Sale of Goods Act, 1930

Applicability

This Act extends to the whole of India.

Effective Date

This Act came into force from 01.07.1930.

Important Definitions

Goods

Future Goods

Document of Title to Goods

Insolvent

Mercantile Agent

Specific Goods

Contract of Sale

As per section 4(1) “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.”.

Essentials of a Contract of Sale

1. Bilateral contract: It is a bilateral contract because the property in goods has to pass from one party to another. A person cannot buy the goods himself.
2. Transfer of property: The object of a contract of sale must be the transfer of property (meaning ownership) in goods from one person to another.
3. Goods: The subject matter must be some goods.
4. Price or money consideration: The goods must be sold for some price, where thegoods are exchanged for goods it is barter, not sale.
5. All essential elements of a valid contract must be present in a contract of sale.

Agreement to Sell

Where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell. An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.

Contract of Sale - How Made?

Section 5 provides that a contract of sale is made by-

• an offer to buy or sell goods for a price; and
• the acceptance of such offer.

the contract may provide for the immediate delivery of the goods or immediate payment of the price of both, or for the delivery or payment by instalments, or that the delivery or payment or both shall be postponed. A contract of sale may be made in writing or by word of mouth, or partly in writing andpartly by word of mouth or may be implied from the conduct of the parties.

Subject Matter of Contract

The subject matter of the contract includes:

• Existing or future goods
• Goods perishing before making the contract
• Goods perishing before sale but after the agreement to sell

Existing or Future Goods

Section 6 provides that:

• The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or future goods.
• There may be a contract for the sale of goods, the acquisition of which by the seller depends upon a contingency which may or may not happen.
• Where by a contract of sale the seller purports to effect a present sale of future goods, the contract operates as an agreement to sell the goods.

Goods Perishing Before Making Contract

Section 7 provides that 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.

Goods Perishing Before Sale But After Agreement to Sell

Section 8 provides that where there is an agreement to sell specific goods, and subsequently the goods, without any fault on the part of the seller or buyer, perish or become so damaged as no longer to answer to their description in the agreement before the risk passes to the buyer, the agreement is thereby avoided.

Ascertainment of Price

Section 9(1) provides that the price in a contract of sale may be:

• Fixed by the contract; or
• Left to be fixed in a manner thereby agreed; or
• Determined by the course of dealing between the parties.

Section 9(2) provides that 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 is a question of fact dependent on the circumstances of each particular case.

Difference between Contract of Sale and Agreement to Sell

Transfer of Ownership

• (A) Goods must be ascertained (section 18):-
  As per section 18 in a contract for sale of unascertained goods, the property in the goods does not pass to the buyer unless and until the goods are ascertained.


• (B) Intention of the parties for such transfer (section 19):-
  As per section 19(2), in a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. The intention of the parties is ascertained from the terms of the contract, the conduct of the parties, and the circumstances of the case.
  
  When the intention of the parties cannot be ascertained, rules contained in sections 20-24 are required to be applied for ascertaining the time of transfer of property which is discussed hereunder:
  
  
• Specific goods (Secs 20 to 22)


• (a) Specific goods in a deliverable state (section 20):-
  In an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment of the price or the time of delivery of the goods, or both, is postponed. (Sec 20).


• (b) Specific goods to be put into a deliverable state (Sec. 21):-
  Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof (Sec 21).


• (c) Specific goods in a deliverable state, when the seller has to do anything thereto in order to ascertain price (section 22):-
  If there is a contract for the sale of specific goods in a deliverable state, but the seller is bound to weigh, measure, test or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until such act or thing is done and the buyer has notice thereof. (Sec 22).


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• Unascertained goods (Sec 23)
• (a) Appropriation of goods:-
  Where there is a contract for the sale of unascertained or future goods by description and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer. Such assent may be expressed or implied and may be given either before or after the appropriation is made.


• (b) Delivery to carrier:-
  Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer and does not reserve the right of disposal, he is deemed to have appropriated the goods for the purpose of the contract.


• Goods on approval or ‘on sale or return’
• In order to push up sales, there is a practice of sending goods to the customer with the clear understanding that the customer has the option to approve or return the goods within a given period. This type of sale is known as “approval or sale or return.” In such cases, the transaction does not culminate into sale until the goods are approved by the customer, and the property in goods still remains with the seller.


• The property therein passes to the buyer—
  • (a) When he signifies his approval or acceptance to the seller.
  • (b) When he does any other act adopting the transaction.


• If the buyer does not signify his approval or acceptance to the seller but retains the goods without giving notice of rejection, then:
  • If a time has been fixed for the return of the goods, on the expiration of such time.
  • If no time has been fixed, on the expiration of a reasonable time.

Goods perishing before making of contract (Sec 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.

Goods perishing before sale but after agreement to sell (Sec 8)

Where there is an agreement to sell specific goods, and subsequently the goods without any fault on the part of the seller or buyer perish or become so damaged as no longer to answer to their description in the agreement before the risk passes to the buyer, the agreement is thereby avoided.

Risk Prima Facie Passes with Property: Exceptions (Sec 26)

The rule regarding risk passing with the property enshrined in section 26 is subject to the following exceptions:

• (a) Agreement to the contrary:
  This rule will apply only if there is no agreement to the contrary. It is permissible for the parties to provide in the agreement that although the property does not pass, the risk passes, and they may fix the point of time when it is to pass.
• (b) Fault in delivery:
  Where delivery has been delayed through the fault of either party, the goods are at the risk of the party at fault as regards any loss which might not have occurred but for such delay. The goods are at the risk of the party who is at fault in the delay of delivery.
• (c) Custom of trade:
  If there is a custom in that particular trade that the risk does not pass with the property, in such a case the risk will pass as per the custom.

Transfer of Title by Non-Owners of Goods (Sec 27)

As per section 27 of the Sale of Goods Act, where goods are sold by a person who is not the owner thereof and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by conduct precluded from denying the seller’s authority to sell.

A buyer cannot get good title to the goods unless he purchased the goods from a person who is the owner thereof and sells them under the authority or with the consent of the real owner.

Doctrine of "Nemo dat qui non habet"

“Nemo dat qui non habet” means that no one can give what he himself does not have. It means a non-owner cannot make a valid transfer of property in goods. If the title of the seller is defective, the buyer’s title will also be subject to the same defect. If the seller has no title, the buyer does not acquire any title, although he might have acted honestly and might have acquired the goods after due payment. This rule is to protect the real owner of the goods.

Accordingly, the Act provides the following exceptions to this doctrine, which seeks to protect the interest of bona fide buyers:

Exceptions to the Doctrine

• Sale by a mercantile agent:
  If a mercantile agent is authorized by the owner of the goods to sell on his behalf, then such sale shall be valid. In such cases, the buyer can acquire a good title to the goods.


• Transfer of title by estoppel:
  This exception is based on the principle of personal estoppel. Sometimes, the real owner may lead the buyers, by virtue of his conduct, words, or acts, to believe that the seller is the owner of the goods or has the authority to sell them. In such a case, he may not thereafter deny the seller’s authority to sell.


• Sale by a joint owner:
  If there are several joint owners of goods, and one of them has sole possession of the goods by permission of the co-owners, then the property in goods is transferred to any person who buys them from such a joint owner.


• Sale by an unpaid seller:
  If the unpaid seller has exercised the right of lien or stoppage in transit and resells the goods, then the buyer acquires a good title as against the original buyer, even though the resale is not justified in the circumstances.

Conditions and Warranties

Condition [Section 12(2)]

A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to the right to treat the contract as repudiated. A condition in a contract of sale of goods is of fundamental nature, for breach of which the buyer can repudiate the contract.

Warranty [Section 12(3)]

A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated.

Whether a stipulation in a contract of sale is a condition or a warranty depends in each case on the construction of the contract. A stipulation may be a condition, though called a warranty in the contract.

When Condition to be Treated as Warranty

Section 13 provides that where a contract of sale is:

• Subject to any condition to be fulfilled by the seller, the buyer may waive the condition or elect to treat the breach of the condition as a breach of warranty and not as a ground for treating the contract as repudiated.
• Not severable and the buyer has accepted the goods or part thereof, the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty and not as a ground for rejecting the goods and treating the contract as repudiated, unless there is a term of the contract, express or implied, to that effect.

Nothing in this section shall affect the case of any condition or warranty fulfilment of which is excused by law by reason of impossibility or otherwise.

Remedies Available to the Buyer for Breach of Conditions

1. Affected party may claim refund of price and reject the goods.
2. Elect to treat breach of condition as breach of warranty and claim damages or compensation.
3. When the affected party treats breach of condition as breach of warranty, he cannot repudiate the contract but claim damages only.
4. No remedy is available when the fulfilment of condition is excused by law by means of impossibility or otherwise.

Consequences of Breach of Warranty

1. Buyer may sue for damages.
2. The breach of warranty gives right to a claim for damages but not to reject the goods and treat the contract as repudiated.
3. No remedy is available if the fulfilment of warranty becomes impossible by law.

Implied Warranties

(i) Warranty of Quiet Possession [Sec.14 (b)]

If the buyer in any way is disturbed from enjoying the quiet possession of goods purchased because of seller’s defective title, the buyer can claim damages from the seller. It is a warranty that neither the seller shall not nor shall anybody claiming under a superior title or under his authority interfere with the quiet enjoyment of the buyer.

(ii) Warranty of Freedom from Encumbrances [Sec.14(c)]

The buyer is also entitled to an additional warranty that the goods are free from any charge or right of any third party, not declared or known to the buyer. It is presumed that the goods are free of third parties charges; if it is otherwise, the buyer is entitled to claim damages from the seller.

(iii) Warranty as to Quality or Fitness by Usage of Trade

An implied warranty as to quality or fitness for a particular purpose may be annexed by usage of trade.

(iv) Warranty to Disclose Dangerous Nature of Goods

Where a person sells goods knowing that the goods are inherently dangerous or they are likely to be dangerous to the buyer and the buyer is ignorant of the danger, he must warn the buyer of the probable danger; otherwise, he will be liable in damages.

Implied Conditions

1. Condition as to Title [Sec 14(a)]

In a contract of sale, unless the circumstances of the contract are such as to show a different intention, there is:

• An implied condition on the part of the seller that, in the case of a sale, he has a right to sell the goods and that, in the case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass.
• An implied warranty that the buyer shall have and enjoy quiet possession of the goods.
• An implied warranty that the goods shall be free from any charge or encumbrance in favour of any third party not declared or known to the buyer before or at the time when the contract is made.

2. Sale by Description (Sec 15)

Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description, and, if the sale is by sample as well as by description, it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description.

3. Condition as to Quality or Fitness (Sec 16)

4. Sale by Sample (Sec 17)

A contract of sale is a contract for sale by sample where there is a term in the contract, express or implied, to that effect. In the case of a contract for sale by sample there is an implied condition:

• That the bulk shall correspond with the sample in quality.
• That they shall have a reasonable opportunity of comparing the bulk with the sample.
• In case of eatables and provisions, in addition to the implied condition as to merchantability, there is another implied condition that the goods shall be wholesome.

Caveat Emptor

The term “caveat emptor” is a Latin word which means “let the buyer beware.” This principle states that it is for the buyer to satisfy himself that the goods which he is purchasing are of the quality which he requires. If he buys goods for a particular purpose, he must satisfy himself that they are fit for that purpose.

The doctrine of caveat emptor is embodied in Section 16 of the Act which states that “subject to the provisions of this Act and of any other law for the time being in force, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods 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. 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.

The principle was applied in the case of Ward v. Hobbs, (1878) 4 A.C. 13, where certain pigs were sold by auction and no warranty was given by the seller in respect of any fault or error of description. The buyer paid the price for healthy pigs. But they were ill and all but one died of typhoid fever. They also infected some of the buyer’s own pigs. It was held that there was no implied condition or warranty that the pigs were of good health. It was the buyer’s duty to satisfy himself regarding the health of the pigs.

Exceptions to the Doctrine of Caveat Emptor

Section 16 lays down the following 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.

Performance of Contract

Payment and delivery are concurrent conditions. Section 32 provides that the delivery of the goods and payment of the price are concurrent conditions unless otherwise agreed.

• The seller shall be ready and willing to give the possession of the goods to the buyer in exchange for the price.
• The buyer shall be ready and willing to pay the price in exchange for the possession of the goods.

Delivery

Section 33 provides that the delivery of goods sold may be made:

• By doing anything which the parties agree; or which has the effect of putting the goods in the possession of the buyer or of any person authorized to hold them on his behalf.

Section 35 provides that the seller of goods is not bound to deliver them until the buyer applies for the delivery apart from any express contract.

Rules as to Delivery

Section 36 provides rules for the delivery as detailed below:

• Apart from any contract, goods sold are to be delivered at the place at which they are at the time of the sale.
• Goods agreed to be sold are to be delivered at the place at which they are at the time of the agreement to sell; or if not then in existence, at the place at which they are manufactured or produced.
• Where under the contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is fixed, the seller is bound to send them within a reasonable time.
• Where the goods at the time of sale are in the possession of a third person, there is no delivery by seller to buyer unless until such third person acknowledges to the buyer that he holds the goods on his behalf; this shall not affect the operation of the issue or transfer of any document of title to the goods.
• Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour.
• Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state shall be borne by the seller.

Delivery of Wrong Quantity

The transfer of goods, in a sale, is expected to be delivered as agreed to in the contract. If there is variation in the quantity of goods delivered, the following action may be taken by the buyer:

• Section 37(1) provides that where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may reject them. If the buyer accepts the goods so delivered he shall pay for them at the contract rate.
• Section 37(2) provides that where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the buyer may accept the goods included in the contract and reject the rest. Or he may reject the whole. If the buyer accepts the whole of the goods so delivered, he shall pay for them at the contract rate.
• Section 37(3) provides that where the seller delivers to the buyer the goods he contracted to sell mixed with goods of a different description not included in the contract, the buyer may accept the goods which are in accordance with the contract and reject the rest or may reject the whole.
• Section 37(4) provides that the provisions of this section are subject to any usage of trade, special agreement, or course of dealing between the parties.

Delivery to Carrier or Wharfinger

Section 39(1) provides that if the seller is authorized or required to send the goods to the buyer, through a carrier whether it is named by the buyer or not or delivery of the goods to a wharfinger for safe custody, the delivery of goods to such a carrier or wharfinger shall be deemed to be a delivery of the goods to the buyer.

Section 39(2) provides that the seller shall make a contract with the carrier or wharfinger on behalf of the buyer as may be reasonable having regard to the nature of the goods and other circumstances of the case. If the seller omits so to do and the goods are lost or damaged in the course of transit or whilst in the custody of the wharfinger, the buyer:

May decline to treat the delivery to the carrier or wharfinger as a delivery to himself; or may hold the seller responsible for damages.

Delivery of Goods at a Distant Place

Section 40 provides that where the seller of goods agrees to deliver them at his own risk at a place other than that where they are when sold, the buyer shall, nevertheless, unless otherwise agreed, take any risk of deterioration in the goods necessarily incident to the course of transit.

Buyer’s Right of Examining the Goods

According to Section 41, the buyer has the right to examine the goods, which have not been examined by him previously before acceptance. The examination of the goods by the buyer is for the purpose of ascertaining whether they are in conformity with the contract. The seller is also bound to afford an opportunity to the buyer for examining the goods for the purpose of ascertaining whether they are in conformity with the contract.

Rights of Unpaid Seller

The seller of the goods is deemed to be ‘unpaid seller’ within the meaning of this Act:

• When the whole of the price has not been paid or tendered;
• 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 instruments or otherwise.

Section 45(2) defines the term ‘seller’ as including any person who is in the position of a seller as an agent of the seller to whom the bill of lading has been endorsed or a consignor or agent who has himself paid, is directly responsible for the price.

Rights of an Unpaid Seller Against the Goods

An unpaid seller’s rights against the goods are:

• A lien or right of retention.
• The right of stoppage in transit.
• The right of resale.
• The right to withhold delivery.

Right of Lien (Sections 47-49 and 54)

An unpaid seller in possession of goods sold may exercise his lien on the goods, i.e., keep the goods in his possession and refuse to deliver them to the buyer until the fulfilment or tender of the price in cases where:

• The goods have been sold without stipulation as to credit; or
• The goods have been sold on credit, but the term of credit has expired; or
• The buyer becomes insolvent.

Stoppage in Transit (Sections 50-52)

The right of stoppage in transit is a right of stopping the goods while they are in transit, resuming possession of them and retaining possession until payment of the price. The right to stop goods is available to an unpaid seller:

• When the buyer becomes insolvent; and
• The goods are in transit.

The buyer is insolvent if he has ceased to pay his debts in the ordinary course of business, or cannot pay his debts as they become due. It is not necessary that he has actually been declared insolvent by the court.

Right of Re-sale (Section 54)

The unpaid seller may re-sell:

• Where the goods are perishable;
• Where the right is expressly reserved in the contract;
• Where in exercise of right of lien or stoppage in transit, the seller gives notice to the buyer of his intention to re-sell, and the buyer does not pay or tender the price within a reasonable time.

Rights to Withhold Delivery

If the property in the goods has passed, the unpaid seller has the right as described above. If, however, the property has not passed, the unpaid seller has a right of withholding delivery similar to and co-extensive with his rights of lien and stoppage in transit.

Rights of an Unpaid Seller Against the Buyer

An unpaid seller in addition to his rights against the goods has the following rights against the buyer personally:

• Suit for Price: [Sec. 55] Where the property in goods has passed to the buyer, and the buyer wrongfully neglects or refuses to pay the price, the seller can sue the buyer for price.


• Suit for Damages for Non-Acceptance: [Sec. 56] Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller can sue him for damages for non-acceptance of the goods.


• Suit for Repudiation: Where the buyer repudiates the contract before the date of delivery, the seller may wait till the date of delivery or may treat the contract as cancelled and sue for damages for breach.


• Suit for Interest: [Sec. 61] Where there is a specific agreement between the seller and the buyer regarding interest on the price of goods, the seller may claim it from the date when payment becomes due. If there is no specific agreement, the interest is payable from the date notified by the seller to the buyer.

Buyer’s Remedies against Seller for Breach of Contract

A buyer also has certain remedies against the seller who commits a breach. These are:

1. Suit for Damages for Non-Delivery: When the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non-delivery. This is in addition to the buyer’s right to recover the price, if already paid, in case of non-delivery.


2. Suit for Price: Where the buyer has paid the price and the goods are not delivered to him, he can recover the amount paid.


3. Suit for Specific Performance: When the goods are specific or ascertained, a buyer may sue the seller for specific performance of the contract and compel him to deliver the same goods. The court orders for specific performance only when the goods are specific or ascertained and an order for damages would not be an adequate remedy. Specific performance is generally allowed where the goods are of special significance or value e.g. a rare painting, a unique piece of jewellery, etc.


4. Suit for Breach of Warranty: Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat the breach of condition as breach of warranty; the buyer cannot reject the goods. The buyer may,
   • set up the breach of warranty in extinction or diminution of the price payable by him, or
   • sue the seller for damages for breach of warranty.

Auction Sale

Section 64 provides that in the case of a sale by auction:

• Where goods are put up for sale in lots, each lot is prima facie deemed to be the subject of a separate contract of sale.
• The sale is complete when the auctioneer announces its completion by the fall of the hammer or in other customary manner; and until such announcement is made, any bidder may retract their bid.
• A right to bid may be reserved expressly by or on behalf of the seller and, where such right is expressly so reserved, but not otherwise, the seller or any one person on his behalf may, subject to the provisions hereinafter contained, bid at the auction.
• Where the sale is not notified to be subject to a right to bid on behalf of the seller, it shall not be lawful for the seller to bid himself or to employ any person to bid at such sale, or for the auctioneer knowingly to take any bid from the seller or any such person; and any sale contravening this rule may be treated as fraudulent by the buyer.
• The sale may be notified to be subject to a reserved or set up price.
• If the seller makes use of pretended bidding to raise the price, the sale is voidable at the option of the buyer.

Section 64 does not deal with the question of passing of the property at auction sale but merely deals with the completion of the contract of sale which takes place at the fall of the hammer or at the announcement of the close of the sale in other customary manner by the auctioneer. In other words, all that happens at the fall of the hammer or at the announcement of the closure of the sale in other customary manner is that a contract of sale comes into existence and parties get into the relationship of a promisor and a promisee in an executory contract.