Module

Law of Sale of Goods

•Section 2(7) "goods" means every kind of moveable 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 agreed to be severed before sale or under the contract of sale

An Actionable Claim is a plain unsecured debt which can be claimed by a person against another person and which can be enforced in civil courts according to law.Right to benefit of a contract falls within the definition of Actionable Claim.It means a claim to any debt other than a debt secured under a mortgage or hypothecation or pledge on any immovable or moveable property, possession of which is given to person or institution which gave the loan.

INTRODUCTION

Transactions in the nature of sale of goods form the subject matter of the Sale of

Goods Act, 1930.

The Act covers topics such as the concept of sale of goods, warranties and

conditions arising out of sale, delivery of goods and passing of property and

other obligations of the buyer and the seller.

It also covers the field of documents of title to goods and the transfer of

ownership on the basis of such documents. The Act came into force on 1 July,

1930.

Indian business persons, conducting their business against the backdrop of the

Sale of Goods Act, have not found it difficult to work out the several varieties of

contracts of sale of goods as resorted to in national and transnational business,

such as f.o.b. (free on board), c.i.f. (cost, insurance and freight) and ex-ship.

Cont….

Definition and Essentials of A Contract of SaleDefinition and Essentials of a Contract of Sale

1. There must be at least two parties

2. Transfer or agreement to transfer the ownership of goods

3. The subject matter of the contract must necessarily be goods

4. Price is the consideration of the contract of sale

5. A contract of sale may be absolute or conditional [s.4(2)].

6. All other essentials of a valid contract as per the Indian Contract Act, 1872 must be present

Sale and Agreement to Sell. Where under a contract of sale, the property (ownership) in the goods is transferred from the seller to the buyer, it is called a sale [s. 4(3)]. Thus, sale takes place when there is a transfer of ownership in goods from the seller to the buyer. A sale is an executed contract.

Cont….

Example. Ramanathan sells his car to Bhim for Rs 1 lakh. If all essential elements of a valid contract are present, it is a sale and therefore the ownership of the car stands transferred from Ramanathan to Bhim. This is so even where the payment of the price or the delivery of the car or both have been postponed.

Agreement to sell means a contract of sale under which the transfer of property in goods is to take place at a future date or subject to some conditions thereafter to be fulfilled.

Example. Amar agrees to sell certain goods to Akbar. The goods are on their way from London to Mumbai in a ship. The ownership in the goods will pass to the buyer when the goods come and the agreement is subject to the condition that the ship arrives at port with the goods.

Distinction between sale and agreement to sell

The difference between sale and agreement to sell is as follows:

Sale Agreement to sell 1. A sale is an executed contract. It is an executory contract. 2. Since the ownership has passed to the buyer, the

seller can sue the buyer for the price of the goods, if the latter makes a default in payment.

In case of breach, the seller can only sue for damages, unless the price was payable at a stated date.

3. It creates a right in rem, i.e., against the whole world.

It creates a right in personam, i.e., against specified person only.

4. In case of loss of goods, the loss will fall on the buyer, even though the goods are in the possession of the seller. It is because the risk is associated with ownership.

The loss in this case shall be borne by the seller, even though the goods are in the possession of the buyer.

5. In case, the buyer pays the price and the seller thereafter becomes insolvent, the buyer can claim the goods from the official receiver or assignee, as the case may be.

In this case, the buyer cannot claim the goods but only a rateable dividend for the money paid.

6. If the buyer becomes insolvent without paying the price, the ownership having passed to the buyer, the seller shall have to deliver the goods to the official receiver or assignee, as the case may be, except where he has a lien over the goods.

Under this, the seller can refuse to deliver the goods to the official receiver or assignee, as the case may be.

Cont….

GOODS AND THEIR CLASSIFICATIONMeaning of Goods. ‘Goods’ means every kind of movable property, other than

actionable claims and money; and includes stocks and shares. The term ‘goods’

excludes money. ‘Money’ means legal tender and not the rare coins which can

be sold and purchased as goods.

Documents of Title to Goods. Section 2(4) recognises the following as

documents of title of goods: bill of lading, dock warrant, ware-housekeeper’s

certificate, wharf 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.

Classification of Goods. Goods may be classified as existing, future and

contingent. Existing goods are those which are owned or possessed by the seller

at the time of the contract (s.6). Instances of goods possessed but not owned by

the seller are sales by agents and pledgees.

MEANING OF PRICE

Meaning. Price means the money consideration for the sale of goods. Price is

an integral part of a contract of sale. If price is not fixed, or is not capable of

being fixed, the contract is void ab initio.

Mode of Payment of the Price.

Earnest money. Also known as deposit, it is paid by the buyer in advance

as security for the due performance of his part of the contract. It is not paid as

part payment of price.

Incidence of taxation. Tax revision means any increase or decrease or

remission in customs, or excise duty, or any tax on the sale or purchase of goods

imposed. Thus, the buyer would have to pay the increased price if the tax

increases and would be entitled to the benefit of reduction if taxes are reduced.

However, this provision can be excluded by the parties by a term in the sale

agreement.

CONDITIONS AND WARRANTIESConditions and Warranties (Ss.11-17). In a contract of sale, parties make

certain stipulations, i.e., agree to certain terms. All stipulations cannot be treated

on the same footing. Some may be intended by the parties to be of a fundamental

nature, e.g., quality of the goods to be supplied, the breach of which, therefore,

will be regarded as a breach of the contract. Some may be intended by the

parties to be binding, but of a subsidiary or inferior character, e.g., time of

payment, so that a breach of these terms will not put an end to the contract but

will make the party committing the breach liable to damages. The former

stipulations are called ‘conditions’ and the latter ‘warranties’.

Example. Kaushal asks a dealer to supply him a shirt which would not shrink

after use and wash. The dealer supplies a shirt which shrinks after use and wash.

Kaushal can reject the shirt or keep the shirt and claim damages. Here the

stipulation to supply a shirt which would not shrink after use and wash is a

condition.

PASSING OF PROPERTY IN GOODSMeaning of ‘Property in Goods’. The phrase ‘property in goods’ means ownership of goods. The ‘ownership’ of goods is different from ‘possession’ of goods. The ‘possession’ of goods refers to the custody of goods, though normally a person.

Rules Regarding Passing of Property in Goods from the Seller to the Buyer. Sections 18 to 25 lay down the rules which determine when property passes from the seller to the buyer.

Specific or ascertained goods:

1. Specific goods in a deliverable state

2. Specific goods not in a deliverable state

Unascertained or future goods

Unconditional appropriation

Mode of appropriation

Seller reserving the right of disposal

Cont….

Risk Prima Facie Passes with Property. Section 26 (First paragraph) reads:

unless otherwise agreed, the goods remain at the seller’s risk until the property

therein is transferred to the buyer,

Example. A buys goods of B and property has passed to him; but the goods

remain in B’s warehouse and the price is unpaid. Before delivery a fire burns

down the warehouse destroying the goods. A must pay the price of the goods as

A was the owner.

Performance of A Contract of Sale of GoodsThe contract of sale of goods is to be performed. In this context, Ss.31-44 provide for the duties of the seller and the buyer and the rules regarding delivery of goods.

Duties of the Seller and the Buyer. It is 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 (s.31).

The seller has the duty of giving delivery of goods according to the (i) terms of the contract, and (ii) rules contained in the Act.

Delivery. Delivery is defined as a voluntary transfer of possession from one person to another [s.2(2)]. Section 33 provides that delivery of goods sold may be made by doing anything which the parties agree shall be treated as delivery or which has the effect of putting the goods in the possession of the buyer or of any person authorised to hold them on his behalf. Therefore, any other act, in addition to transfer of physical possession, which the parties agree to treat as equivalent thereto, has the effect of delivery. Cont….

Cont….

Rules regarding delivery. The following are the rules regarding delivery of goods:

1. Delivery of part of goods sold may amount to delivery of the whole if it is so intended and agreed.

2. Unless agreed otherwise, the seller is not bound to deliver goods, till the buyer applies for delivery (s.35).

3. Place of delivery.

4. Time of delivery.

5. Demand for and tender of delivery must be at a reasonable hour.

6. Delivery of wrong quantity.

7. Instalment delivery.

8. Delivery to the carrier or wharfinger (s.39).

9. Where goods are delivered to a buyer, which he has not personally examined.

10. Buyer not bound to return the rejected goods.

Unpaid Seller and His Rights

A contract is comprised of reciprocal promises. In a contract of sale, if seller is

under an obligation to deliver goods, buyer has to pay for it. In case buyer fails or

refuses to pay, the seller, as unpaid seller, shall have certain rights.

Who is an Unpaid Seller? A seller of goods is an unpaid seller when (i) the

whole of the price has not been paid or tendered. (ii) a bill of exchange or other

negotiable instrument has been received as conditional payment.

Rights of an Unpaid Seller. The rights of an unpaid seller may broadly be

classified under two heads, namely: (i) Rights under the Ss.73-74 of the Indian

Contract Act, 1872, i.e., to recover damages for breach of contract. (ii) Rights

under the Sale of Goods Act, 1930: (a) rights against the goods; (b) rights

against the buyer personally. The rights against the goods are as follows:Cont….

Lien on Goods (Ss. 47-49)

Right of Stoppage in Transit

Lien Stoppage-in-Transit

1. Available only when the goods are in the possession of the unpaid seller

Available only after the seller has parted with the possession of the goods.

2. Available, even when the buyer is not an insolvent.

Available only when the buyer becomes an insolvent.

Lien and Stoppage-in-Transit Distinguished

Right of Resale (s.54)

Remedies for Breach of A Contract

In addition to the rights of a seller against goods provided in Ss. 47 to 54, the

seller has the following remedies against the buyer personally. (i) suit for price

(s.55); (ii) damages for non-acceptance of goods (s.56); (iii) suit for interest

(s.56).

Buyer’s Remedies against Seller. The buyer has the following rights against

the seller for breach of contract: (i) damages for non-delivery (s.57); (ii) right of

recovery of the price; (iii) specific performance (s.58); (iv) suit for breach of

condition; (v) suit for breach of warranty (s.59); (vi) anticipatory breach (s.60);

(vii) recovery of interest (s.61).

Sale by Auction [s.64]

i. When the goods are put up for sale in lots, each lot is deemed prima facie, to be the subject matter of a separate contract of sale.ii. At an auction, the sale is complete when the auctioneer announces its completion by the fall of the hammer or in other customary manner; until such completion any bidder may withdraw his bid. It is also the practice to say ‘three times’.iii. A right to bid may be reserved expressly by or on behalf of the seller and where such right is expressly reserved but not otherwise, the seller or any person on his behalf may bid at the auction.iv. Where the sale is not notified to be subject to a right to bid on behalf of the seller, it shall not be lawful for the seller to bid for himself or to employ any person to bid at such sale, or for the auctioneer knowingly to take any bid from the seller or any such person. v. The sale may be notified to be subject to a reserved or upset price.vi. If the seller makes use of pretended bidding to raise the price, sale is voidable at the option of the buyer.

Implied Conditions• Regarding description • If sale is through a sample• Quality of fitness• On the part of the seller that, in the case of a sale, he

has a right to sell the goods and that, 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;

Implied Warranty

• (b) an implied warranty that the buyer shall have and enjoy quiet possession of the goods;

• (c) an implied warranty that the goods shall be free from any charge or encumbrance in favour of any third party not declared or known to the buyer before or at the time when the contract is made.

Doctrine Of Caveat Emptor Let the Buyer Beware

•Under the doctrine of Caveat Emptor, the buyer can not recover from the seller for defects on the property that rendered the property unfit for ordinary purposes.

•The only exception is if the seller actively concealed latent defects.

• A proof of purchase will validate the claim if a buyer wants to enforce his rights.

• In the case of software, movies and other copyrighted material many vendors will only do a direct exchange for another copy of the exact same title. Most stores require proof of purchase and impose time limits on exchanges or refunds; however, some larger chain stores will do exchanges or refunds at any time with or without proof of purchase.