CHAPTER - I
INTRODUCTION
Sale of Goods Act, 1930 is an Act to define and amend the law relating to the sale of goods. Section 1, says that it extends to the whole of India including the State of Jammu and Kashmir. It came into force on 1st July, 1930.
Sale of goods is one of the specific forms of contract recognized and regulated by law in India. Sale is a bargain between the buyer and the seller. The Sale of Goods Act, 1930 permits the parties to modify the provisions of the law by their express stipulations. However, in some places this freedom is restricted.
In this act we are describing topics like characteristics of a contract of sale of goods, existence of goods, price, transfer of ownership, essentials of a valid constant, distinction between sale and agreement to sell, meaning and definition of unpaid seller, rights of unpaid seller etc.
OBJECT OF SALE OF GOODS ACT, 1930
The law related to sale of goods was originally contained under section 76 to 123 of Indian Contract Act. But contract act was found to be inadequate to meet all the complexities which were growing in mercantile transactions. Hence Sale of Goods Act was enacted in 1930 for removal of those commercial difficulties.
Sale of Goods Act, 1930 applies only to movable properties other than money and actionable claim because Transfer of Property Act deals with immovable properties, money and actionable claim.
DEFINITIONS
The Sale of Goods Act, 1930 defines many terms which have been frequently used in the Act, such terms are as follows –
Section 2(1): - Buyer and Seller:
‘Buyer’ means a person who buys or agrees to buy goods. On the other hand ‘Seller’ means a person who sells or agrees to sell goods Section 2(13). The two terms, ‘buyer’ and ‘seller’ are complementary and represent the two parties to a contract of sale of goods.
Section 2(2): - "delivery" means voluntary transfer of possession from one person to another;
Section 2(3): - "deliverable state" goods are said to be in a "deliverable state" when they are in such state where the buyer would be bound to take delivery of them under the contract;
Section 2(4):"document of title to goods"includes a bill of lading, dock warrant, warehouse keeper's certificate, wharfingers' certificate, railway receipt, [multimodal transport document, warrant or order for the delivery of goods and any other document used in the ordinary course of business as proof of the possession or control of goods, or authorising or purporting to authorise, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented.
There is a difference between ‘document showing title’ and ‘document of title’.A share certificate is a document showing title but not a document of title. It merely shows that the person named in the share certificate is entitled to the share represented by it, but it does not allow that person to transfer the share mentioned therein only on the basis of endorsement on the back of the certificate. On the other hand document of title is a legal document which proves that someone owns property, goods and he has the right to take control of it. He is allowed to transfer property, goods or share to another person on the basis of document of title.
Section 2(7): “Goods”means every kind of movable property other than actionable claims and money as defined in General Clause Act, 1897 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 contract of sale. This is a wider definition than contained in the English law, which does not consider ‘stock’ and ‘shares’ as goods.
Classification of goods 1) Classification of goods
Existing goods are such goods which are in existence at the time of the contract of sale, i.e., those goods which are owned or possessed by the seller at the time of contract of sale (Section 6). The existing goods may be of following kinds:
A. SPECIFIC GOODS
B. UNACERTAINED GOODS
C. ACERTAINED GOODS
Specific goods means goods identified and agreed upon at the time a contract of sale is made [Section 2(14)].
For example: - ‘A’ had five cars of different models. He agreed to sell his ‘fiat’ car to ‘B’ and ‘B’ agreed to purchase the same car. In this case, the sale is for specific goods as the car has been identified and agreed at the time of the contract of sale.
Unascertained goods are the goods which are not specifically identified or ascertained at the time of making of the contract. They are indicated or defined only by description or sample.
For example: - If A agrees to sell to B one packet of salt out of the lot of one hundred packets lying in his shop, it is a sale of unascertained goods because it is not known which packet is to be delivered. As soon as a particular packet is separated from the lot, it becomes ascertained or specific goods.
Ascertained Goods are those goods which are identified in accordance with the agreement after the contract of sale is made. This term is not defined in the Act but has been judicially interpreted. In actual practice the term ‘ascertained goods’ is used in the same sense as ‘specific goods.
For example: - A wholesaler of cotton has 100 bales in his godown. He agrees to sell 50 bales and these bales were selected and set aside. On selection the goods becomes ascertained. In this case, the contract is for the sale of ascertained goods, as the cotton bales to be sold are identified and agreed after the formation of the contract. It may be noted that before the ascertainment of the goods, the contract was for the sale of unascertained goods.
2) FUTURE GOODS: - means goods to be manufactured or produced or acquired by the seller after making the contract of sale [Section 2 (6)].
For example: - 1,000 quintals of potatoes to be grown on A’s field, is not illegal, though the actual sale of future goods is not possible. This is an example of agreement to sell.
3) CONTINGENT GOODS: The acquisition of which by the seller depends upon an uncertain contingency (uncertain event) are called ‘contingent goods’ [Section 6(2)].
For example: - A agrees to sell to B a Picasso painting provided he is able to purchase it from its present owner. This is a contract for the sale of contingent goods.
- Lottery tickets- Ordinarily Lottery tickets are movable property and so “goods” under Sale of Goods Act. As per Black’s Law Dictionary, ‘lottery’ is defined as ‘a chance for a prize for a price’.
In the Supreme Court case of H. Anraj v. Government of T.N (1986) 1 SCC 414.
It was held that a lottery ticket primarily involved two rights: (1) the right to participate in the draw and (2) the right to win the prize, depending on chance. In that case it was held that the former right was a “transfer of a beneficial interest in movable goods” and hence was a sale within the meaning of Art 366 (29-A)(d) of the Constitution whereas the latter right was a chose in action and thus not “goods” for the purpose of levy of sales tax.
However, the ruling of this decision was challenged in a later Supreme Court verdict of Sunrise Associates v. Government of NCT of Delhi (2006) 5 SCC 603.
It was held that sale of a lottery ticket amounts to a sale of an actionable claim. The conclusion of the Court was based on the reasoning that there was no difference between right to win and right to participate in a lottery draw, as no purchaser pays the consideration for a right to participate in the draw, instead he pays it for the right to win.
Thus, the classification by H. Anraj case of the right to participate as right in praesenti and the right to win as a right in futuro, was incorrect as both these rights are in futuro. As a result the earlier judgment was overruled to that extent and “lottery tickets” were excluded from the definition of “goods”. - Shares- Goods specifically includes stocks and shares.
- Electricity- Electricity does not come under the definition of “goods” as per English law. There has been no judicial decision which includes electricity within the definition of ‘goods’ for the purpose of Sale of Goods Act. On the other hand In India the situation is quite different. Calcutta High Court in case of Associated Power Co. v. R.T. Roy it was held that electricity comes under the ambit of ‘goods’ under the article 366 (12) of the Constitution as well as S. 2 (7) of the ‘Act’.
Supreme Court while discussing about the definition of ‘goods’ as mentioned in the Madhya Pradesh Sales Tax Act (2 of 1959), found that the definition included all kinds of movable property. The court further held that: The term “movable property” when considered with reference to “goods” as defined for the purposes of sales tax cannot be taken in a narrow sense and merely because electric energy is not tangible or cannot be moved or touched like, for instance, a piece of wood or a book it cannot cease to be movable property when it has all the attributes of such property……It can be transmitted, transferred, delivered, stored, possessed etc., in the same way as any other movable property.” - Software programs
In the case of TCS v. State of Andhra Pradesh (2005) 1 SCC 308.
The Supreme Court held that a software program on a CD or a floppy drive would be a “good” for the purposes of levy of sales tax.
One other landmark cases in this regard was the case of St Albans City and District Council v. International Computers Ltd [1995] FSR 686. Where Sir Iain Glidewell observed that a hardware device has no use of its own unless it is supplemented with a software and it was only because of necessity that software was contained in a physical medium like a disk or a floppy furthermore, in case the disk is sold and there is a defect with the program, then there would be a prima facie liability against the disk manufacturer as well. Thus, he held that the tangible disk and the software program both will be included within the definition of “goods”. - Things attached to movable property- The words “growing crops, grass and things attached to or forming part of land which are agreed to be severed before sale” are intended to show that the things attached to immovable property would be movable property where they are agreed to be severed from the land or immovable property before sale. Thus, “standing timber” on land agreed to be severed from the land before the sale was held to fall under this definition.
- Interest of partners-Similarly interest of the partners in the partnership assets consisting of immovable property has been held to be movable property.
Section 2(8):“ "insolvent"a person is said to be "insolvent" who has ceased to pay his debts in the ordinary course of business, or cannot pay his debts as they become due, whether he has committed an act of insolvency or not;
Section 2(9):“mercantile agent”mercantile agent is a person who in the customary course of business has an agent's authority either to sell or consign the goods for the purpose of sale or to buy goods or to raise money on the security of goods.
Section 2(10):"price" means the money consideration for a sale of goods;
Section 2(11):"property" means the general property in goods, and not merely a special property;
Section 2(12):"quality of goods"includes their state or condition;
Section 2(13):“seller”defined above with buyer.
Section 2(14):“specific goods"means the goods that are specifically identified and agreed upon to be transferred at the time of the formation of the contract are called specific goods.
Section 2(15):expressions used but not defined in this Act and defined in the Indian Contract Act, 1872 (9 of 1872), have the meaning assigned to them in that Act.
SECTION 3, Application of provisions of Act IX of 1872-The un-repealed provisions of the Indian Contract Act, 1872, save in so far as they are inconsistent with the express provisions of this Act, shall continue to apply to contracts for the sale of goods.
CHAPTER - II
CONTRACT OF SALE
NATURE AND DEFINATION
A contract for the sale of goods may be either sale or agreement to sell. In Sale, the property in goods is transferred from seller to the buyer immediately. On the other side in an agreement to sell, the ownership of the goods is not transferred immediately rather it is intending by the parties to transfer at a future date upon the completion of certain conditions thereon.
Section 4:- of Sale of Goods Act define the term "Sale" and "agreement to sell" as follows:
A 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. Thus according to section 4-
- Contract of sale is a contract whereby seller transfers or agrees to transfer the property (with adequate consideration) to the buyer.
- Such contract can be absolute and conditional
- Where under contract if property actually transfers then it becomes sale but where transfer takes place at some future time or subject to some condition thereafter to be fulfilled then the contract will be called an agreement to sale.
- Such agreement to sale becomes sale when the property passes and condition fulfilled.
Illustrations
1. A agrees to buy B a haystack on B’s land with liberty to go to B’s land to take it away. This is a sale.
2. A agrees to buy from B a quantity of nitrate of soda to arrive certain ship. This is an agreement for sale as it is subject to the two conditions i.e. ship arriving and that too with the specified cargo.
Thus, whether a contract of sale of goods is an absolute sale or an agreement to sell, depends on the fact whether it contemplates immediate transfer from the seller to the buyer or the transfer is to take place at a future date.
INGREDIENTS OF SALE
The following elements must exist as to constitute a contract of sale of goods under the Sale of Goods Act, 1930:
1. There must be at least two parties’ i.e. bilateral contract
There must be at least two parties, the seller and the buyer. A sale has to be bilateral because the property in goods has to pass from one person to another. Its first essential is that the seller and the buyer must be different persons. A person cannot buy his own goods. Section 2(13) defines seller means a person who sells or agrees to sale goods. According to section 2(1) buyer is a person who buys or agrees to buy goods.B
In case of state of Gujarat v. Ramlal & com. Held, that division of shares among partners is not sale because they are not parties rather partners.
2. The subject matter of the contract must necessarily be goods i.e. movable property
It may be either existing goods, owned or possessed by the seller or future goods. The expression “goods” is defined in Section 2(7) of the Act. ‘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 or under the contract of sale.
3. A price in money should be paid or promised.
Consideration can be partly in money and partly any other kind. Money is called price. When the property in the goods transferred for consideration other then money it is called exchange or barter.
3. A price in money should be paid or promised.
Consideration can be partly in money and partly any other kind. Money is called price. When the property in the goods transferred for consideration other then money it is called exchange or barter.
For example: - 100 kg rice, valued 2000/- rupees were exchanged for a cow rupee 3000/- This is exchange not sale.
But where goods are sold for a definite sum and the price is paid partly in terms of valued goods and partly in cash that is sale.
4. A transfer of property in goods from seller to the buyer must take place.
The contract of sale is made by an offer to buy or sell goods for a price by one party and the acceptance of such offer by other. All the rights must go to the buyer such as right to ownership, enjoyment, possessory rights etc.
5. A contract of sale may be absolute or conditional.
6. All other essential elements of a valid contract must be present in the contract of sale
e.g. competency of parties, legality of object and consideration etc.
DIFFERENCE BETWEEN SALE AND AGREEMENT TO SALE-
The differences between the two are as follows:
Sale | Agreement to Sell |
1. In sale buyer becomes the owner immediately. The property or ownership in the goods immediately passes from seller to buyer. | In this buyer becomes owner later. The property in goods transfers on some future date or subject to fulfillment of some conditions. The seller continues to be the owner of goods. |
2. It Creates Jus in rem i.e. rights against world. | Creates Jus in personam i.e. it creates rights in person. (personal rights) |
3. Sale is always of existing, specific or ascertained goods. | An agreement to sell may relate to existing goods, unascertained goods and mostly to future or contingent goods. |
4. Sale is an executed contract i.e. contract for which consideration has been paid. | It is an executory or future contract i.e. contract for which consideration is to be paid at a future date. |
5. The goods belong to the buyer even if they remain in the possession of seller. In case of loss or damage, the buyer will suffer the loss. | The goods belong to the seller and he will suffer the loss if goods are destroyed, even if these are in the possession of the buyer. |
6. If the buyer fails to pay the price, the seller can sue him for price, but cannot resell the goods. | The seller can recover the goods, can sue for damages and can resell the goods, but cannot sue the intended buyer for recovery of price. |
7. If buyer gets insolvent before he pays the price, the seller cannot retain the goods. He must return the goods to the buyer’s Official Receiver and shall be entitled only to a ratable dividend. | The seller can retain the goods as he is still the owner of goods. In case goods are with Official Receiver of the buyer, he can recover goods or full price of the goods. |
8. If seller gets insolvent, the buyer can recover goods from seller’s Official Receiver. | If the buyer has already paid the price, buyer cannot recover the goods. He can only claim ratable dividend as creditor. |
DIFFERENCE BETWEEN SALE AND HIRE PURCHASE
A hire purchase contract is known as installment plan, whereby a customer agrees to a contract to acquire an asset by paying an initial installment and repays the balance of the price of the asset plus interest over a period of time. It is considered that both are similar but there is a quite difference between both as following:-
Contract of Sale | In Hire- Purchase contract |
1. In this contract property immediately transfers. The seller transfers or agrees to transfer the property in the goods to buyer for a price, whether paid at once or later in installments. | In this contract the property transfers on last installment. It is a contract of hire and it may eventually ripen into a sale. |
2. Here buyer becomes the owner of property. | Here buyer becomes bailee. |
3. The buyer cannot terminate the contract and is bound to pay the price of the goods. | The hirer may, if he likes, terminate the contract by returning the goods to its owner without any liability to pay the remaining installments. |
4. The seller takes the risk of any loss resulting from the insolvency of the buyer. | The owner takes no such risk, if the hirer fails to pay an installment, the owner has right to take back the goods. |
5. The buyer in sale can resell the goods. | The hire purchaser cannot resell unless he has paid all the installments. |
Sunder finance ltd. V. state of Karla (AIR 1966 SC 1178)
In this case the appellant company carried on business of financing purchase of motor vehicles on security of these vehicles. The state imposed taxes on transactions between the appellant and their customers. Appellant contended that they were merely financiers and they did not enter into any transaction of sale of goods with parties and they were not dealers within the meaning of this act.
The court observed that a hier purchase agreement broadly takes one or the other two forms. In the first, goods are purchased by financer dealer and he obtains a hier purchase agreement from customers under which the later becomes owner of the goods on payment of all installments by exercising his option to purchase the goods. in the second goods are purchased by the customer which remains in his possession subject to liability to any amount paid by financer on his behalf to the dealer and the financer obtains a hier purchase agreement which gives him license to seize the goods in the event of failure by customer to fulfill agreements conditions.
DIFFERENCE BETWEEN SALE AND BAILMENT
Sale | Bailment |
1. In sale property transferred immediately. | In bailment agreement possession transferred only for safe custody. |
2. After sale goods cannot be returned to original owner | Bailee is bound to return when the purpose of bailment accomplished. |
3. There must me consideration in money. | Bailment may be gratuitous or non gratuitous i.e. with or without consideration. |
Sale and contract for work and labour:
A contract of sale of goods is one in which some goods are sold or are to be sold for a price. But where no goods are sold, and there is only the doing or rendering of some work of labour, then the contract is only of work and labour and it is not of sale of goods.
EXAMPLE: Where gold is supplied to a goldsmith for preparing an ornament or when an artist is asked to paint a picture. It is a contract of work and labour not sale of goods.
FORMALITIES OF SALE UNDER SECTION-5,
There is no specific foam of sale but as per contract act it can be made by the following ways as:-
1. Contract of sale is made by an offer to buy or sell goods for a price and acceptance of such offer.
2. There may be immediate delivery of the goods.
3. There may be immediate payment of price, but it may be agreed that the delivery is to be made at some future date.
4. There may be immediate delivery of the goods and an immediate payment of price. It may be agreed that the delivery or payment or both are to be made in installments.
5. It may be agreed that the delivery or payment or both are to be made at some future date.
PROCEDURE WHEN GOODS PERISHED BEFORE MAKING THE CONTRACT - SECTION 7,
Where there is a contract for the sale of specific goods, the contract is void if the goods without the knowledge of the seller have, at the time when the contract was made, perished or become so damaged as no longer to answer to their description in the contract.
This section is confined to the case of specific goods. This section says that if the goods without the knowledge of the seller have perished at the time when the contract was made, the contract becomes void. This section is based on the rule that where both the parties to a contract are under a mistake as to the matter of fact which is essential to the contract, the contract is void as per section 20 of Indian Contract Act.
Illustrations
a) A agrees to sell to B a specific cargo of goods, supposed to be on its way from England to Bombay. It turns out that, before the day of the bargain, the ship conveying the cargo had been cast away and the goods lost. Neither party was aware of the facts. The contract is void.
b) A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of the bargain, though neither party was aware of the fact. The contract is void.
DISTRUCTION OF SUBJECT MATTER- SECTION 7 AND 8,When specific goods destroyed without the knowledge of buyer and seller at the time of sale, contract becomes void ab initio on the ground of mistake of fact.
When goods perished after the contract of sale without fault of buyer and seller, then also the contract becomes void.
Generally the risk is transferred to the buyer at the time of contract then buyer will suffer the loss. If risk is not transferred then seller will be responsible for loss.
Case: Howell v. Coupland
The defendant agreed to sell to plaintiff 200 tons of regent potatoes to be grown on the land belonging to the defendant. The defendant sowed sufficient land to grow more than 200 tons, but without any fault in him, a disease attacked the crop, and he was able to deliver only about eight tons. The agreement was held to have become void. Lord MELLISH said:
This is not like the case of a contract to deliver so many goods of a particular kind, where no specific goods are to be sold. Here there was an agreement to sell and buy 200 tons out of a crop to be grown on specific land, so that it is an agreement to sell what will be and may be called specific things; therefore, neither party is liable if the performance becomes impossible.
Where the goods are specific and the agreement to sale arose between buyer and seller. But goods become parish or damage without any fault on the part of buyer and seller. The agreement can be avoided. Seller will bear the loss as par section 26 as he is still the owner of the goods.
In case Barrow, Lane & Ballard Ltd v Phillip Phillips & Co Ltd [1929] 1 K.B. 574
Fact:A sold to Y 700 bags marked “E.C.P.” and known as lot 7 of Chinese groundnuts, lying in a specified warehouse. At the time of the sale there were, unknown to parties, only 591 bags, and 109 bags having been stolen.
Issue:
- Whether the non-existence of the goods at the time of the contract will render the contract void?
- Whether the seller is entitled to the full amount of money which was agreed between the parties as the price of the goods in total?
Decision:It was held that the contract was void. Therefore no duty or liability on the part of either party shall accrue in this case. The seller is not entitled to the price and the goods accepted by the buyer shall be returned.
ASCERTAINMENT OF PRICE SECTION 9,
1. The price in a contract of sale may be fixed by the contract or may be left to be fixed in manner thereby agreed or may be determined by the course of dealing between the parties.
2. Where the price is not determined in accordance with the foregoing provisions, the buyer shall pay the seller a reasonable price. What is a reasonable price? It is a question of fact dependent on the circumstances of each particular case.
‘Price’ means the monetary consideration for sale of goods. By virtue of Section 9, the price in the contract of sale may be-
- Fixed by the contract.
- Agreed to be fixed in a manner provided by the contract, e.g., by a valuer
- Determined by the course of dealings between the parties.
AGREEMENT TO SELL AT VALUATION SECTION 10,
(1) Where there is an agreement to sell goods on the terms that the price is to be fixed by the valuation of a third party and such third party cannot or does not make such valuation the agreement is thereby avoided. Provided that, if the goods or any part thereof have been delivered to and appropriated by, the buyer, he shall pay a reasonable price therefore.
(2) Where such third party is prevented from making the valuation by the fault of the seller or buyer, the party not in fault may maintain a suit for damages against the party in fault.
Thus Section 10 provides for the determination of price by a third party. Where there is an agreement to sell goods on the terms that price has to be fixed by the third party and he does not make such valuation, the agreement will be void. If the third party is prevented by the default of either party from fixing the price, the party at fault will be liable to the damages to the other party who is not at fault. However, a buyer who has received and appropriated the goods must pay a reasonable price for them.
CONCLUSIONIn nutshell, contract of sale of goods is a contract where the seller transfers or agrees to transfer the property in goods to the buyer for a price. Where, however, the transfer of property in goods is to take place at a future date or subject to some conditions to be fulfilled, the contract is called ‘agreement to sell’. The subject matter of such contract must always be goods. Price for goods may be fixed by the contract or may be agreed to be fixed later on in a specific manner.