Sale of Goods Act, 1930
• Module III: Sales of Goods Act 1930
• Formation of contract of sales
• Difference between sale and Agreement to
sell, hire purchase, bailment
• Bail agreement
• Conditions and warranties
• Rule of Caveat Emptor
• Rights of unpaid seller.
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Formation of contract of sale
Formation of contract of sale:
• Indian Contract Act 1872 Chapter VII was in vogue before the Sale
of Goods Act 1930 was enacted. The general provisions of the
Indian Contract Act continue to apply for the sale of goods as long
as they are not inconsistent with the Express provisions of Sale of
Goods Act.
• A contract of sale of goods is a contract whereby the seller
TRANSFERS or AGREES TO TRANSFER the property to goods to the
buyer for a price.
• A contract of sale may be absolute or conditional. It includes both a
sale and an agreement to sell.
• “Goods” means every kind of movable property other than
ACTIONABLE CLAIMS AND MONEY and includes stocks 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. Trade marks, copyrights, patent rights, goodwill,
electricity, water, gas are all goods.
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Formation of contract of sale
Sale and Agreement to sell:
• SALE: Where the property in the goods is transferred from the
seller to the buyer, it is a SALE
• AGREEMENT TO SELL: Where the transfer of property in the
goods to take place at a future time or subject to some
conditions to be fulfilled thereafter, it is an AGREEEMENT TO
SELL.
• An AGREEMENT TO SELL becomes a SALE when the time
elapses or the conditions subject to which the property in the
goods is to be transferred are fulfilled.
• “TRANSFER OF PROPERTY” is the catch-point phrase. When
the transfer of property takes place, ownership is transferred
from the seller to the buyer.
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Formation of Contract of Sale
Essentials of a Contract of Sale:
• Two parties
• Goods (movable goods)—Immovable properties are covered
under the Transfer of Property Act
• Price-money (consideration for the contract); barter is not a
sale, However, consideration may be partly in money and
partly in kind.
• Transfer of general property ( special property means where
there is already a charge like pledge)
• Essential elements of a valid contract must be present in a
contract of Sale also.
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Sale and an Agreement to Sell
SALE
• Immediate transfer of property
• Specific and Existing Goods
• Risk of Loss falls on buyer though
seller has possession
• In case of breach seller can sue for
the price though he continues the
possession
• Seller cannot re-sell ( except sale by
a seller in possession or sale by an
unpaid seller. The subsequent buyer
does not acquire title.
Agreement to Sell
• Transfer of property at a later date
(subject to certain conditions)
• Unascertained existing goods, future
goods and contingent goods
• Risk of loss is on the seller though
buyer has possession
• The seller can only sue for damages
and not for the price though the
possession is with the buyer
• A buyer in case of resale having no
knowledge of the prior agreement
gets good title.
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Sale and Agreement to Sell
SALE
• Sale is a contract PLUS conveyance
ABSOLUTE.
• In case buyer becomes insolvent
before paying the price, the seller,
in the absence of a lien on the
goods MUST RETURN THE GOODS
TO the OFFICIAL RECEIVER. He can
claim a rateable dividend on the
price.
• If the seller becomes insolvent, the
buyer being the owner is entitled
to recover the goods from the
Official Receiver or Assignee.
Agreement to Sell
• An agreement is merely a contract,
pure and simple and gives the right
to the buyer only to sue for
damages.
• In case buyer becomes insolvent
before paying the price, the seller is
not bound to part with the goods
until he is paid for
• If the seller becomes insolvent, he
can only claim a rateable dividend
and not the goods because the
property has not yet passed.
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Hire Purchase Agreement
• A hire purchase agreement is a contract whereby the owner of the
goods lets them on hire to another person called the hirer or hire
purchaser on payment of rent to be paid in instalments and upon
an agreement that when a certain number of such instalments is
paid, the property in the goods will pass to the buyer.
• Buyer may return the goods any time without any obligation to pay
the balance rent.
• Hire purchase contract is not a contract of sale but only A
BAILMENT and the property in the goods remain in the owner
during the continuance of the bailment. It is a BAILMENT PLUS AN
AGREEMENT TO SELL.
• Where the buyer has no option to terminate the agreement and is
bound to pay the price, the agreement is a contract of sale and not
a hire purchase.
• Hire Purchase is governed by the Hire Purchase Act 1972.
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Sale and Hire Purchase Agreement
SALE
HIRE PURCHASE
• Ownership transferred from seller
to the buyer immediately
• Ownership is transferred only
when a certain agreed number of
installments is paid
• The hirer is only a BAILEE
• Hirer can terminate the contract
at any stage and cannot be forced
to pay any further installments.
• Installments are treated as hire
charges until the hirer uses the
option of purchase.
• Buyer is the owner
• Buyer cannot terminate the
contract and he is bound to pay
the price
• Where the sale is by instalments,
the buyers’ liability in terms of
amount gets reduced.
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Formation of Contract of Sale
Sale and Barter or Exchange
• Exchange of goods for goods is BARTER
• Exchange of goods for money is SALE
• Exchange of money for money is known as EXCHANGE
• If the Consideration for the transfer of property in goods is
partly in goods and partly in money, it is SALE
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Sale and Bailment
• In a Sale, the property in goods is transferred from the seller
to the buyer immediately
• In a Bailment, there is only transfer of possession from the
bailor to the bailee but not the ownership. Bailment is for a
specific (one) purpose—Safe custody, single use, carriage
from one place to another etc.
• In a Sale, the buyer can deal with the goods as per his will
because he is the absolute owner once the price is paid. In
case of Bailment, the bailee can deal with the goods only
according to the directions of the bailor.
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Subject matter of Contract of Sale
• Goods is the subject matter—Goods means every kind of
movable property other than ACTIONABLE CLAIMS AND
MONEY and includes stocks 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. Trade marks, copyrights, patent rights, goodwill,
electricity, water, gas are all goods.
• Actionable claim means a claim to a debt or any beneficial
interest in movable property not in possession (which can be
enforced by action in a court. A debt from one person to
another is an actionable claim and cannot be bought or sold
as goods but they can only be assigned. ( UNDERSTAND THE
WORDS FACTORING AND FORFAITING—HERE)
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Subject matter of Contract of Sale
• Classification of Goods—Existing Goods (Specific Goods,
Ascertained goods, unascertained goods or generic goods); Future
Goods; Contingent Goods and contingent and future goods.
• Document of title to goods: Document is the proof of title to the
goods—proof of possession and ownership. The documents can be
endorsed or simply delivered to transfer the property (depending
on the nature of contract)
• Important documents of title to goods: Bill of Lading; Dock Warrant,
Warehousekeeper’s or Wharfinger’s Certificate (dockside), Railway
Receipt, Lorry Receipt, Airway Bill, Delivery order.
• Other terms of Sale are the Price (ascertainability and agreement to
sell at valuation) and Stipulation as to time (time of delivery and
time of payment)
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Bailment
• The Indian Contract Act does not deal with all kinds of
bailments. Separate Acts like The Carriers Act, 1865, The
Railways Act 1989, the Carriage of Goods by Sea Act 1925 deal
with specific types of bailments.
• Bailment means delivery of goods by one person to another
for some purpose, upon a contract, that they shall, when the
purpose is accomplished, be returned or otherwise disposed
of according to the directions of the person delivering the
goods.
• The person who delivers the goods is known as the BAILOR.
The person to whom the goods are delivered in known as the
BAILEE. (Eg Cloth given for stitching, Articles given for safe
custody in a bank, ornaments given for safe custody with a
relative/friend,. Insurance company placing a damaged
vehicle in a garage
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Bailment
Requisites of bailment:
• Contract
• Delivery of Possession
• For some purpose
• Return of specific purpose
• Concerned only with goods
• A Hire purchase contract until the option is exercised
• Seizure of goods by Customs
• Acceptance of goods by a carrier
• Acceptance of goods by post office or a courier.
• Consideration is generally in the form of money ( Sometimes,
detriment suffered by the bailor is a sufficient consideration)
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Bailment
A Bailment Agreement shall contain the following clauses:
• Parties –Bailor and Bailee—details of their names, address, ID
• Nature of goods bailed
• Purpose of bailment
• Duties and Rights of bailor and bailee
Duties of Bailor: a) disclosing known facts; b) bearing
extraordinary expenses of bailment; c) indemnifying the
bailee for loss in case of premature termination of gratuitous
bailment; d) receiving back the goods and e)indemnifying the
bailee for consequences suffered on account of defective
goods
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Bailment
• Duties of Bailee: a) To take reasonable care of the goods
bailed; b) Not to make unauthorised use of goods; c) Not to
mix the goods with his own goods or other goods; d) Not to
set up adverse title; e) To return any accretion to the goods
(cow and calf) and f) To return the goods
• Rights of Bailor:- a)Enforcement of rights; b)Avoidance of
contract; c)Return of goods lent gratuitously; d)
Compensation from a wrong-doer;
• Rights of Bailee:- a) Delivery of goods to one or several joint
bailors; b) Delivery of goods to bailor without title (in good
faith without negligence—not reponsible to the true owner);
c) Right to apply to the Court to stop delivery; d) Right of
action against trespassers; and e) Bailee’s lien (particular lien)
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Sale by non-owners
• “Nemo Dat Qui Non Habet”—No one can give that which one has
not got
• A thief cannot pass a better title to his buyers than what he himself
has. It is only the owner
• Sometimes, persons other than owners can pass on good title: a)
Title by estoppel (where the owner by his conduct or silence leads
the buyer to believe that the seller has authorised); b) Sale by
mercantile agent (agency in the ordinary course of business); c) Sale
by one of the joint owners; d) Sale by a person in possession under
a voidable contract; e) Sale by seller in possession after sale (buyer
has to buy in good faith); f) Sale by buyer in possession after having
bought or agreed to buy; g) Sale by unpaid seller; and h) Sale by
finder of lost goods; Sale by pawnee or pledgee; Sale by Official
receiver or Assignee; Sale in Market by enforcement
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Conditions and Warranties
Conditions and warranties
• A condition is a stipulation which is essential to the main
purpose of the contract. Non-performance of the condition is
non-performance of the contract
• A warranty is a stipulation which is collateral to the main
purpose of the contract. Though it must be performed, the
failure may lead to breach of warranty and not breach of
contract. The affected party may only claim damages and
cannot repudiate the contract. ( Eg sale of consumer goods,
vehicles –some minor parts—may be replaced when defects
are noticed but the vehicle itself cannot be replaced)
• Breach of condition is a breach of warranty. A breach of
warranty is not a breach of condition
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Conditions and Warranties
When condition can be treated as a warranty:
a) Voluntary waiver of condition by the buyer
b) Voluntary treatment by the buyer that the breach of
condition would be treated as warranty. He cannot change
mind again
c) Where a contract of sale is not severable and the buyer has
accepted the goods wholly or in part , the breach of
condition could only be treated as breach of warranty.
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Conditions and Warranties
Express and Implied Conditions and Warranties:
• Express conditions and warranties are those which are
expressly declared or specified in the contract ( Eg Price, Time
and place of delivery, etc)
• Implied conditions and warranties are those which are
implied by the Law unless the parties stipulate otherwise. An
express warranty or condition does not negate the implied
unless the condition or warranty is inconsistent
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Conditions and Warranties
Implied conditions
• Conditions as to title: The seller is supposed to have good title
unless contrary is proved
• Sale by description: Sale by description and specification—the
goods would conform to the description and specification
• Sale by description as well as by sample—The entire goods
shall match with the sample – no justification to say the bulk
of the goods match with the sample
• Condition as to quality or fitness: Fitness for a particular
purpose: For Eg, Payloaders, JCBs, Heavy Traffic Vehicles,
laptop, gas stoves
• Condition as to merchantability: Goods are commercially
saleable with the description commonly known.
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Conditions and Warranties
Implied conditions (contd..)
• Condition by custom: quality or fitness of the goods for a
particular purpose Eg a Pressure cooker, Milk Cooker, Hot
water bottle
• Sale by Sample: Bulk of the goods must match with the
sample and the buyer has reasonable opportunity of
comparing the bulk with the sample
• Condition as to wholesomeness: Foodgrains and eatable
items. A piece of bread containing a stone damaging the teeth
is not wholesome
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Conditions and Warranties
Implied warranties
• Warranty of quiet and peaceful possession
• Warranty of freedom from encumbrances
• Warranty as to quality or fitness by usage of trade
• Warranty to disclose dangerous nature of goods ( Crackers,
Acids, Phenyl, Pesticides, Fungicides)etc
IMPORTANT NOTE: Implied conditions or warranties may be
negatived or varied by specific contracts by the seller and the
buyer or by normal dealing or by customs and practices.
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Rule of Caveat Emptor(page 240)
“ Caveat Emptor” means LET THE BUYER BEWARE.
• In a contract of sale, the seller is not duty bound to disclose all
the truth about the goods. Buyers should thoroughly examine
before them. They may ask the seller all the clarifications
required. If the seller shows the sample and the goods
corresponds to the sample, the buyer cannot blame the seller
anytime thereafter. In sale of goods on “as is where is” basis,
buyer will not have any subsequent claims
• Exceptions to the above rule: a) Fitness for buyer’s
purpose(expressly or by implication) ; b) sale under a patent
or a trade name; c) Merchantable quality ( if the buyer has
examined the goods); d) Usage of Trade; and e) Consent by
fraud
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Rights of an unpaid seller
Rights of unpaid seller:
An unpaid seller is one
a) who has not been paid/tendered the price
b) A bill of exchange or other negotiable instrument received
but dishonoured or otherwise irregular
c) Who has got a court decree but not yet satisfied ( or
executed)
d) Any person who is in the position of the seller ( agent or a
consignee who had paid for the goods and responsible for
the price
An unpaid seller has an immediate right of action for the price.
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Rights of an unpaid seller
Unpaid seller has two kinds of rights:
a) Against the goods
b) Against the buyer personally
Right against the goods
–a) when the property in goods has passed: Lien, Stoppage in
Transit and Re-sale
--b) when the property in goods has not passed: Withholding
delivery and Stoppage in Transit
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Rights of an unpaid seller
Right against the buyer personally
a)
b)
c)
d)
Suit for the price
Suit for damages
Repudiation of the contract
Suit for interest
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Rights of an unpaid seller
Right of Lien:
• A lien is a right to retain the possession of the goods until the price
is paid. This right is immediate in case of cash sales. In case of credit
sales it is after the expiry of the credit period. The right is also
available when the buyer becomes insolvent at any time.
• Lien depends on actual possession and not on title whether as
seller or as his agent or as bailee for the buyer
• Possession of the goods by the seller must not expressly exclude
the right of lien
• Lien can be exercised only for the price and not for other charges (
like taxes, duties)
• Seller having made part delivery of the goods may exercise lien on
the remainder (unless there is a condition to waive the lien)
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Rights of an unpaid seller
Right of stoppage in transit:
• This right is available: a) when the buyer becomes insolvent and b)
when the goods are in transit.
• Insolvency means failure to pay them on the due date whether he
has committed an act of insolvency or not
• This right is an extension of the right of lien
• The carrier may hold goods as an agent of the seller
• If the carrier is holding goods as an agent of the buyer, seller cannot
exercise the right of stoppage in transit
• If the carrier is holding goods in an independent capacity, the seller
has the right of stoppage.
• Stoppage can be effected by taking possession or by giving notice of
stopping
• Right of lien or stoppage in transit is not affected by any sale or
pledge which the buyer would have made unless the seller has
assented to the same.
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Rights of an unpaid seller
Right of Resale
• When the goods are perishable
• When the notice of resale is given to the buyer but buyer
does not respond by payment /tender of price within a
reasonable time
• In case of loss in a resale, seller can claim it from the buyer as
damages for breach of contract
• In case of surplus the seller is not bound to hand it over to the
buyer (buyer cannot benefit from his own wrongs)
• Notice is a must or there should be clause in the sale contract
expressly reserving the seller’s right of re-sale
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Rights of an unpaid seller
Right of withholding delivery:
• Where the property in goods has not passed to the buyer, the
unpaid seller has a right of withholding delivery
• This right is co-existent with the right of lien and stoppage in
transit
Rights of the Unpaid seller against the buyer personally:
a) Suit for the Price; b) Suit for damages for non-acceptance; c)
Repudiation of the contract before due date and d) Suit for
interest
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