising the right of lien or stoppage does not rescind the agreement but reselling of goods does and without this right, the other two rights of lien and stoppage would not be of much usage because he can only retain goods under these right till the buyer pays back the money.
Rights of Unpaid Seller Against Buyer
When the buyer of goods does not pay his dues to the seller, the seller becomes an unpaid seller. And now the seller has certain rights against the buyer. Such rights are the seller remedies against the breach of contract by the buyer. Such rights of the unpaid seller are additional to the rights against the goods he sold.
a- Suit for Price
Under the contract of sale if the property of the goods is already passed but he refuses to pay for the goods the seller becomes an unpaid seller. In such a case. the seller can sue the buyer for wrongfully refusing to pay him his due.
But say the sales contract says that the price will be paid at a later date irrespective of the delivery of goods,. And on such a day the if the buyer refuses to pay, the unpaid seller may sue for the price of these goods. The actual delivery of the goods is not of importance according to the law.
b- Suit for Damages for Non-Acceptance
If the buyer wrongfully refuses or neglects to accept and pay the unpaid seller, the seller can sue the buyer for damages caused due to his non-acceptance of goods. Since the buyer refused to buy the goods without any just cause, the seller may face certain damages.
The measure of such damages is decided by the Section 73 of the Indian Contract Act 1872, which deals with damages and penalties. Take for example the case of seller A. He agrees to sell to B 100 litres of milk for a decided price. On the day, B refuses to accept the goods for no justifiable reason. A is not able to find another buyer and the milk goes bad. In such a case, A can sue B for damages.
c- Repudiation of Contract before Due Date
If the buyer repudiates the contract before the delivery date of the goods the seller can still sue for damages. Such a contract is considered as a rescinded contract, and so the seller can sue for breach of contract. This is covered in the Indian Contract Act and is known as Anticipatory Breach of Contract.
d- Suit for Interest
If there is a specific agreement between the parties the seller can sue for the interest amount due to him from the buyer. This is when both parties have specifically agreed on the interest rate to be paid to seller from the date on which the payment becomes due. But if the parties do not have such specific terms, still the court may award the seller with the interest amount due to him at a rate which it sees fit.
The sales of goods act, 1930 lays down certain compulsory rules for the regulation of business and and contracts relating to selling and buying of goods between the parties.