CONTRACT OF SALE OF GOODS

SALE OF GOODS ACT, 1930

UNIT I

Sale of Goods Act, 1930

Indian Contract Act, 1872; Chapter VII Sections 76-123. Came into force on 1st July 1930. Act applies to whole of India except the State of Jammu and Kashmir. This Act lays down special provisions governing the contract on sale of goods.

Contract of Sale of Goods

Section 4 (1) of the Sale of Goods Act, 1930 defines A Contract of sale of goods is contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price

Essential Characteristics
There must be 2 parties (buyer and seller) Object of the contract must be transfer of property in the goods by one person to another Subject matter of the contract must be Goods Consideration for a sale of goods must be money consideration called the Price May be in writing or by word of mouth or partly in writing and partly by word of mouth or implied from the conduct of the parties A contract of sale includes both an actual sale and agreement to sell

Distinction between Sale and Agreement to Sell

Transfer of Property :
(S)Property in goods passes from seller to buyer immediately (ATS)Transfer of Property to goods take place at a future date or subject to certain conditions being fulfilled

Risk of Loss
(S) Loss falls on buyer even if seller possesses the goods (ATS) Loss falls on seller even if buyer possesses the goods

Nature of Contract
(S) Executed Contract (ATS) Executory Contract

Consequences of Breach of contract by buyer

(S) Seller can sue for price (ATS) Seller can sue only for damages

Distinction between Sale and Agreement to Sell

Right to Resell
(S) Cannot resell

Insolvency of Buyer
(S) before he pays, seller must return them to Official Receiver or Assignee, he will be entitled to a rate-able dividend only for the price of goods (ATS) Seller is not bound to part with goods until he is paid for

Insolvency of Seller
(S) Buyer can recover identical goods from the Official Receiver or Assignee (ATS) Buyer can claim a rate-able dividend from the sellers estate

Nature of rights
(S) Buyer acquires a jus in rem ie. Right against the whole world (ATS) Buyer acquires jus in personam ie. Right against a particular individual

Goods

Existing Goods

Future Goods

Contingent Goods

Specific Goods

Ascertained Goods

Unascertained Goods

Goods
Goods mean every kind of movable property and includes
Stocks and shares Growing crops, grass Things attached to or forming part of the land which can be severed from the land

Does not include money (currency not old or rare coins) and actionable claims (claim which can be enforced through the court of law).

Existing Goods
Existing Goods are those which are owned or possessed by the seller at the time of contract Specific and Ascertained goods identified and agreed upon at the time a contract of sale is made Generic and Unascertained goods indicated by description and not specifically identified

Future Goods
Goods to be manufactured or produced or acquired by the seller after making the contract of sale.

Contingent Goods
Goods the acquisition of which by the seller depends upon a contingency which may or may not happen.

Price
Money consideration for a sale of goods May be money actually paid or promised to be paid depending on the agreement (may be cash or credit) Modes of fixing price
Price expressly stated in contract Price to be fixed in manner provided by contract Price to be determined by the course of dealings between the parties Reasonable price Price fixed by third party (eg. valuer)

Document of Title of Goods

Any Document which is used in the ordinary course of business as proof of the possession or control of goods, or authorizing or purporting to authorize, either by endorsement or by delivery the possessor of the document to transfer or receive goods thereby represented is document of title of goods. It is proof of the ownership of the goods

Examples of Document of title to goods

Bill of lading (receipt given by ship owner acknowledging the receipt of goods for carriage) Dock Warrant (issued by dock owner [port ware housekeeper]; contains details of goods held on behalf of a person) Warehouse keepers certificate (issued by ware housekeeper stating that the goods specified in the document are in the warehouse)

Examples of Document of title to goods

Railway receipt (document issued by the railway as the acknowledgment of the receipt of goods; surrender of receipt entitles the delivery of goods) Delivery Order (order given by the owner of goods directing a person who holds the goods on his behalf to deliver them to a person named therein)

Conditions and Warranties

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. Sec 12 (2) Warranty is a stipulation collateral(incidental, subsidiary / minor) to the main purpose of the contract, the breach of which gives rise to only claim for damages but not to a right to reject the goods and treat the contract as repudiated

Test to determine whether a stipulation is a condition or a warranty

Breach fatal (irreparable damage) to the rights of the aggrieved party or not Entitlement to repudiation of the contract or not

Breach of Condition can be treated as a Breach of Warranty

Condition and Warranties

Conditions and Warranties may be either express or implied. Express : expressly (words written or spoken) provided by the parties Implied (given by law)

Implied Conditions Sec 14-17

Conditions as to title
In case of Sale, he has right to sell the goods; In case of Agreement to Sell, he will have a right to sell the goods at the time when the property is to pass right to sell contemplate not only that the seller has the title to what he purports to sell, but also that the seller has the right to pass the property. If the seller's title turns out to be defective, the buyer may reject the goods.

Implied Conditions Sec 14-17

Sale by Description
Correspond to Description

Sale by Sample
Correspond the sample in quality, free from defect. Applies to latent defect (which are not detectable on reasonable examination) If contract is severable, the buyer may reject some and accept others. If it is not severable, buyer has to accept whole or reject whole.

Sale by Sample as well as by Description

Correspond to both sample and description

Implied Conditions Sec 14-17

Conditions as to fitness or quality
This condition of fitness shall apply, if: The buyer makes known to the seller the particular purpose for which the goods are required, The buyer relies on the seller's skill or judgment, The goods are of a description which he sellers ordinarily supplies in the course of his business, and The goods supplied are not reasonably fit for the buyer's purpose.

Implied Conditions Sec 14-17

Condition as to Merchantability
Merchantable quality ordinarily means that the goods should be such as would be commercially saleable under the description by which they are known in the market at their full value.

Condition as to Wholesomeness
The provisions or foodstuff must not only correspond to their description, but must also be merchantable and wholesome. It means that goods must be for human consumption.

Implied Conditions Sec 14-17

Condition implied by custom or usage of trade
An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade. The purpose for which the goods are purchased may be implied from the conduct of the parties or from the nature or description of the goods.

Implied Warranties
Unless a contrary intention is expressed in a contract, warranties are implied to be followed in every contract of sale of goods Warranty of Quiet Possession
The buyer shall have and enjoy quiet possession of the goods. If the buyer's right to possession and enjoyment of the goods is in any way disturbed as consequences of the seller's defective title, the buyer may sue the seller for damages for breach of this warranty

Implied Warranties
Freedom from Encumbrance (A mortgage or other charge on property or assets)
The goods shall be free from any charge or encumbrance in favor of any third party not declared or known to buyer before or at the time when the contract is made. If the buyer is required to discharge the amount of the encumbrance it shall be a breach of this warranty and the buyer shall be entitled to damages for the same.

Implied Warranties
Disclosure of dangerous nature of goods
The seller must warn the buyer about the probable danger. If there is a breach of warranty, the seller will be liable in damages

Implied Conditions and Warranties

Implied conditions and warranties may be excluded or varied by
Express agreement between the parties The course of dealings between the parties The custom or usage of trade (if it binds both the parties to the contract)

Doctrine of Caveat Emptor

Caveat Emptor Latin Let the buyer beware Buyer purchases the goods at his own risk provided the seller is acting within the law. It is the buyers duty to select goods of his requirement.

Exceptions to Doctrine of Caveat Emptor

Condition as to quality or fitness for buyers purpose Condition as to merchantability Condition as to wholesomeness Conditions implied by customs Sale under a patent or trade name Consent obtained by fraud

Performance of Contract of Sale

Performance of respective duties of the seller and the buyer Performance comprises of two parts
Sellers duty to deliver the goods Buyers duty to accept the goods and pay the price

Delivery of Goods
Voluntary transfer of possession from one person to another Actual (goods are handed over by the seller to the buyer or his duly authorized agent), Symbolic (where goods are bulky and incapable of actual delivery; it is as effective as actual delivery eg. Handing over the key of warehouse), Constructive (When a third person who is in possession of goods of seller at time of sale acknowledges to buyer that he holds the goods on his behalf).

Rules as to Delivery of Goods

Mode of Delivery (may be actual, constructive or symbolic) Delivery and Payment (acc. to terms of contract) Effect of Part Delivery Buyer to apply for delivery (seller not bound till buyer applies for delivery) Place of Delivery (specified place, business hours on a working day)

Rules as to Delivery of Goods

Time of Delivery (fixed/reasonable time) Demand of delivery to be treated ineffectual unless made at a reasonable hour Goods in possession of third party (third party acknowledgement to buyer that he holds them on behalf; not needed if goods are sold by issue or transfer of document of title) Cost of Delivery (costs incidental to making delivery borne by seller; expenses incidental to obtaining delivery borne by buyer)

Rules as to Delivery of Goods

Delivery of wrong quantity (buyer may reject goods; 3 contingencies shortages, excess delivery and mixed delivery) Installment deliveries (only if agreed upon otherwise buyer not bound to accept) Delivery to carrier (for purpose of transmission to buyer) or wharfinger [is a structure on the shore of a harbor where ships may dock to load and unload cargo or passengers] (for safe custody) deemed to be delivery of goods to the buyer

Transfer of Title by Non-Owners

Nemo dat quod non habet : No one can give what he himself has not. Exceptions under Sale of Goods Act, 1930
Estoppel (by his conduct the owner of the goods may be precluded from denying the sellers authority to sell) Sale by a Mercantile agent (if he is in possession of goods or document of title with the consent of the owner and acting in the ordinary course of business)

Transfer of Title by Non-Owners

Exceptions under Sale of Goods Act, 1930
Sale by one of several joint owners (possible with the permission of other co-owners) Sale by a person in possession of goods under a voidable contract (buyer acquires a good title provided he buys them without notice of sellers defect of title) Sale by seller in possession after sale (if buyer buys without notice of the previous sale, the buyer gets a good title) Sale by an unpaid seller (after stoppage of goods in transit, buyer gets good title)

Transfer of Title by Non-Owners

Exceptions as provided in other laws
Sale by a Finder of Lost Goods (Indian Contract Act) Sale by Pawnee where pawnor makes default in payment Sale by a Official Assignee or Official Receiver in case of insolvency of an individual Sale by any liquidator of a company Execution Sales : Under Order 21 of Civil Procedure Code, Officers of Court can sell goods Sale by Executors and Administrators

Rights of the Buyer

Have Delivery of Goods Reject the Goods (defective delivery or short/excess supply) Not bound to accept delivery of goods in installments Notice of Insurance Examine the goods delivered Sue for breach of contract (for damages; for price; for specific performance; for repudiation before due date; for interest; for breach of warranty)

Duties of Buyer
Take delivery of and pay for goods To apply for delivery To demand delivery at a reasonable hour To take risk of deterioration Bear liability in case of neglecting or refusing delivery of goods (loss and charges for care and custody of goods) Duty to accept installment delivery and pay for it

Duties of Buyer
Duty to intimate the seller where he rejects the goods Duty to pay damages for non-acceptance Deliver the goods to carrier or wharfinger Examine the goods delivered

Breach of Contract
Rights of seller (If breach is by buyer)
Suit for price Damages for nonacceptance Damages for breach of contract Interest Special damages

Rights of buyer (If breach is by seller)

Damages for nondelivery Specific performance Remedy for breach of warranty Damages for breach of contract Interest Special damages

Rights of Unpaid-Seller
Unpaid Seller
If whole of price has not been paid or tendered When a bill or exchange or other negotiable instrument has been dishonored or otherwise

2 kinds of rights
Against the Goods Against the buyer personally

Against the Goods

When the property in the goods has passed
Right of Lien Right of stoppage in transit Right of Resale

When the property in the goods has not passed

Right of withholding delivery Right of Lien Right of stoppage in transit Right of Resale

 Lien means a right in which a creditor has to retain possession of goods until payment of the price. It depends on actual possession and not on title. Lien arises in following cases
No stipulation (condition / provision) as to credit Sale on credit and credit period expired Insolvency of buyer

Right of Lien

Termination of Lien
Delivery to carrier Lawful possession by buyer Waiver of lien by seller either expressly or impliedly

Right of stoppage in transit

Goods are deemed to be in course of transit from the time when they are delivered to a carrier or other bailee for the purpose of transmission to the buyer until the buyer takes delivery of them from such carrier. Transit is not ended even if the seller refuses to receive goods that are rejected by buyer Unpaid seller may exercise his right of stoppage either by taking actual possession of goods or by giving notice of his claim to the carrier in whose possession the goods are lying.

Right of Resale
Goods are of Perishable nature Seller gives notice to buyer of his intention to resell but price not paid by buyer within reasonable time; seller can resell goods and recover damages for any loss from original buyer. Seller does not give notice to buyer of his intention to resell and resells goods; he cannot recover damages for any loss from original buyer and have to give profit if any on resale, if any to the original buyer.

Against the Buyer Personally

Right to sue for price Right to sue for damages for non-acceptance Repudiation of contract before due date Right to sue for interest

Suit for price

When property in goods has passed to the buyer and the buyer wrongfully refuses to pay for the goods, seller may sue him for the price of the goods. When property is not passed and the goods have not been appropriated to the contract, if the price is payable on a certain day irrespective of delivery, the seller may sue the buyer

Suit for damages for nonacceptance

When buyer wrongfully neglects or refuses to accept and pay for goods seller may sue for damages. Where there is no default of the seller and the buyer wrongfully refuses to take goods within reasonable time the seller is entitled to recover
Any loss caused by buyers refusal to take delivery Any reasonable charge for the care and custody of the goods

Repudiation of Contract before due date

Where buyer repudiates before due date
Seller may wait till due date and sue for damages Seller may treat the contract as rescinded and sue for damages

This rule is called Rule of anticipatory breach of contract

Suit for Interest

Based on specific agreement about payment of interest of price of goods from the date on which payment becomes due In the absence of agreement, seller may recover interest from such date as the seller may notify to the buyer Court may also award interest at such rate as it thinks fit, on the amount of price to the seller in a suit by him for the price from the date on which the goods are supplied or from the date on which the price is payable.

Auction Sale
Public sale where different intending buyers try to outbid each other. Goods are ultimately sold to the highest bidder. Auctioneer : agent of the seller. Rules in cases of a sale by auction (Sec. 64)
Where goods are put up for sale in lots, each lot is deemed to be the subject of a separate contract of sale Sale is complete when auctioneer announces its completion by fall of hammer or in other customary manner

Auction Sale
Rules in cases of a sale by auction (Sec. 64)
Right to bid may be reserved expressly by or on behalf of the seller otherwise it shall not be lawful for the seller to bid himself or to employ any person to bid The sale may be notified to be subject to a reserve or upset price (specified); otherwise the highest bidder gets the goods Auctioneer cannot sell goods on credit or accept a bill of exchange

Auction Sale
Rules in cases of a sale by auction (Sec. 64)
Sale is voidable at the option of the buyer, if seller makes use of pretended bidding to raise the price.