1 Indian Sale of Goods Act 1930

Contract of Sale of Goods

Definition It is a contract whereby the Seller transfers or agrees to transfer the property in the goods (i.e. ownership of goods) to the buyer for a price. Contract of sale may be 1) Absolute or 2) Conditional, according to the desire of the parties. he term !Contract of Sale ! includes an !actual sale" as well as !agreement to sale". #here contract of sale is e$ecuted i.e. the property in the goods has passed from the seller to the buyer, it is called sale, but where the contract is e$ecutory i.e. the transfer of property in goods is to ta%e price at a future time or sub&ect to some condition thereafter to be fulfilled it is an agreement to sale. he difference between sale and agreement to sale is of 'ital importance since the two ha'e different legal effects.

Distinction between sale and agreement. 1) In sale, the property in goods sold passes to the buyer so that the seller is no more the owner

of the goods but it is the buyer who owns them. In an agreement to sale the ownership does not pass to the buyer at the time of contract so that the seller continues to be the owner until the agreement to sell becomes an actual sale by the e$piry of certain time or the fulfillment of some conditions. 2) Sale is an e$ecuted contract. An agreement to sale is an e$ecutory contract. () Sale is contract plus con'eyance and creates &us in rem (i.e. gi'es right to buyer to en&oy

goods as against the whole world). An agreement to sell is a contract pure and simple and thus creates merely &us in personam (i.e. gi'es a right to either buyer or seller against the other for any default in fulfilling his part of the agreement). )) In a sale, the seller can sue for the price e'en though the goods are in his possession.

2 *ut in agreement to sell his only remedy is to sue for damages if buyer fails to accept and pay for the goods.

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In a sale, seller,s breach gi'es the buyer double remedy, a suit for damages against the seller

and the proprietary remedy in respect of the goods so that if the goods are sold to third parties, he can sue and reco'er them as owner from the third parties. In an agreement to sale the seller being still the owner he can dispose of the goods as he li%es and the buyer,s remedy for sellers breach is a suit for damages. -) In sale, if goods are destroyed by an accident, the loss falls on the buyer e'en though the

goods are with the seller. In similar circumstances in an agreement to sale the loss falls on the seller, e'en though the goods are in the possession of the buyer.

Distinction between Sale and Bailment In a contract of bailment, goods are deli'ered by one person (bailor) to another (bailee) for a certain purpose on the condition that when that purpose is o'er the goods will be returned bac%. he ownership does not pass to the bailee. It is only the possession that is gi'en to him. In sale, the deli'ery of goods is made by the seller to the buyer for a price and the buyer becomes the owner of the goods and can deal with them as he li%es.

Distinction between Sale and Gift #here goods are transferred by one person to another without any price the transaction is called a gift. In a gift ownership of the goods passes to the donee and thus the price element is absent. his is not in sale.

3 Distinction between Sale, Barter and !c"ange It is necessary for sale that goods must be e$changed for a money consideration called the price. #here goods are e$changed for goods, it does not amount to sale but only to barter. If money is e$changed for money it will be a transaction of e$change and not a sale.

Distinction between Sale, #ortgage, $ledge and %&'ot"ecation of goods .ortgage of goods is a transfer of interest in goods from a mortgagor to a mortgagee to secure a debt. A pledge is a bailment of goods by one person to another to secure payment of a debt. If pledger ma%es default in paying the debt the pledgee may sell the goods after due notice to the pledger. A hypothecation of goods is an e/uitable charge on goods without possession, but not amounting to a mortgage. All the three are different from sale, because the ownership is not transferred by one party to the other in any of them. he essence of a contract of sale is the transfer to general property in goods for a price.

Distinction between Sale and %ire $(rc"ase Agreement he hire0purchase agreement is a de'elopment of modern commercial transactions. 1ere the owner of goods deli'ers the goods to a person who agrees to pay certain stipulated periodical payments as hire0charges. hough the possession of the goods is with the hirer, the ownership still remains with the original owner. If the payments are made regularly, the hirer gets the option of purchasing the goods on ma%ing the full payment. *efore this option is e$ercised, the hirer may return the goods hired. he essence of hire0purchase agreement is that there is no agreement to buy, but only an option is gi'en to the hirer to buy under certain conditions so that the hirer has a right to become the owner after paying regularly the stipulated rent or to return the goods and put an end to hiring.

4 ssential lements of Sale 1) buyer. 2) A price in money must be paid or promised to be paid. here must be some goods, the general property in which is transferred from the seller to the

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here must be seller and buyer two persons are necessary to complete a sale, as the same

person can not be both seller and buyer. A person cannot buy his own goods as there is nothing to buy. )) here must be a transfer of ownership from the seller to the buyer. he transfer must be of

the absolute or general property in the goods sold. In law, transfer of general property is called sale while transfer of special property is not sale. In pledge special property is transferred from pledger to pledgee. +) All the essential elements of a 'alid contract must also be present.

)ormalities of a Contract of Sale In a contract of sale there must be an offer to buy or sell goods, acceptance that offer, parties competent to contract, mutual consent, property to be transfer for money consideration called price. A contract of sale may be made in any of the following modes. 1) 2) () )) here may be immediate deli'ery of the goods. here may be immediate payment of price but the deli'ery to be made at some future date. here may be immediate deli'ery of goods and also immediate payment of price. It may be agreed that the deli'ery or payment or both are to be made in particular

instalments. +) 2eli'ery or payment or both may be gi'en at some future date. he sub&ect matter of contract of sale is essentially the goods.

5 Definition of Goods It means e'ery %ind of mo'eable property other than actionable claims and money and includes stoc%s and shares, growing crops, grass and things attached to or forming part of the land which are agreed to be se'ered before sale or under the contract of sale. .oney and actionable claims are not goods and can not be brought and sold. An actionable claim is a thing which a person can not ma%e use of or en&oy but which can be reco'ered by him by means of a suit or an action. hus debt is an actionable claim and can not be sold as goods, although it can be assigned.

3oodwill, trade mar%, copyrights, patents are all considered goods. Similarly water, gas, electricity are regarded as goods.

$rice 4o sale can ta%e place without a price. herefore, price constitutes the essence of a contract of sale. It may be money actually paid or promised to be paid.

#odes of )i!ing $rice he price must be certain and definite. he Act gi'es following methods of fi$ing the price. 1) 5rice may be e$pressly stated in the contract. he parties are free to fi$ any price they li%e. A

manufacturer may sell goods to a wholesaler on the condition that they shall not be sold at less than a certain price. *ut that condition does not bind a subse/uent buyer since there is no pri'ity between him and the original seller. 1owe'er, in case of a patented goods the sub0buyer may be bound by such a condition, if he has notice of it. 2) he contract may pro'ide for the manner in which the price is to be fi$ed. he agreement may

be to pay as much for the goods as others pay. () #here nothing is said by the parties regarding price, the law implies, in the case contract is

e$ecuted and the goods sold are accepted that the buyer agrees to pay a reasonable price i.e. mar%et price. )) he price may also be left to be fi$ed by the 'aluation of a third party.

6 #ode of $a&ment he seller is not bound to accept any %ind of payment e$cept in the currency of the country. 1e is not bound to accept payment by che/ue. 6urther, the price should be in legal tender money.

arnest #one& Sometimes it happens that the buyer pays part of the price in ad'ance as security for the due performance of his part of the contract. he money so paid as security is called 7arnest .oney. If the purchase is carried out, the earnest money goes against the purchase0money and only the balance of the price is re/uired to be paid. *ut if the sale goes off through buyer,s fault, the earnest money is forfeited and where it goes off by seller,s default he must return the earnest money.

Conditions and *arranties

Ca+eat m'tor 8 he parties are at liberty to enter into a contract with any terms they please. In the case of a sale of goods, the ordinary common law ma$im is Ca'eat 7mptor (let the buyer beware). hus it is not the seller,s duty to point out the defects in the goods he is selling. If the buyer depends upon his own s%ill and integrity and the goods turn out to be defecti'e, it is his own fault and he can not hold the seller responsible. *ut the buyer may want to be sure of the /uality of the goods and may ma%e %nown to the seller the purpose for which he intends to buy the goods so as to show that he relies on the seller,s s%ill or &udgement and buys them depending on the representations made by the sellersuch representations may ran% either as conditions or warranties and in that case the principle of Ca'eat 7mptor will not apply and the contract will be sub&ect to the condition or warranty. A stipulation in a contract of sale made with reference to goods which are the sub&ect matter thereof may be either a condition or a warranty. If a stipulated forms the 'ery basis of the contract or #hich is essential to the main purpose of the contract, it is condition. If howe'er the stipulation is collateral to the main purpose of the contract it is %nown as warranty. he effect of a breach of

condition is to gi'e the aggrie'ed party a right to treat the contract as repudiated, while in the case of breach of warranty he can not repudiate the contract but can only claim damages. hus if the

condition is not fulfilled, the buyer has a right to repudiate the contract, to refuse the goods and if he

7 has already paid for them, to reco'er the price. In the case of a breach of warranty, the buyer must accept the goods and claim damages for the breach of warranty. 7$ 90 A man buys a particular horse, which is warranted /uiet to ride and dri'e. If the horse turns out to be 'icious, the buyer,s only remedy is to claim damages. *ut if instead of buying a particular horse, a man as%s a dealer to supply him with a /uiet horse and the horse turns out to be 'icious, the stipulation is a condition and the buyer can re&ect the horse. Conditions and warranties may be e$press or implied. An e$press condition or warranty is one stated definitely in so many words as the basis of the contract. Implied conditions or warranties are those which attach to the contract by operation of law or custom. 7$ 90 A sold cows to * and it was mentioned that * was to ta%e the cows sold !with all faults" . he cows were diseased and * suffered a hea'y loss. It was held in the court that as it was e$pressly agreed that the seller was gi'ing no

warranty and as he had done nothing to conceal the defect he was relie'ed from all liability in respect of any defect in the goods.

,ime )actor of Contract #here no time is fi$ed for performance the contract is re/uired to be performed within a reasonable time. herefore, if time is specified for deli'ery of goods, deli'ery must be made at

specified time and if not done the other party can repudiate the contract. hus if A agrees to sell and deli'er goods to * on a certain day, he must deli'ery them on that day.

Im'lied *arranties 1) Implied warranty of /uiet possession in a contract of sale there is an implied warranty that the

buyer shall ha'e en&oy /uiet possession of the goods. his means that where the buyer has obtained possession of the goods, he has a right to en&oy them and if the right of possession and en&oyment is any was disturbed, he is entitled to sue the seller for damages. 2) Implied warranty against encumbrances. he buyer is also entitled to warranty that the goods

are not sub&ect to any right in fa'our of a third party. If there is breach he is entitled to damages. his

8 claim will not apply if such encumbrances are declared to the buyer when the contract is made or he has notice of them.

Im'lied Conditions he first implied condition in e'ery contract for sale of goods is that the seller has right to sell the goods. As a result of it, if the title turns out to be defecti'e, the buyer is entitled to re&ect the good.

Sale b& descri'tion :7$ceptions to Ca'eat 7mptor;

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Goods m(st corres'ond wit" descri'tion In a contract of sale by description there is an implied condition that the goods shall

correspond with the description.

7$ 90 #here sale was made of second hand sewing machines which the buyer had ne'er seen, but which the seller had stated to be almost new and used 'ery little, this was a sale by description and when the machine was found to be old and repaired there was breach of condition and the buyer could return the machine.

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Condition as to .(alit& or fitness <rdinarily in contract of sale, there is no implied warranty or condition as to the /uality or

fitness for any particular purpose of goods supplied. *ut where the buyer ma%es %nown to the seller the purpose for which he is purchasing the goods, then there is an implied condition that the goods shall be reasonably fit for such purpose. he rule of ca'eat emptor will not apply. #here an article is fit for one particular purpose alone and turns out to be unsuitable for that purpose when used it is easy to see that the condition as to fitness has been bro%en. 1ere the buyer must pro'e that he informed the seller of the purpose for which he was buying and that the goods supplied are not fit for the particular purpose. 7$.90 #here timber was purchased for the railway sleepers and they were found to be unsuitable for the purpose, the buyer could re&ect them.

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Condition as to merc"antabilit&0 where the goods are sold by description and they answer

to the description, still there is another implied condition that they shall be of merchantable /uality. *ut if the buyer has e$amined the goods, there is no implied condition as regards defects which such e$amination ought to ha'e re'ealed. If howe'er, e$amination by the buyer does not re'eal the defect and he appro'es and accepts the goods, but when put to wor%, the goods are found to be defecti'e, there is breach of condition of merchantable /uality. 7$.90 A bought blac% yarn from * and found it to be damaged by white ants. If was held that condition as to merchantability was bro%en. he merchantable /uality means that the goods comply with the description in the contract so that to a purchaser buying goods of that description, the goods would be good tender. 7$90 A woman with abnormally sensiti'e s%in, bought woolen coat and got rashes through wearing the coat. It was held that no breach of condition as she had not disclosed the fact that her s%in was abnormally sensiti'e.

7$.90 It was held that where a hair dye is sold to a customer who is allergic to a particular dye, there is duty on part of the customer to disclose %nown peculiarities.

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Condition as to w"olesomeness.0 he goods sold must be wholesome.

7$.90 A bought mil% from * and the mil% contained typhoid germs. A,s wife became infected and died * was liable for damages.

Sale b& Sam'le

Definition / A contract of sale is a contract for sale by sample where there is a term in the contract e$press on implied to that effect. herefore, the sale must be by sample. 7$.90 A sale of tobacco is always considered to be sale by sample.

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Im'lied conditions in sale b& sam'le

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B(l0 s"o(ld corres'ond to sam'le In a sale by sample there is an implied condition that

the bul%s shall correspond with sample in /uality.

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B(&er to "a+e reasonable o''ort(nit& to com'are

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Condition of merc"antabilit& as regards latent defects .

2n'aid Seller he seller of goods is deemed to be an unpaid seller. a) b) #hen the whole of the price has not been paid or tendered or #hen conditional payment was made by a bill of e$change or other negotiable instrument and

the instrument has been dishonored. In simple words, an unpaid seller is one who has sold goods on cash terms and does not include a seller who has sold goods on credit. An unpaid seller has a two fold right 1) 2) Against the goods Against the buyer personally

3ig"ts of (n'aid Seller against t"e Goods An unpaid seller of goods, e'en though the property in the goods has passed to the buyer has following rights 8 i) ii) A lien on the goods remaining in his possession. If the buyer is insol'ent, a right of the stoppage in transit after he has parted with possession

of the goods. iii) A limited right of resale.

11 i3ig"t of 4ien he seller,s lien is a possessory lien i.e. the lien can be e$ercised only so long as the seller is in possession of the goods. =ien can be e$ercised for the non0payment of price, not for any other charges. 6or e$ample the seller can not claim lien for godown charges which he had to incur for storing the goods in e$ercise of his lien for the price. =ien depends on physical possession. herefore the unpaid seller loses his lien on the goods in following cases 8 a) b) #hen he deli'ers them to a carrier for the purpose of transmission to the buyer #hen buyer lawfully obtains possession of the goods.

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3ig"t of Sto''age in ,ransit he right of stoppage in transit is a right of stopping the goods while they are in transit,

resuming possession of them and retaining possession until payment of price. It is a'ailable when a) b) the buyer becomes insol'ent and the goods are in transit.

he buyer is insol'ent if he is unable to pay his debts.

his right may be e$ercised either by ta%ing actual possession of the goods or by gi'ing notice of seller,s claim to the carrier. he notice need not be a written notice and no particular form is

necessary, all that is re/uired is to as% the carrier not to deli'er the goods to the buyer and it must reach the carrier before the goods ha'e been deli'ered by him to the buyer. If the carrier after recei'ing notice, wrongfully deli'ers the goods to the buyer, he does so at his own peril. 1is duty is to re0deli'er the goods to the unpaid seller.

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3ig"t of 3esale >npaid seller,s right of lien and stoppage in transit does not amount to rescision of the

contract. 1e may retain or regain the possession of the goods but he does not regain the property in them. 1e does not become owner of the goods. hen the /uestion arises what is the use of these

rights if the buyer after notice to ta%e the goods and pay the price remains in default? .ust he %eep

12 them until he can obtain &udgement against the buyer and sell them on e$ecution? If the goods are perishable e.g. fruits or e$pensi'e to %eep as cattle or horses etc. he Act gi'es him limited right to resell the goods. he unpaid seller may re0sell. i) ii) iii) #here the goods are perishable #here the right is e$pressly reser'ed in the contract. #here in e$ercise of right of lien or stoppage in transit seller gi'es notice to the buyer

of his intention to re0sell and the buyer does not pay the price within a reasonable time. If on re0sale there is a deficiency between the price due and the amount realised, he will be able to reco'er this from the buyer. *ut if on such resale, a surplus is left, the seller need not hand o'er this surplus to the buyer. he profit arising on a resale belongs to the seller because the resale is the result of a breach of contract on the part of buyer and such buyer can not ta%e ad'antage of his own wrong and claim the profits.

he seller is bound to gi'e reasonable notice to the buyer that he is going to resale the goods unless the goods are of perishable nature. #hat is reasonable notice is /uestion of fact

depending upon the nature of goods, the distance at which the parties are situated and other circumstances of the case. he notice is compulsory due to following reasons.

1)

buyer may ha'e an opportunity of fulfilling the contract by paying the price e'en at the last moment before such re0sale.

2)

if buyer is still unable to pay, he may atleast see that on such resale the goods fetch a proper price.

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3ig"ts of 'arties in case of breac" of contract

B(&er5s rig"t against t"e seller in case of breac" of contract 6Sec. 78979he law also confers certain protecti'e rights on the buyer of goods, hey are as follows9

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S(it for non9deli+er& 9 #here the seller wrongfully neglects or refuses to deli'er the goods to

the buyer, the buyer may sue the seller for damages for non0deli'ery. (Section +@) #here there is an a'ailable mar%et for the goods in /uest., prima facie the measure of damages would be contract price minus mar%et price at the date of the breach. If, howe'er, there is no such mar%et, the measure of damage would be the estimated loss naturally resulting from the breach (1adley A. *a$endale). hus, if the goods contracted for are not obtainable, then the

purchaser may purchase similar goods and may claim from the seller the difference in price. If he does not purchase such similar goods but has during the contract period settled contracts for the same %ind of goods with other persons, the rates at which those contracts were settled might afford a basis for ascertaining the damages. #here, on breach of contract, the goods are irreplaceable in the mar%et, the proper measure of damages is the profits which the buyer would ha'e made if the contract had been carried out.

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S(it for s'ecific 'erformance 6Section 7:- 9 #here property has passed to the buyer, he

also can e$ercise another right, 'iB, a right to sue for specific performance and its limits regulated by the Specific Celief Act. In such cases, the court may, in its discretion grant a decree ordering the seller to deli'er those specific or ascertained goods which formed the sub&ect matter of the contract. Dou should note that the remedy is discretionary and will only be granted if the goods are of specific 'alue or are uni/ue, e.g., rare boo%, a picture or a piece of &ewellery and the damages are not an ade/uate remedy.

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S(it for damages for Breac" of *arrant& 6Section 79- / #here there is a breach of

warranty by the seller or where the buyer elects or is compelled to treat any breach of condition on the part of the seller as a breach of warranty, the buyer is entitled to re&ect the goods but the buyer may 9 a) Set up against the seller the breach of warranty in diminution or e$tinction of the price, or

14 b) Sue the seller for the breach of warranty

he measure of damage for breach of warranty is the estimated loss or damage arising directly or naturally from the breach, which is prima facie the difference between the 'alue of the goods at the time of the deli'ery and the 'alue they would ha'e had, if the goods had answered to the warranty.

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S(it for reco+er& or 'rice 9 >nder Section -1, the buyer has a right to reco'er the money

paid to the seller where the consideration for payment of it has failed. 6or e$ample, where the buyer is depri'ed of goods by their true owner, he may reco'er the price for breach of the condition as to title.

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Seller5s rig"t against t"e b(&er in case of breac" of contract 6Sec. 77 < 7=-

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S(it for t"e 'rice / #here the property in the goods has passed to the buyer or he was

wrongfully neglected or refused to pay for the goods according to the terms of the contract, the sellers may sue him for the price of goods. 6urther, where the price is payable under the contract on a certain day irrespecti'e of deli'ery and the buyer wrongfully neglects or refuses to pay such price, the seller may sue him for the price e'en if the property in the goods has not passed and the goods ha'e not been appropriated to the contract (Sec. ++). 6or instance, there was a sale of some /uantity of iron to be deli'ered between (rd .ay and (Eth Fune, if the buyer so re/uired, the price to be paid on the latter date at all cost. *y (Eth Fune, only a portion of the iron had been deli'ered since the buyer did not re/uire any further deli'ery. In such a situation, the seller would be able to reco'er the whole price without showing that he had appropriated to the contract any specific iron to complete the deli'ery of the remainder. Incidentally, the seller has a lien or the goods for the price while he is in possession of them.

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Damages for non acce'tance 9 #here the buyer wrongfully neglects or refuses to accept

and pay for the goods, then the seller may sue him for damages for non0acceptance (Section +-).

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