INDIAN SALE OF GOODS ACT, 1930

INTRODUCTION

• The relating to sale of goods is contained in the Sale of Goods Act, 1930 which came into force on 1st July 1930.

• The act contains 66 sections.

• The Act extends to whole of India except the State of J&K.

• A few minor amendments in the Act were made by Sale of Goods (Amendment) Act, 1963.

DEFINITION OF CONTRACT OF SALE

• Section 4(1) of the Sale of Goods Act defines a contract of sale of goods as –

– “A contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price.”

ESSENTIALS OF A CONTRACT OF SALE

The definition reveals the following essential features of contract of sale:

• 1. Two parties:

– There should be two distinct parties to a contract of sale i.e. a buyer and a seller.

– A person cannot buy his own goods for e.g. when students of hostel take meals with a mess run by themselves on a cooperative basis, there is no contract of sale as the students are ‘undivided joint owners’ of the meals they are consuming.

– According to section 4(1) there may be a contract of sale between one part owner and another for e.g. if A and B jointly own a typewriter, A may sell his ownership in the typewriter to B, thereby making B the sole owner of the goods.

– However, there is an exception where a person may buy his own goods. Where a person’s goods are sold for execution of a decree, he may himself buy them, so as to save them from transfer of ownership to someone else.

• 2. Transfer of property(ownership):

– In a contract there is transfer of ownership from seller to buyer, as against transfer of mere possession or limited interest as in case of bailment or pledge.

• 3. Subject matter of contract must be goods:

– Goods means any movable property other than actionable claims and money.----

– The sale of immovable property is not covered under Sale of Goods Act.

• 4. Price is the consideration of the contract of sale:

– The consideration for contract of sale must necessarily be money (i.e. legal tender money), it may be in the form of cash, cheque, or through credit card)

– If for instance goods are offered as the consideration of goods , it will not amount to sale. It will be called barter.

– Further where there is no consideration , it amounts to gift and not sale.

– Cases where goods are sold for a definite sum and the price is paid partly in terms of valued up of goods and partly in cash, fall under the category of sale.

• E.g. 50 chairs, valued at Rs 300 each, were exchanged for 1000 kg of wheat @ Rs 10 per kg, the difference to be paid up in cash, the contract would be treated as one of sale.

SALE VS AGREEMENT TO SELL

• Transfer of property:

– In sale the property in goods passes to the buyer at the time of making the contract and immediately seller ceases to be the owner and buyer becomes the actual owner of goods. It creates a jus in rem i.e. gives right to the buyer to enjoy goods as against the whole world.

– In case of agreement to sell there is no transfer of property at the time of contract. The conveyance of property takes place later so that the seller continues to be the owner until to agreement to sell becomes a sale either by expiry of certain time or the fulfillment of some condition. An agreement to sell is jus in persona i.e. it gives right either to buyer or seller against the other for any default in fulfilling his part of agreement.

• Risk of loss:

– In case of sale the risk of loss passes with property (ownership) to the buyer (unless otherwise agreed). Thus if the goods are destroyed the loss falls on the buyer even though the goods never came into his possession because the property in goods has already passed to buyer

– On the other hand in case of agreement to sell where the ownership of goods is yet to pass from the seller to the buyer, such loss has to be borne by the seller even though the goods are in the possession of buyer.

• Consequences of breach:

– In case of sale if the buyer wrongfully neglects or refuses to pay the price of goods, the seller can sue for the price, even though the goods are still in his possession.

– In case of agreement to sell, if the buyer fails to accept and pay for goods the seller can only sue for damages and not for the price, even though the goods are in the possession of buyer.

• Right of resale:

– In sale the property is with buyer and the seller (in possession of goods after sale) cannot resell the goods.

– If he does so , the subsequent buyer having knowledge of previous sale does not acquire the title of goods.

– The original buyer can sue and recover the goods from the third person as owner, and can sue the seller for breach of contract as well as tort of conversion.

– The right to recover goods from third person is lost if the subsequent buyer had bought them bonafide without notice of previous sale.

– In agreement to sell the property in goods remains with the seller and as such he can dispose of goods as he likes and the original buyer can sue him only for breach of contract.

– On this case the subsequent buyer gets a good title to the goods, irrespective of his knowledge of previous sale.

• Insolvency of buyer before payment of goods:

– In a sale if the buyer becomes insolvent before payment he pays for goods he must deliver the goods to the Official Receiver or Assignee.

– The seller is entitled only to a rateable dividend for the price of goods.

– 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 the ownership has no passed to the buyer.

• 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 property rests with the buyer.

– On the other hand, in agreement to sell, if the buyer has already paid the price and the seller is adjudged insolvent, the buyer can only claim a rateable dividend (as a creditor) and not the goods because property in them still rests with the seller.

KINDS OF GOODS

• Goods’ form the subject-matter of a contract of sale. Goods may be classified into the following types:

– 1. Existing goods;– 2. Future goods; and– 3. Contingent goods

• 1.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.’

– Where seller is the owner, he has the general property in them.

– Where seller is in possession, say, as an agent or a pledgee, he has a right to sell them.

• Existing goods may again be either ‘specific’ or ‘unascertained.’

– (a)Specific goods.

• Goods identified and agreed upon at the time of the making of the contract of sale are called ‘specific goods’ [Sec. 2(4)].

• It may be noted that in actual practice the term ‘ascertained gods’ is used in the same sense as ‘specific goods.’

• For example, where A agrees to sell to B a particular radio bearing a distinctive number, there is a contract of sale of specific or ascertained goods.

– Unascertained goods.

• The goods which are not separately identified or ascertained at the time of the making of the contract are known as ‘unascertained goods.’

• They are indicated or defined only by description.

• For example, if A agrees to sell to B one bag of sugar out of the lot of one hundred bags lying in his godown, it is a sale of unascertained goods because it is not known which bag is to be delivered.

• But if a particular bag is separated from the lot of delivery, it becomes ascertained or specific goods.

• 2. Future goods.

– Goods to be manufactured produced or acquired by the seller after the making of the contract of sale are called ‘future goods’ [Sec. 2(6)].

– These goods may be either not yet in existence or be in existence but not yet acquired by the seller.

– It is worth noting that there can be no present sale of future goods because property cannot pass in what is not owned by the seller at the time of the contract.

– So even if the parties purport to effect a present sale of future goods, in law it operates only as an ‘agreement’ to sell’ (Sec. 6(3)].

• ILLUSTRATIONS – FUTURE GOODS

– A agrees to sell to B all the milk that his cow may yield during the coming year. This is a contract for the sale of future goods.

• – X agrees to sell to Y all the mangoes which will be produced

in his garden next year. It is contract of sale of future goods, amounting to ‘an agreement to sell’.

• – P contracts on 1 January 1990, to sell to B ten bales of

Egyptian cotton to be delivered and paid for on 1 March, 1990. This is a valid contract of sale, amounting to ‘an agreement to sell’, even though P has no cotton bales with him at the time of making the contract.

• 3.Contingent goods.

– Goods, the acquisition of which by the seller depends upon an uncertain contingency are called ‘contingent goods’ (Sec. 6(2)].

– Obviously they are a type of future goods and therefore a contract for the sale of contingent goods also operates as ‘an agreement to sell’ and not a ‘sale’ so far as the question of passing of property to the buyer is concerned.

– It is important to note that a contract of sale of contingent goods is enforceable only if the event on the happening of which the performance of the contract is dependent happens, otherwise the contract becomes void.

• ILLUSTRATIONS.

– A agrees to sell to B a specific rare painting provided, he is able to purchase it from its present owner. He is a contract for the sale of contingent goods.

– X agrees to sell to Y 25 bales of Egyptian cotton, provided the ship which is bringing them reaches the port safely. It is a contract for the sale of contingent goods. If the ship is sunk, the contract becomes void and the seller is not liable.

Perishing of Goods• Section 7 and 8 deal with of perishing of goods on the rights

and obligations of the parties to a contract of sale. Under these Sections the word ‘perishing’ means not only physical destruction of the goods but it also covers:

– damage to goods so that the goods have ceased to exist in the commercial sense, i.e., their merchantable character as such has been lost (although they are not physically destroyed). E.g. where cement is spoiled by water and becomes almost stone or where sugar becomes sharbat and thus are unsaleable as cement or sugar;

– loss of goods by theft (Barrow Ltd. Vs Phillips Ltd. 1929)

– where the goods have been lawfully requisitioned by the government (Re Shipton Anderson & Co. 1915)

• It may also be mentioned that it is only the perishing of specific and ascertained goods that affects a contract of sale.

• Where, therefore, unascertained goods form the subject-matter of a contract of sale, their perishing does not affect the contract and the seller is bound to supply the goods from wherever he likes otherwise be liable for breach of contract.

• Thus where A agrees to sell to B ten bales of Egyptian cotton out of 100 bales lying in his godown and the bales in the godown are completely destroyed by fire, the contract does not become void. A must supply ten bales of cotton after purchasing them from the market or pay damages for the breach.

Effect of Perishing of Goods

• 1. Perishing of goods at or before making of the contract (Sec. 7).

• This may again be divided into the following sub-heads:

– i) In case of perishing of the ‘whole’ of the goods.

• Where specific goods from the subject matter of a contract of sale (both actual sale and agreement to sell), and they, without the knowledge of the seller, perish, at or before the time of the contract, the contract is void.

• This provision is based either on the ground of mutual mistake as to a matter of fact essential to the agreement, or on the ground of impossibility of performance, both of which render an agreement void ab initio.

• ILLUSTRATIONS.

– (a) A sold to B a specific cargo of goods supposed to be on its way from England to Bombay. It turned out, however that before the day of the bargain the ship conveying the cargo had been cast away and the goods were lost. Neither party was aware of the fact. The agreement was held to be void. (Hastie vs Coturier)

– (b)A agrees to sell to B a certain horse. It turns out that the horse was dead at the time of bargain, though neither party was aware of the fact. The agreement is void.

• (ii)In case of perishing of only ‘a part of goods.

– Where in a contract for the sale of specific goods, only part of the goods destroyed or damaged, the effect of perishing will depend upon whether the contract is entire or divisible.

– If it is entire (i.e. indivisible) and part only of the goods has perished, the contract is void.

– If the contract is divisible, it will not be void and the part available in good condition must be accepted by the buyer.

• ILLUSTRATION

– There was a contract for the sale of parcel containing 700 bags of Chinese groundnuts of different qualities. Unknown to the seller 109 bags had been stolen at the time of the contract. The seller delivered the remaining 591 bags and on the buyer’s refusal to take them, brought an action for the price. It was held that the contact, being indivisible had become void by reason of the loss of the goods and the buyer was not bound to take delivery of 591 bags or pay for the goods (Barrow Ltd. Vs Philips Ltd.) (Note that had there been all bags of the same weight and quality for certain price per bag the contract would have been divisible and the buyer could only have avoided the contract as to those goods which had actually perished).

• 2. Perishing of goods before sale but after agreement to sell (Sec. 8).

– Where there is an agreement to sell specific goods and subsequently the goods, without any fault on the part of the seller or buyer, perish before the risk passes to the buyer, the agreement is thereby avoided, i.e. the contract of sale becomes void and both parties are excused from performance of the contract.

– This provision is based on the ground of supervening impossibility of performance which makes a contract void.

– If only part of the goods agreed to be sold perish, the contract becomes void if it is indivisible.

– But if it is divisible then the parties are absolved from their obligations only to the extent of the perishing of the goods (i.e., the contract remains valid as regards the part available in good condition).

– It must further be noted that if fault of either party causes the destruction of the goods then the party in default is liable for non-delivery or to pay for the goods, as the case may be (Sec. 26).

– Again, if the risk has passed to the buyer, he must pay for the goods, though undelivered (unless otherwise agreed risk prima facie passes with the property (Sec 26).

• ILLUSTRATIONS.

– (a) A buyer took a horse on a trail for 8 days on condition that if found suitable for his purpose the bargain would become absolute. The horse died on the 3rd day without any fault of either party. Held, the contract, which was in the form of an agreement to sell, becomes void and the seller should bear the loss (Elphick vs Barnes, 1880)

– (b) A had contracted to erect machinery on M’s premise, the price was to be paid on completion. During the course of the work, there was a fire which completely destroyed the premises and the machinery. It was held that both parties were excused from further performance and A was not entitled to any payment as the price was payable on the completion of entire work. (Appleby vs Myers, 1867)

• Effect of perishing of future goods.

– As observed earlier, a present sale of future goods always operates as an agreement to sell [(Sec 6(3)].

– As such there arises a question as to whether Section 8 applies to a contract of sale of future goods (amounting to an agreement to sell) as well?

– The answer is found in the leading case of Howell vs Coupland,1876,” where it has been held that future goods, if sufficiently identified, are to be treated as specific goods, the destruction of which makes the contract void. The facts of the case are as follows:

• ILLUSTRATION.

– C agreed to sell to H 200 tons of potatoes to be grown on C’s land. C sowed sufficient land to grow the required quantity of potatoes, but without any fault on his part, a disease attacked the crop and he could deliver only about ten tons. The contract was held to have become void.

The Price

• The money consideration for a sale of goods is known as ‘price’ [(Sec. 2(10)].

• We have already seen that the price is an essential element in every contract of sale of goods, that is, no valid sale can take place without a price.

• The price should be paid or promised to be paid in legal tender money, unless otherwise agreed.

• It may be paid in the form of a cheque, hundi, bank deposit etc. For it is not the mode of payment of a price but the agreement to pay a price in money that is requisite to constitute a valid contract of sale.

Modes of fixing the priceAccording to Section 9 the price may be fixed by one or the other of the following modes:

• 1. It may be expressly fixed by the contract itself.

– This is the most usual mode of fixing the price. The parties are free to fix any price they like and the court will not question as to the adequacy of price.

– But the sum should be definite. Where an alternative price is fixed, the agreement is void ab-initio as it involves an element of wager (Bourke vs Short).

– Thus, where A agrees to sell his cow to B for Rs. 5,000 if the cow gives 10 Kg milk every day but for Rs. 100 only if it fails to do so, there is a wagering agreement void ab-initio.

• 2. It may be fixed in accordance with an agreed manner provided by the contract.

– For example, it may be agreed that the buyer would pay the market price prevailing on a particular date, or that the price is to be fixed by a third party (i.e. valuer) appointed by the consent of the parties.

– But in the following cases where the agreement of the parties as to price is uncertain, price is deemed as ‘not capable of being fixed’ and hence the agreement is void ab-initio for uncertainty:

• (a) if the price is agreed to be whatever sum the seller be offered by any third party; or

• (b) if the price is left to be fixed by one of the contracting parties, expressly.

• Remember that if no price is fixed then the contract is not void for uncertainty because in that case law usually allows market price prevailing on the date of the supply of goods as the price bargained for.

• 3.It may be determined by the course of dealings between the parties.

– For example, if the buyer has been previously paying to a particular seller the price prevailing on the date of placing the order, the course of dealings suggest that in subsequent transactions also the price as on the date of order will be paid.

• 4. If the price is not capable of being determined to accordance

with any of the above modes

– The buyer is bound to pay to the seller a ‘reasonable price.’

– What is a reasonable price is a question of fact dependent on the circumstances of each particular case.

– Ordinarily, the market price of the goods prevailing on the date of supply is taken as reasonable price.

• Agreement to sell at valuation (Sec. 10)

– Where there is an agreement to sell goods on the terms that the price is to be fixed by the valuation of a third party and such third party fails to fix the price (either because he cannot value or because he does not want to value), the contract becomes void, except as to part of goods delivered and accepted, if any, under the contract, as regards which the buyer is bound to pay a reasonable price.

– If, however, any one of the two parties, namely the seller or the buyer, prevents the third party from making the valuation, the innocent party may maintain a suit for damages against the party in fault.

– Notice that although in this case also the contract becomes void, yet the party at fault is bound to compensate the other party for actual loss suffered by him because of the act of prevention.

• Self:– Difference between Sale and Hire Purchase– Difference between Hire Purchase and Agreement

to Sell.– Difference between Sale and Contract for Work

and Labor.