STUDY NOTE 2 : THE SALE OF GOODS ACT, 1930

APPLICABILITY OF THE ACT

COMMENCEMENT AND APPLICABLE

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This act extends to whole of India, except the State of Jammu and Kashmir.
This act came into force w.e.f. 1 July 1930.
The contract of sale includes both a sale as sell as an agreement to sell.
The word Indian was omitted the title of the Act in 1963 (22 sept.)
This Act does not deal with the sale of immovable property.

The transaction relating to immovable properties, e.g., the sale, lease, gifts, etc., are governed by a separate Act known as Transfer of Property Act, 1882. This
Act is beyond the scope of this book.
DEFINITIONS (Sec. 2)
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Buyer Sec 2 (1)

A person, who buys or agrees to buy the goods.

Delivery Sec (2)

It means voluntary transfer of possession from one person to another.
Delivery State Sec 2(3)

Goods are said to be in delivered state, when they are in such state that the Buyer would be bound to take the delivery of them in accordance with the contract.
Documents of title to Goods 2(4)

A document of the title to goods may be described as any document used as proof of the possession or control of goods, authorizing or purporting to authorize,
either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented.
Section 2(4) of the Sale of Goods Act, 1930 recognizes the following as documents of title to goods:
(i) Bill of lading,
(ii) Dock warrant,
(iii) Warehousekeepers certificate,
(iv) Wharfingers certificate,
(v) Railway receipt,
(vi) Multi modal transport document,
(vii) Warrant or order for the delivery of goods, and
(viii) Any other document used in the ordinary course of business as document of title (as described in the preceding paragraph).
Document of Title v. Document showing the title :
A document of title enables a person named therein to transfer the property by mere endorsement and delivery, whereas a document showing title does not confer
any right to transfer by way of endorsement and delivery.
For example, a share certificate shows that the person named therein is entitled to the shares represented by it, but does not allow
transfer of the shares by mere endorsement and delivery of the certificate .

Goods Sec 2 (7)

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Goods mean every kind of movable property.

Other than actionable claims and money, and it includes.

stock and shares, growing crops, grass and things attached to or forming part of land which are agreed to be severed before sale or under the contract of sale.

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You may notice that money and actionable claims have been expressly excluded from the term goods. Money means the legal tender. Money does not
include old coins and foreign currency. They can, therefore, be sold or bought as goods. Sale and purchase of foreign currency is, however, also regulated by the foreign
Exchange Management Act,
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Actionable claims, like debts, are things which a person cannot make use of, but which can be claimed by him by means of a legal action. Actionable claims
cannot be sold or purchased like goods, they can only be assigned, as per the provisions of Transfer of property Act.
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Grass, growing crops, trees to be cut and their log wood to be delivered, malba of a building to be demolished, etc. are goods. Similarly, things like goodwill,
copyright, trade mark, patents, water, gas electricity are all goods and may be the subject matter of a contract of sale.
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Seller Sec 2 (13)

A person, who sells or agrees to sell the goods,.
Agreement to sell

Where transfer of property in goods takes place at future date.

Sale
Where transfer of property in goods takes place at the time of contract.

ESSENTIAL ELEMENTS OF VALID CONTRACT OF SALES

The following are the essentials of valid contract of sale:
There must be two parties, one seller and other buyer.

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Seller and buyer must be different.

Part owner can sell goods to another part owner.

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Partners are not regarded as separate persons for the purpose of sale of the partnership property. They are the joint owners of the goods and as such they cannot be
both sellers and buyers [State of Gujarat v. Ramanlal S & W. (1965)]. But, a partner may buy goods from the firm or sell goods to the firm.
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There must be movable goods as subject matter of contract.

There must be a transfer of property in goods. It means general property. (i.e. ownership)

There must be price involved. Price means money consideration for sale of goods.
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Exchange of goods for goods is barter.
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If Exchange is for partly goods and partly for money it is sale.

All essential elements of valid contract must be observed.

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The contract of sale can be entered into, expressly or impliedly.

Formation. The contract of sale may provide for any of the following methods.
Immediate delivery of goods.
Immediate payment of price but delivery at some future date.
Immediate payment of price and immediate delivery of goods.
Delivery or payment or both made in installments.
Delivery or payment or both will be made at future date.

TRANSFER OF PROPERTY IN GOODS

Property means general property in goods and not merely special property in goods. It means ownership of goods. Special property in goods means possession of

goods.
Cases where property in goods is not transferred:
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Bailment

Creating charge or pledge

CONTRACT FOR WORK AND SKILL

Some contract involves use of both service and goods. This type of contract is considered as contract for work and skill.

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This kind of contract involves exercise of skill and labour by one party on some goods or materials supplied by other party or supplied by party who exercise skill
and labour for price. It is immaterial who supply material. Alternatively, it can be said that in this kind of contract, main purpose is to exercise work and skill. Supply of own
goods is only subsidiary. Intension of parties is to transfer goods only after exercise of some skill and labour.
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As it is not falling within categories of contract for Sale no sales tax is payable.
Example:
(1) A dentist agreed to supply a set of artificial teeth to a patient. The material was wholly found by the dentist. Held, it was a contract for the sale of goods.
(2) An artist was asked to paint a portrait. The material was supplied by the party and not by the painter. It was held to be a contract for work and labour and not of
sale.
Types of Goods

The goods may be classified into following categories:

Existing goods
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Existing goods are the goods, which are owned and possessed by the seller at the time of sale. Existing goods may be of three types;

(a) Specific Goods:

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The goods, which are identified and agreed upon by the parties at the time of contract of sale.
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It should be noted that the goods must be both identified and agreed upon.
(b) Unascertained Goods:
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These are the goods, are not identified and agreed upon at the time of the contract of sale.
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These goods are merely described by the parties at the time of contract of sale.

(c) Ascertained Goods:

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There are the goods, which are identified after the formation of contract of sale. When the un-ascertained goods are identified and agreed upon by the parties, the
goods are known as ascertained goods
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Future Goods
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Future goods are those goods, which do not exist at the time of the contract of sale.
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These goods are to be manufactured or acquired by the seller after the making of the contract of sale.
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Future goods cannot be sold, but there can only be an agreement to sell.
Example:
A, a manufacturer agrees to sell 5 tables and 50 chairs to B at Rs.10,000. B agrees to purchase it. However, tables and chairs are yet to manufactured by A.

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Contingent goods
It is a kind of future goods.
It is goods, the acquisition of which is contingent upon the happening or non happening of an uncertain event.

Example:
A agrees to sell the goods loaded on the ship Titanic, which is coming from London to Bombay. The ship may or may not arrive. So, these
goods will be called as contingent goods.

Price of Goods Sec 9 10

Price means the money consideration for a sale of a Goods 2(10)

The following are the modes of determining price: [Sec. 9]

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Price is specified under the contract. It is the most common method of determining the price. Here, parties decide the price in advance.

Price may be determined as per the method specified in contract.

Example :
Delivery of rice on 1st December 2008 at the rate prevailing on that day.
Price may be determined in accordance to custom and usage of trade. This method is applicable if parties regularly trade.
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Where the price is not fixed as above, the buyer shall pay the seller a reasonable price. What is a reasonable price is a question of fact and circumstances.

Fixation of price by third party. (Sec. 10)

If it is so, contract shall specify name of third party.
If third party fails to specify, contract is void but if goods are delivered to buyer and used by him, he is required to pay reasonable price.
If the third party is prevented from fixing price, defaulting party is liable for the damages.

Consequences of Destruction of Specific Goods Sec 7 8

The consequences of destruction of specific goods can be discussed under the following three heads:
If goods perish before making the contract
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Contract is void ab initio, due to mistake as to existence of subject matter.
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It is to be noted that if the seller has knowledge about the destruction of goods, even then the enters into the contract of sale with buyer, then seller is bound to
compensate to the buyer.
Where a part of the goods is perished before making contract
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If the goods was divisible, then the contract can be enforced party and if the goods was indivisible, then the contract becomes void ab inito.
Example:
A contracted to sell one wagon containing 700 bags of groundnut to B. Unknown to A, 109 bags had been stolen at the time of sale,
Therefore, A made a delivery of 591 bags. Held, the sale was void.

If goods perish after the Agreement to sell; but before Sale [Sec. 8]
The contract is void if subsequently the goods have perished, and there is no fault on the part of the buyer or seller in perishing the goods.
Example:
A horse was delivered upon trial for 8 days. However, the horse died within 8 days, without the fault of buyer or seller. Held, the seller must bear the loss, as the
contract was void.
However, parties to the contract may provide otherwise also.
Section 7 and 8 are applicable only in case of specific goods.
Therefore, if unascertained goods are destroyed either before or after making the agreement, the contract shall not become void. Thus, in an agreement to sell
unascertained goods, even if the entire stock of goods is destroyed, the contract that not become void and the seller will have to perform his promise.
Example
A agreed to sell to B 100 bags of wheat from his stock of 1,000 bags in his go down. The entire stock was destroyed by fire. A is bound to deliver 100 bags of
wheat or else he will be liable for damages.
If the contract does not otherwise provide, then
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Stipulation as to time of payment is not deemed to be essence of contract.
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Stipulation as to time of delivery is deemed to be essence of contract.

CONDITIONS AND WARRANTIES

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Generally, at the time of sale, the seller makes some representation, statements of stipulations for the praise of his goods. Some of representations are in nature of opinion others are in
nature of facts. Representation as to fact which becomes a part of contract of sale is called as stipulation.
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Stipulation may be condition or warranty depends upon its importance in relation to contract.

Stipulation which is essential to the main purpose of contract is known as condition. Breach of condition gives the aggrieved party right to terminate the contract.

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Stipulation which is collateral to the main purpose of the contract is warranty. Breach of warranty gives rise to the aggrieved party right to claim damages but contract cannot be
terminated.
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The conditions and warranties may be express or implied.

Express conditions and warranties are those, which the parties agree expressly, i.e. orally or in writing.

Implied conditions are those, which are implied by the law in the absence of any agreement to the contrary.

IMPLIED CONDITIONS
The following are the implied conditions which are contained in the Sales of Goods Act:
Conditions as to title sec 14(a)
There is an implied condition on the part of the seller that
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In the case of sale, the seller has a right to sell the goods, and
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In the agreement to sell, the seller will have a right to sell the goods at the time of passing of ownership in goods.
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If the title of seller out to be defective, the buyer must return the goods to the true owner and recover the price from the seller.

Conditions as to description Sec 15

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Where the goods are sold by description, there is an implied condition that the goods shall correspond to the description .

A machine was sold. The buyer has not been the machine, but the seller described it as a new one. However, it was found to be a very old one. Held, the machine
was not according to the description.
Sale by sample Sec 17
Where the goods are sold by sample, the following are implied conditions.
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The bulk shall correspond to sample in quality.
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The buyer shall be given a reasonable opportunity to compare the goods with the sample.
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The goods shall be free from any defect, rendering them un merchantable. It is to be noted that this implied condition applies only in the case of latent defects, i.e.
those defects which cannot be discovered by ordinary inspection. In fact, such defects are discovered when the goods are put to use or by examination in laboratories. The
seller is not liable for apparent or visible defects which can be discovered by examination.
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Sale by description as well as sample Sec 15
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If the sale is by sample as well as description, both conditions shall be satisfied. Goods must correspond with sample as well as description.
Example :
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A agreed to sell to C some oil described as Foreign refined oil and warranted only equal to sample. The goods supplied were equal to sample, but contained a
mixture to hemp oil. Held, C could reject the goods.
Conditions as to quality and fitness for buyers purpose Sec 16
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Where the buyer, expressly or impliedly, tells the seller the particular purpose for which he needs the goods and relies on the skill or judgment of the seller, there is
an implied condition that the goods shall be reasonably fit for such purpose.
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When the article can be used only for one particular purpose, the buyer need not inform the seller the purpose for which the goods are required.

Example:
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A purchased a hot water bottle from a chemist. While the bottle was being used by As wife, it burst and injured As wife. Held, the seller was liable for damages as
the bottle was not fit for the purpose for which it was meant Priest vs Last.

Exceptions to the implied condition as to quality or fitness

The condition as to quality or fitness well not apply, if the buyer is suffering from an abnormality, which renders the goods unsuitable for a particular purpose and
the buyer does not inform the seller about that abnormally . A purchased a coat. He had abnormally sensitive skin, By wearing the coat, he got skin complaint.
Held, there was no breach of condition, as he had not disclosed the abnormally of his skin.
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Where the goods can be used for a number of purposes, the buyer should inform the particular purpose for which such goods were required. If the does not
disclose, there is no such conditions of quality or fitness

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Conditions as to merchantability
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Where goods are bought by description from a seller, who deals in goods of that description, there is an implied conditions that the goods shall be of merchantable
quality.
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Merchantability means that there is no defect in the goods, which renders them unfit for sale. Thus, a watch that will not keep time and a pen that will not write
cannot be regarded as merchantable.
Example:
A radio set was sold to a layman. The set was defective. It did not work in spite of repairs, Held, the buyer could return the set and claim refund.
Condition as to wholesomeness

In the case of eatable and food stuff, there is an implied condition that the goods shall be wholesomeness, i.e., free from any defect which renders them unfit for
human consumption.
Example:
A Purchased milk from B, a milk dealer. The milk contained typhoid germs. As wife on taking the milk got infected and died. Held, A was entitled to get damages Frost vs
Aylesbury Dairy Co. Ltd.

IMPLIED WARRANTIES
The following are the implied warranties which are contained in the Sales of Goods Act:

Warranty as to quiet possession Sec 14

In the absence to any contract showing contrary intention, there is an implied warranty that the buyer shall have and enjoy quiet possession of the goods. If the buyer is
disturbed in the enjoyment of the goods, he can claim damages from the seller.
Warranty against encumbrances Sec 14
Unless the circumstances of the case are such as to show a contrary intension, there is an implied warranty that the goods shall be free from any charge or encumbrance in
favour of any party not declared to the buyer before or at the time contract is made. However, there will not be any such warranty if charge is declared to buyer at the time of
sale.
Warranty as to quality and fitness by usage of Trade Sec 16
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An implied warranty as to quality or fitness for a particular purpose may be annexed by the usage of trade.
Warranty to disclose the dangerous nature of goods
In case of sale of dangerous goods, the seller is under an obligations to warn the buyer about the probable danger. Failure to do so will make the seller liable to pay
damages.
Example :
A sold a tin of disinfectant to B, knowing that it was likely to be dangerous to the tin, whereupon disinfectant powder went into her eyes, causing her injury. Held, A was
liable in damages to B, as he failed to warn B of the probable danger.

DOCTRINE OF CAVEAT EMPTOR

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The doctrine of Caveat Emptor means let the buyer beware.

It means that the buyer while purchasing goods must act with a third eye and ear, i.e.,
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He should be careful to see that the goods purchased will serve his purpose well.
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If the buyer is not careful and he finds later on that the goods do not serve his purpose, he cannot hold the seller liable
for it.
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The seller is under no obligation to tell the defects of his articles

TRANSFER OF OWNERSHIP