SALE OF GOODS ACT, 1930

INTRODUCTION

It is one of the special types of contract. Initially, it was the part of the Indian Contract Act, 1872. Later it was deleted and a separate sale of Goods Act was passed in 1930. It came into force on 1st July, 1930. It extends to whole of India except the State of Jammu & Kashmir.

CONTRACT OF SALE OF GOODS

As per Section 4(i) of the Sale of Goods Act, 1930, Contract of sale of Goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price.

Essential Elements:

- There must be atleast two parties. (Bilateral Contracts)

- The subject matter of the contract must be goods.

- A price in money should be paid or promised.

- A transfer of property in goods from seller to the buyer must take place.

- It must be absolute or conditional.

- All other essentials of a valid contract must be present.

GOODS - MEANING

As per Sec 2(7), it 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 or under the contact of sale.

- Money means current money and it includes rare and old coins.

- Actionable claim means what a person cannot make a present use of or enjoy, but can recover it by means of a suit or an action. Thus, a debt due to a man from another is an actionable claim and cannot be sold as goods, although it can be assigned. Under the provisions of the Transfer of Property Act, 1882, goodwill, trade marks, copyrights, patents are all goods, so is a ship. As regards water, gas, electricity, it is doubtful whether they are goods.

TYPES OF GOODS

Existing Goods: It means such goods which are in existence at the time of the contract of sale i.e. owned or possessed by the seller.

Specific or Ascertained Goods: It means goods identified and agreed upon at the time the contract of sale has been made.

Generic / Unascertained Goods: It means the goods which are not specifically identified but are indicated by description.

Future Goods: It means goods to be manufactured or produced or acquired by the seller after making the contract of sale.

Contingent Goods: It means the goods the acquisition of which by the seller depends upon a contingency which may or may not happen.

EFFECT OF PERISHING OF GOODS

Goods perishing before making a contract

- Where in a contract of sale of specific goods, the goods without the knowledge of the seller have perished at the time of making the contract, the contract is void.

- If the seller was aware of the destruction and still entered into the contract, he is estopped from disputing the contract. Moreover, perishing of goods not only includes loss by theft but also where the goods have lost their commercial value.

Goods perishing after agreement to sell

- Where there is an agreement to sell specific goods, and subsequently the goods without any fault of any party perish before the risk passes to the buyer, the agreement is thereby avoided. The provision applies only to sale of specific goods.

- If the sale is of unascertained goods, the perishing of the whole quantity of such goods in the possession of the seller will not relieve him of his obligation to deliver.

PRICE & ITS FIXING

Price is money consideration for the sale of goods and it constitutes the essence for a contract of sale. The price may be fixed:

(i) at the time of contract by the parties themselves, or

(ii) may be left to be determined by the course of dealings between the parties, or

(iii) may be left to be fixed in some way stipulated in the contract, or

(iv) may be left to be fixed by some third-party.

CONDITIONS & WARRANTIES

Condition

- If the stipulation forms the very basis of the contract or is essential to the main purpose of the contract, it is a condition.

- The breach of the condition gives the suffering party a right to treat the contract as repudiated (cancelled). Thus, if the seller fails to fulfil a condition, the buyer may treat the contract as repudiated, refuse the goods and, if he has already paid for them, recover the price. He can also claim damages for the breach of contract.

Warranties

- If the stipulation is collateral to the main purpose of the contract, i.e., is a subsidiary promise, it is a warranty.

- The effect of a breach of a warranty is that the suffering party cannot repudiate (cancel) the contract but can only claim damages.

- Thus, if the seller does not fulfil a warranty, the buyer must accept the goods and claim damages.

- Stipulation (condition) as to time of payment are not to be deemed conditions (and hence not to be of the essence of a contract of sale) unless such an intention appears from the contract.

- Whether any other stipulation as to time (e.g., time of delivery) is of the essence of the contract or not depends on the terms of the contract.

WHEN A CONDITION MAY BE TREATED AS WARRANTY

In the following cases, a breach of a condition is treated as a breach of a warranty:

Waiver by the buyer:

The buyer may waive a condition. Once the buyer waives a condition, he cannot insist on its fulfillment.

Compulsory treatment by buyer:

Where the contract is indivisible and the buyer has accepted the goods or part thereof, the breach of condition can only be treated as breach of warranty. Thus, the buyer cannot terminate the contract but can only claim damages from the seller.

IMPLIED WARRANTIES

Implied warranties are those which the law presumes to have been incorporated in the contract of sale inspite of the fact that the parties have not expressly included them in a contract of sale. The following are the implied warranties in the contract of sale:

Warranty as to possession:

There is an implied warranty that the buyer shall have and enjoy quiet possession of the goods. If the buyer’s possession is disturbed by anyone having superior title than that of the seller, the buyer may sue the seller for the breach of warranty.

Warranty as to freedom from encumbrances:

There is an implied warranty that the goods shall be so free from any charge or encumbrances in favor of any third party. If the goods are found subject to some charge in favor of third party, the buyer may sue the seller for damages. However, this warranty is not applicable where the buyer has been informed of such charge or has notice of the same.

Warranty to disclose dangerous nature of goods:

If the goods are inherently dangerous or likely to be dangerous to the buyer, it is the duty of the seller to warn the buyer of the probable danger which may arise out of its use.

Warranty as to quality or fitness:

There is an implied warranty as to quality of fitness for a particular purpose may be annexed by the usage of trade.

IMPLIED CONDITIONS

The implied conditions are those which are presumed by law to present in the contract. However, an implied condition may be negated or waived by an express agreement. The following conditions are implied in a contract of sale of goods unless the circumstances of the contract show a different intention:

Condition as to title

In every contract of sale, there is an implied condition on part of the seller that:

a. In case of sale, he has ownership and right to sell the goods, and

b. In an agreement to sell, he will have a right to sell the goods at the time when the property is to pass.

Sale by description

Where there is a contract of sale of goods by description, there is an implied condition that goods delivered by seller shall correspond with such description. If the goods does not correspond with the description, the buyer is not bound to accept and pay for the goods.

Sale by sample

In a contract of sale by sample, there is an implied condition that:

1. The bulk should correspond with the sample in quality;
2. The buyer shall have reasonable opportunity of comparing the bulk with the sample; and
3. The goods shall be free from any defect rendering them unmerchantable, which would not be apparent on reasonable examination of the sample.

Sale by sample as well as by description

Where the goods are sold by sample as well as by description the implied condition is that the bulk of the goods supplied must correspond both with the sample and the description. In case the goods correspond with the sample but do not tally with the description or vice versa, the buyer can repudiate the contract.

Condition as to quality or fitness

There is no implied condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale. There is an implied condition as to the reasonable quality or fitness of goods if:

a) The particular purpose for which goods are required must have been disclosed by the buyer to the seller.

b) The buyer must have relied upon the seller’s skill or judgment of the seller to select the best goods and

c) The seller has ordinarily been dealing in those goods. However, there is no implied condition where:

1) The buyer has not disclosed to the seller any abnormal circumstances or

2) The buyer buys a specified article under its patent or other trade name and

3) Buyer has not relied upon the skill and judgment of seller.

Condition as to merchantable quality

Merchantable quality means that the goods should be resalable in the market under the particular description by which they are known. They are not merchantable if they have defects which make them unfit for ordinary use, or are such that a reasonable person knowing of their condition would not buy them.

Where the goods are bought be description from a seller who deals in that type of goods, there is an implied condition that the goods  shall be merchantable quality.

Condition as to wholesomeness

In a contract of sale of provisions and eatables, there is an implied condition that the goods shall be wholesome or sound, i.e. goods should be fit for human consumption.

CAVEAT EMPTOR

- The term caveat emptor is a Latin word which means “let the buyer beware”.

- It implies that while purchasing the goods, the buyer must be cautious. This principle states that, at the time of buying goods, the buyer must make reasonable examination of the goods to satisfy himself that the goods are suitable for his purpose.

- Section 6 provides that there is no implied warranty or condition as to the quality or fitness for any particular purpose for which the goods are supplied under a contract of sale.

- In simple words, it is not the seller’s duty to give to the buyer the goods which are fit for a suitable purpose of the buyer. It is up to the buyer to make proper

selection of goods according to his needs. If he makes a wrong selection, he cannot blame the seller if the goods turn out to be defective or do not serve his

purpose.

Exceptions to the Doctrine of Caveat Emptor

(1) Where the seller makes a false representation and the buyer relies on it.

(2) When the seller actively conceals a defect in the goods which is not visible on a reasonable examination of the same.

(3) When the buyer, relying upon the skill and judgement of the seller, has expressly or impliedly communicated to him the purpose for which the goods are required.

(4) Where goods are bought by description from a seller who deals in goods of that description.