SALE OF GOODS ACT 1930

INTRODUCTIONThe sale of goods act 1930 deals with the law relating to sale of goods in

India .The term GOODS sec-2(7)means any kind of movable property other than money &Actionable Claims.

The Sale of goods act 1930 is based on English Sale of GOODS Act1893.The presently Act containing 66 section &extend to whole of India expect

the state of Jammu &Kashmir.

DEFINITIONsec-4(1) defines "A contract of sale of goods is a contract whereby the seller transfers or agree to

transfer the property in goods to a buyer for a price”it consists of following:

❶ Sale ❷Agreement to sell-sec 4(3)

Essentials of a contract of sale of goods

Transfer of property. “Property” here means “Ownership”.

A mere transfer of possession of goods cannot be termed as sale

Essentials of a contract of sale of goods

Two parties. There must be two distinct parties to a contract of sale, viz., a buyer and a seller.

A person cannot buy his own goods.There may be a contract of sale between one

“Part-owner” and another.

Essentials of a contract of sale of goods

Goods. The subject-matter of contract of sale must be “goods”.

“Goods” means every kind of movable property other then actionable claims and money; and includes stock and shares.

“Money” means current money.

Essentials of a contract of sale of goods

‘Actionable claims’ means claims which can be enforced by a legal action or suit.

e.g., account book or Bahi, bill of exchange or a promissory note.

These cannot be sold but could assigned as per the “Transfer of property Act, 1982”.

Essentials of a contract of sale of goods

Price. The consideration for a contract of sale must be money consideration called the “price”.

If goods sold or exchanged for the other goods will governed by Transfer of Property Act not by Sale of Goods Act.

Essentials of a contract of sale of goods

Include both Sale & an agreement to sell.

Sale (immediate transfer of ownership).

agreement to sell (parties are agree but transfer of goods will occur in future ).

Essentials of a contract of sale of goods

No formalities to be observed.

Sale of good act dose not prescribe any particular form to constitute a valid contract of sale.It is made by mere offer and acceptance.Offer could be made by either party and accepted by other.

SALE &AGREEMENT TO SELL-DISTINCTION1-Nature of contractsale-a sale is an executed contract

Agreement to sell-is an executory contract. 2-Transfer of Property.Sale-the property in goods passes from seller to buyer immediately.Agreement to sell-property in goods passes from seller to buyer at some future date or subject to fulfillment of certain condition.

3 )Risk of loss-in a sale if the goods are destroyed, the risk of loss falls on the buyer even if the goods were in the possession of seller.In agreement to sell if goods are destroyed the risk of loss falls on a seller even if the goods were in the possession of buyer.

4)Consequences of the breachOn breach of agreement to sell by the seller ,buyer has only personal remedy against the seller .but if after a sale the seller breaks the contract the buyer may sue for delivery of goods or for damages.In an agreement to sell ,if the buyer fails to accept the goods the seller may sue for the damages only and not for the price. On a sale ,if the buyer does not pay the price ,the seller may sue for the price.

5 )Insolvency of the buyerin a sale if the buyer is adjudged an insolvent ,the seller in the absence of a lien over the goods is bound to deliver the goods to the official receiver or assignee .The seller will ,however ,be entitled to a rateable dividned for the price of goods.In the agreement to sell, when the buyer becomes insolvent before he pays for the goods ,the seller may not part with the goods.

6) Insolvency of the sellerIn the sale ,if the seller becomes insolvent, the buyer is entitled to recover the goods from the official receiver or assignee.In an agreement to sell , if the buyer has already paid the price and the seller becomes insolvent ,buyer can claim only a rateble dividend and not the goods.

7) General and particular propertyan agreement to sell creates a right in personam.a sale creates a right in rem.

8) Right of re-sales

in a sale ,the seller cannot resell the goods even if he is in possession of goods after sale.In an agreement to sell ,the seller may sell the goods since ownership is with the seller.

Meaning of goods : section 2(7)

Goods means every kind of movable 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 and under the contract of sale .

GOODS AND THEIR CLASSIFICATON

Goods may be divided into 3 types.• Existing Goods .• Future Goods .• Contingent Goods .

Existing goods : (section 6) existing goods are those which are owned or

possessed by the seller at the time of the contract .

Classification of Goods .

Existing goods may be either ;• Specific and Ascertained • Generic and Unascertained

Specific and Ascertained goods : Section 2 (14)

goods identified and agreed upon at the time a contract of sale is made .

Generic and Unascertained : Indicated by description and not separatelyIndentified .

EXAMPLE : sale of one kg of oil from 100 kg of oil with the merchant is a sale of un-ascertained goods . When one kg is separated from 100 kg of oil the sale is of specific goods .

Future goods :section 2(6) Future goods means goods to be manufactured

or produced or acquired by the seller after making the contract of sale .

CONT(D)

EXAMPLE : An agreement to sell future crops of a

particular field implies an agreement to sell future goods .

CONTINGENT GOODS :Contingent goods are the goods the acquisition

of which by seller depends upon a contingency which may or may not happen . Contingent goods is a part of future goods .

EXAMPLE : Where A agrees to sale B a certain painting

only if C, its present owner , sell it to him , A. This painting is classified as contingent goods .

CONDITIONS AND WARRANTIES

DEFINITION

• CONDITION A ‘condition’ is a stipulation essential to the

main purpose of the contract, the breach of which gives the aggrieved party a right to repudiate the contract itself [Sec 12(2)]. In addition, he may maintain an action for damages for loss suffered, if any, on the footing that the whole contract is broken and the seller is guilty of non delivery.

WARRANTY A ‘warranty’ is a stipulation collateral to the

main purpose of the contract, the breach of which gives the aggrieved party a right to sue for damages only, and not to avoid the contact itself.[Sec 12(3)]

MEANING

Condition forms the very basis of a contract of sale, the breach of which causes irreparable damage to the aggrieved party so as to entitle him even to repudiate the contract whereas

Warranty is only of secondary importance, the breach of which causes only such damages as can be compensated for by damages.

Stipulation- a condition or a warranty ?

“Whether a stipulation in a contract of sale is a condition or a warranty depends in each case on the construction of the contact. A stipulation may be a condition though called a warranty in the contract.” [Sec12(4)]

The court look to the intention of the parties by referring to the terms of the contract , its construction and the surrounding circumstances to judge whether a stipulation is a condition or a warranty.

ExampleP goes to R , a horse dealer, and says, “I want a horse which can

run at a speed of 30 km/h”. R provides him a horse saying, “This will suit you”. P buys the horse. Later on P finds that the horse can run only at a speed of 20 Km/h. There is a breach of condition, P can repudiate the contract, return the horse to R and get back the price.

But if P says to R “ I want a horse.” R sells him a horse saying that it can run at speed of 3oKm/h but later P finds that it can run at a speed of 20Km/h, there is a breach of warranty as stipulation made by seller was only a subsidiary one. The seller gave the assurance of speed without being asked by the buyer.

Condition and Warranty Distinguished

• As to value – A condition is a stipulation which is essential to the main purpose of the contract, whereas a warranty is a stipulation which is collateral to the main purpose of the contract.[Sec. 12(2)(3)]

• As to the breach – The breach of a condition gives the aggrieved party the right to repudiate the contract and also to claim damages , whereas breach of warranty gives the aggrieved party a right to claim damages only.

• As to treatment – A breach of condition may be treated as a breach of warranty but a breach of warranty cannot be treated as a breach of condition.

When Breach of Condition is to be treated as Breach of Warranty

• Voluntary waiver by buyer. Although on a breach of condition by the seller , the buyer has a right to treat the contract as repudiated and reject the goods, but he is not bound to do so. He may instead elect to waive the condition that is to treat the breach of condition as breach of warranty and accept the goods and sue the seller for damages for breach of warranty.

• Acceptance of goods by buyer. Where the buyer has accepted the goods and subsequently he comes to know of the breach of condition, he cannot reject them, but can only maintain an action for damages. This case does not depend upon the will of the buyer but the law compulsorily treats a breach of condition as a breach of warranty.

Acceptance of only a part of the goods

• If the buyer has accepted only part of the goods and contract is indivisible, he will have to treat the breach of condition as the breach of warranty and accept the remaining part of also. But in case of divisible contact, he can repudiate as regards remaining goods, if he has accepted only part thereof. Indivisible contracts are those where price for a lot, consisting goods of different qualities, as such is fixed and not fixed per unit or per bag or per ton, etc.

Meaning of ‘acceptance’.

According to Sec 42, the buyer is deemed to have accepted the goods:1) When he intimates to the seller that he has accepted them; or

2) When he does any act in relation to goods which is inconsistent with the ownership of the seller; eg consumes, uses, pledges or resells the goods or puts his mark on them,etc; or

3) When, after the lapse of reasonable time, he retains the goods without intimating the seller that he has rejected them.On rejection of goods, however , mere informing the seller is enough and the buyer is not bound to return the rejected goods actually. [Sec 43]

Express & Implied Conditions & Warranties

• Condition & warranties may be either express or implied.• They are said to be express when at the will of the

parties they are inserted in the contract.• They are said to be implied when law presumes their

existence in the contract even without their actually having been put in the contract.

• Sec. 62 recognises 2 principles: (i)what is expressed makes what is implied to cease & (ii)custom & agreement overrule law.

Implied Conditions

• Condition as to title [Sec. 14 (a)].• Condition in a sale by description [Sec. 15].• Condition in a sale by sample [Sec.17].• Condition in a sale by sample as well as by

description [Sec.15].• Condition as to fitness or quality [Sec.16(1)].• Condition as to merchantability [Sec.16(2)].• Condition as to wholesomeness.

Implied Warranties

• Warranty of quiet possession [Sec.14(b)].• Warranty of freedom from encumbrances

[Sec.14(c)].• Warranty of disclosing the dangerous nature of

goods to the ignorant buyer.

MEANING OF CAVEAT EMPTOR : SECTION 16 Caveat emptor is a Latin term meaning "let the buyer beware".

It is a general rule of law that a purchaser assumes the risk of his/her purchase. The intent of the rule is to place a duty of care on the buyer in selecting an item and putting forth appropriate inquiry before completing the sale. In this way, a seller is also protected from liability for buyer's remorse .

EXAMPLE : you buy a used car which you are told is in perfect condition,

but it immediately breaks down

DOCTRINE OF CAVEAT EMPTOR

• In case of misrepresentation by the seller : When a seller makes a misrepresentation and the buyer

relies on that representation .• In case of sales by description : section 15 When the goods are sold by description and the goods

supplied by the seller do not correspond to the description .

• In case of sale by sample : section 17 Where the goods are sold by sample and the goods

supplied by the seller do not correspond with the sample.

EXCEPTION OF DOCTRINE OF "CAVET EMPTOR"

• In case of sale by sample as well as description : section 15 where the goods are sold by sample as well as

description and the goods supplied do not correspond with sample as well as description .

• Fitness for a particular purpose : section 16 (1) Where the seller or the manufacture is a dealer of the

type of goods sold by him and the buyer has disclosed the purpose for which goods are required and relied upon the seller’s skill or judgment .

CONT(D)

PERFORMANCE OF CONTRACT OF SALE

“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”.

Apart from the transfer of property in goods from the seller to the buyer, a contract of sale of goods envisages two other important events, the delivery of goods to buyer and the payment of price to the seller.

DELIVERY• Sec2(2) defines delivery of goods as “voluntary transfer of

possession from one person to another.” any forced transfer of possession will not amount todelivery of goods.

• MODES OF DELIVERY:- Delivery of goods can be allowed to take place by doing

anything which the parties agree to be taken as delivery or which has the effect of putting the goods in the possession of the buyer of his agent. It can be:-

1) Actual2) Symbolic3) constructive

RULES AS TO DELIVERY OF GOODS• Delivery may be actual, symbolic or constructive:-

“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 person authorised to hold them on his behalf”.

• Part delivery:- When a delivery of goods has been made with the intention of delivering the rest also, the property in the whole of the goods is deemed to pass to the buyer as soon as some portion is delivered.

But when a part of the good is delivered with the intention of serving it from the whole, it is not regarded as delivery of the whole of the goods and the property is deemed to pass to the buyer in that portion of the goods only which has been delivered.

• Buyer should apply for delivery:- Apart from any express contract, the seller of goods is not bound to deliver them until the buyer applies for delivery.

• Place of delivery:- According to sec 36(1), unless otherwise stated in the contract, the place of delivery shall be determined.

• Time of delivery:- According to section 36(2), if the seller is bound to send the goods to the buyer,but no time fixed, the seller is bound to send them within a reasonable time.

• Delivery by ‘attornment’.:- According to sec 36(3), where the goods at the time of sale are in the possession of a third person, there is no delivery by the seller to the buyer unless and untill such third person acknowledges to the buyer that he holds the goods on his behalf and requires the consent of all three parties.

• Expenses of delivery:- According to sec36(2),”Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state shall be borne by seller”.

• Delivery of wrong quantity(sec.37,considered three possibilities)they are;

a) Excess delivery b) Short deliveryc) Mixed goods

• Installment deliveries:- Should the entire goods be delivered to buyer as one lot or should they be delivered in installments .

Sec 38(1) states that “unless otherwise agreed the buyer of goods is not bound to accept delivery thereof by installments.”

• Delivery to carrier or wharfinger(various rules based on sec.39)are,

a)Assumed delivery to buyerb)seller's dutyc)Sea transitd)Forms of contracts involving sea transit.e)C.I.F contractsf)F.O.B. contractsg)Ex-ship contracts

Acceptance of delivery by buyer

Mere receipt of goods is not acceptance-

• Even after the buyer has taken possession of the goods delivered by the seller ,he may not have accepted the delivery.

• Sec 42 indicates when would the delivery be deemed to be accepted by the buyer.

Buyer’s right of examination:- • Before acceptance of goods ,the buyer has a

right to their inspection .He may exercise this right or not is his discretion.

No duty to return the rejected goods:- if the buyer has decided to reject the goods ,

he need to only inform the seller and do nothing more.

Wrongful refusal to take delivery by buyer:-

• When the seller is ready and willing to deliver the goods and request the buyer to take delivery ,and the buyer does not within a reasonable time after such request take delivery of goods ,he is liable to the seller for any loss occasioned by his neglect or refusal to take delivery.

UNPAID SELLER AND HIS RIGHTS

• “Unpaid Seller” defined – The seller of goods is deemed to be an “unpaid seller”

(a) when the whole of the price has not been paid or tendered;

(b) when a bill of exchange or other negotiable instrument has been received as conditional payment, and the condition on which it was received has not been fulfilled by reason of the dishonour of the instrument or otherwise.

A seller who has only received a part of the price is also a unpaid seller. Whereas the seller who has received a negotiable instrument, like a bill of exchange, promissory note or cheque, for the price, he is not an unpaid seller. But if before he has delivered the goods, the negotiable instrument is dishonoured, then he becomes an unpaid seller and may exercise his rights.

RIGHTS OF UNPAID SELLER

Rights of unpaid seller against the goods.1) Right of lien2) Right of stoppage of goods in transit3) Right of resale

Rights of unpaid seller against the buyer personally1) Suit for price 2) Suit for damages for non acceptance 3) Suit for special damages and interest

Right of lien ‘Lien’ is the right to retain possession of goods and refuse to deliver

them to the buyer until the price due in respect of them is paid or tendered.

An unpaid seller in possession of goods sold is entitled to exercise his lien on the goods in the following cases:

(a) where the goods have been sold without any stipulation as to credit;

(b) where the goods have been sold on credit, but the term of credit has expired.

(c) Where the buyer has become insolvent, even though the period of credit may not have yet expired.

• In case buyer become insolvent seller is entitled to exercise this right and hold the goods as security for the price.

• To exercise this right it is important the physical possession of the goods is with seller. Transfer of property in the goods or transfer of document of title to the goods does not affect the exercise of this right.

When the lien is lost?(a) When he delivers the goods to a carrier or other

bailee for the purpose of transmission to the buyer without reserving the right of disposal of the goods; or

(b) when the buyer or his agent lawfully obtains possession of the goods; or

(c) When the seller expressly or impliedly waives his right of lien. An implied waiver takes place when the seller grants fresh term of credit or allow the buyer to accept a bill of exchange payable at future date.

Right of Stoppage of Goods in Transit The right of stoppage in transit means the right

of stopping further transit of the goods while they are with a carrier for the purpose of transmission to the buyer, resuming possession of them and retaining possession until payment or tender of the price.

When the right be exercised?(a) The buyer becomes insolvent.(b) The property has not passed to the buyer.(c) The goods are in the course of transit.Duration of transit Goods are deemed to be in course of transit till they

are not transit to the buyer or his agent, no matter whether they are lying at the destination with the carrier awaiting transmission or are in actual transit.

• The transit deemed to be at an end and the seller cannot exercise his right of stoppage in the following cases:

(a) When the buyer or his agent takes delivery after the goods have reached destination.

(b) when the buyer or his agent obtains delivery of the goods before their arrival at the appointed destination

(c) When the goods have arrived at their destination and the carrier acknowledge to the buyer or his agent that he holds the goods on his behalf.

(d) When the goods have arrived at the destination but on request of buyer it is taken to some further destination.

(e) When the carrier wrongfully refuses to deliver the goods to the buyer or his agent.

(f) When part delivery of the goods has been made to the buyer with an intention of delivering the whole of the goods, transit will be at an end for the remainder of the goods also which are yet in the course of the transit.

3.Right Of Resale.

Section 54, gives to unpaid seller a limited right to resell the goods in following cases:

(Right of lien, retain possession and stoppage of goods in transit)

I. Where goods are of a perishable nature; or

II. Where such a right is expressly reserved in the contract in

case the buyer should make a default; or

III. Where the seller has given a notice to buyer of his intention

to resale and buyer dose not pay or tender the price within a

reasonable time.

In resale if there is any loss, it will recovered by defaulting buyer but if there is any surplus, seller can keep it with him.

If, however no notice of resale is given to buyer, the rights of claiming loss of surplus, if any, is reverced.

RIGHTS OF UNPAID SELLER AGAINST THE BUYER PERSONALLY

In addition to rights against goods, seller has following three rights against buyer personally.

1. Suit for price [Sec 55]: Seller can file a suit for prize if buyer wrongly neglects or refuse to pay after the contract of sale of goods. Irrespective to either goods are delivered or not.

Normally happens when goods have been manufactured to some special orders.

(2) Suit for damages for non-acceptance [Sec. 56]Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for damages or non acceptance. The seller’s remedy in this case is a suit for damages rather than an action for the full price of the goods.

(3)Suit for special damages & interest [Sec. 61]This section entitles the seller to sue the buyer for ‘special damages’ also for such loss “which the parties knew, when they are made the contract, to be likely to result from the breach of it”.

Delhi High Court

Pawan Hans Helicopters Ltd.

vs.

AES Aerospace Ltd.

on 22 April, 2008

Bench: B D Ahmed

SPECIAL POINTS…..

• This petition has been filed for seeking interim measures of protection which include restraining the respondent or its agents from alienating, encumbering(Limit or hold back), disposing of, selling, destroying, etc., the goods in question and in allowing the petitioner to remove the said goods from the warehouse of M/s Sagar Warehousing Corporation and shift the same to its premises at Mumbai.

SPECIAL POINTS…..• Pawan Hans had entered into an agreement

with AES aerospace ltd on 16th June, 1999 for the sale of 19 Westland Helicopters and spares and accessories for a sum of 9,00,000 UK Paund.

• The first consignment of six helicopters with spares was shipped to AES with a sum of 4,50,000 being 50% of the total sale consideration being remitted to Pawan Hans.

SPECIAL POINTS…..• Problem arise when the second consignment

of 13 helicopters with spares were to be delivered and meanwhile AES is stated to have gone into liquidation.

• Fly Jac Forwarders Ltd. (FJF) was appointed as authorized transporter.

• Sagar Warehousing Corporation (SVC) was appointed warehousing purpose.

JUDGMENT…..

The learned Single Judge vide orders dated 20th December, 2002 granted restraining FJF and SWC from alienating, encumbering or otherwise disposing of the goods. Direction was also sought that Pawan Hans be permitted to lift helicopters and spares only upon payment of the warehousing and transportation charges of SWC and FJF.

Sagar Warehousing Corporationvs.

1.Pawan Hans Helicopters Limite2. AES Aerospace Limited3. M/s Fly Jac Forwarders

M/s Fly Jac Forwardersvs.

1.Pawan Hans Helicopters Limited2.M/s AES Aerospace LimitedAugust 11th, 2008

Coram:Hon'ble Mr.Justice Manmohan Sarin

SPECIAL POINTS…..

• Court said that there is no privity of contract of either of petitioner with Pawan Hans Helicopters Limited.

• Pawan Hans permitted to take possession of the goods and retain the same.

• Court directed to file another petition to Pawan Hans Helicopters Limited to take possession of goods.

JUDGMENT…..• The goods because of lying unused would be

subjected to attrition and it would be a national waste. In these circumstances, it was just and proper that pending the arbitration proceedings, Pawan Hans be permitted to take possession of the goods and retain the same. Pawan Hans as the owner of the goods and complete sale consideration having not been paid to it was entitled to its possession and these could not be retained by FJF and SWC on the ground that their charges had not been paid. There was no fetter on FJF and SWC to recover the transportation and warehousing charges from AEC. We find no merit in the appeals. Both the appeals are dismissed.