CONTRACT OF SALE OF GOODS Sale of Goods Act The law relating to the sale of goods is contained in the Sale of Goods Act 1930. The Act came into force on 1st July, 1930 The Act contains 66 sections and extends to the whole of Pakistan Contract of Sale of Goods A contract of sale of goods is a contract by which the ownership of movable goods transfers from a seller to a buyer Section 4(1) 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 The following are essentials of a contract of sale of goods: 1. Contract A contract of sale of goods relates to movable goods. All essentials of a valid contract must be present in a contract of sale of goods like capacity of parties, free consent, lawful object, etc. It may be oral or in writing. It may be express or implied EXAMPLE | C promises to sell his radio to B. It is a contract of sale of goods if ali essentials of a contract are fulfilled 2. Seller and Buyer A contract of sale of goods has a seller and a buyer. A buyer is a person who buys or agrees to buy goods. A seller is a person who sells or agrees to sell goods. When there are joint owners of a good, the owner of one part can sell his share to the owner of the other part of the good EXAMPLES | ’ a A sells his computer to B for Rs. 40,000. A is the seller and B is the buyer b A and B jointly own a computer. A sells his share to B. B becomes the sole owner of the computer. 3. Transfer of Property Transfer of property is an essential of a contract of sale of goods. Here properly means the ownership of goods. A mere transfer of possession of goods cannot be termed as a sale. In a contract of sale of goods, a seller transfers or 120act of Sale of Goods 2 agrees to transfer the property in goods to the buyer EXAMPLE A sells his car to B for Rs. 4 Lac. The ownership and possession of the car transfer from A to B 4. Goods The subject matter of a contract of sale of goods must be a movable good. Section 2(7) states, “Goods means every kind of movable property other than actionable claims and money; and includes electricity, water, gas, 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 means_a claim which gan be enforced by a court. eg debt due from one person to another. Money ig not considered a good However old coins are treated as goods. EXAMPLE N sells his car to M for Rs. 3 Lac. It is a contract of sale of goods because the subject matter of contract, i.e. car is a moveable good 5. Price The consideration in a contract of sale of goods must be the price. When goods are sold or exchanged for other goods, the transaction is barter and not a contract of sale of goods. If goods are sold partly for goods and partly for a price it is a contract of sale of goods. [Sec. 2(10)] = | EXAMPLES a. Asells his chair to B for Rs. 2,000. It is a contract of sale of goods b. C sells his horse to B against B's promise to give 10 tons of wheat. It is not a contract of sale of goods 6. Sale and Agreement to Sell A contract of sale of goods includes both sale and an agreement to sell When ownership in goods transfers from a seller to a buyer at the time of formation of the contract, the contract is called a.sale. When the transfer of ownership in goods will take place at a future date, the contract is called an agreement to sell el EXAMPLES a B buys a book from C and pays the whole price on a counter It is a sale b A agrees to buy B's car for Rs. 8 Lac if his mechanic approves. It is an agreement to sell DIFFERENCE BETWEEN SALE AND AGREEMENT TO SELL122 SALE 4. Transfer of Property The ownership of goods transfers to the buyer at the time of the contract. 2. Type of Goods A sale takes place if goods are in existence. 3. Recovery of Goods If the seller refuses to deliver goods, the buyer may sue for the recovery of goods. 4. Risk of Loss If goods are destroyed, the buyer] suffers loss even though the goods are in possession of the seller. 5. Consequences of Breach If the buyer fails to pay the price of goods, the seller can sue for the price. 6. Right of Resale A seller cannot resell goods even though goods are in his possession. 7. Insolvency of Buyer If the buyer becomes insolvent before payment, the official receiver shall have the right over the goods. 8. Insolvency of Seller If the seller becomes insolvent, the buyer can recover goods from the official receiver. 9. Nature of Contract It is an. executed contract so the buyer becomes the owner immediately. Contract of Sale of Goods AGREEMENT TO SELL The ownership of goods is transferred ito the buyer at a future date. \An agreement to sell takes place if there are future goods. If the seller refuses to deliver goods, Ithe buyer cannot recover the goods but may sue for damages. If goods are destroyed, the seller suffers loss even though the goods are in possession of the buyer. If the buyer fails to pay the price, the ‘seller can sue for damages and not for ithe price. | ‘A seller can resell goods to a new buyer. The new buyer gets a good title ito the goods. If the buyer becomes insolvent before payment, the official receiver shall have no right over the goods. If the seller becomes. insolvent, the buyer can recover the price from the lofficial receiver. It is an.executory contract so the buyer ‘will become the owner in the future. Types of Goods The following are types ase 1. Existing Goods The goods which are owned or [Sec. 6] possessed by the seller at the time of contract of sale are called existing goods. Existing goods are physically in existence and in the seller's ownership at the time of contract. These goods mayContract of Sale of Goods = 123 pe of the following types: _ a. Specific Goods The goods which are identified and agreed upon at the time of contract of sale are called specific goods. These goods can be clearly identified and recognized as separate things at the time of contract. [Sec. 2(14)] EXAMPLE B owns many cows and promises to sell one of them. If one cow is singled out, the contract is for specific goods. b. Ascertained Goods The goods which are identified after the formation of a contract of sale are called ascertained goods. When a part of goods lying in bulk are identified and earmarked for sale, such goods are termed as ascertained goods. EXAMPLE A makes a contract with B to sell 10 bags of sugar. Later, A separates 10 bags from his stock of sugar for B. These bags are ascertained goods. c. Unascertained Goods The goods which are not identified and agreed upon at the time of a contract of sale are called unascertained goods, e.g. goods in stock or lying in lots. These goods are described by description or sample only. EXAMPLE Ahas 100 bags of sugar. A promises to sell 10 bags of sugar out of them. tis a contract for unascertained goods. 2, Future and Contingent Goods . The goods which are manufactured, produced or acquired by the seller after making a contract of sale are called future goods. These goods do not exist at the time of contract of sale. The seller can only make an agreement to sell future goods. [Sec. 2(6)] The goods whose acquisition by the seller depends on an uncertain event that may or may not happen are called contingent goods. They are a kind of future goods. | EXAMPLES a, X agrees to sell Y all mangoes which will be produced on his farm next year. Itis an agreement to sell future goods b. A agrees to sell a rare painting to B if he will be able to purchase it from the current owner. It is an agreement to sell contingent goods. Perishing of Goods The effect of the perishing of goods is as follows:424 Contract of Sale of Goods 4. Perishing before Contract A contract for sale of specific goods is void if goods have perished without the knowledge of the seller before the formation of.a contract. However, if the seller has knowledge of the perishing of goods and he makes a contract of sale, the seller is bound-to compensate the buyer. [Sec. 7] EXAMPLE B agrees to sell 100 bags of sugar that are in transit by ship. On arrival of the ship, B discovers that.the sugar is spoiled. The contract becomes void 2. Perishing after Agreement to Sell When there is an agreement to sell specific goods and’ goods perish without any fault of the seller or buyer, the contract becomes void. [Sec. 8] EXAMPLES , a. A agrees to sell B rice which is to be produced in his field. The crop of rice perishes. The contract becomes void. b. B took a horse for 8 days on the condition that if found suitable-the bargain would be complete: The horse died on the third day. Held, the contract became void. (Elphick vs. Barnes) - Fixation of Price A price is an essential of a contract of sale of goods. A valid sale cannot take place without a price. The price may be fixed in the following ways: [Sec. 9] 1. Parties . Generally, the parties fix the price. The parties mention the price of goods to be paid in a contract. EXAMPLE : A agrees to sell his car to B for Rs. 5 Lac. The price is fixed by the parties to the contract. 2. Agreed Method The price may be determined as per the method agreed. The parties may decide the method of determining the price. It may be thé price prevailing on any particular date. EXAMPLE A agrees to sell 100 bags of sugar to B at the market rate prevailing on the 20th day after the contract. It is a valid contract of sale. 3. Course of Dealings The price may be determined during the course of dealings between the parties. The price may be determined according to the custom and usage of trade. This method applies if parties trade regularly.Contract of Sale of Goods 125 | EXAMPLE : A agrees to buy 100 shares of W company from B. The price of shares shall be the price prevailing in the stock market on the date of the contract. 4, Third Party The parties may sell goods on the condition that the price shall be fixed by athird party. EXAMPLE A agrees to sell 10 bags of rice to B at a price to be fixed by C. The price fixed by C will be the price of goods. 5, Reasonable Price If the price is not fixed by any of the above ways, the buyer is bound to pay a reasonable price to the seller. The amount of reasonable’ price depends upon the circumstances of each case | EXAMPLE A orders B to supply 100 kg of sugar without fixing the price. The price of sugar in the market on the day of the order will be considered a reasonable price. Bmust supply sugar.to A at that market rate QUESTIONS Define the contract of sale of goods. Explain the essentials of a contract of sale of goods Differentiate between sale and agreement to sell. Define the term goods. What are the different types of goods? Explain the perishing of goods and its effect on a contract of sale. What are the various ways of fixing the price?