Sale of goods act 1930

Sale of Goods Act, 1930
• Module II: Sales of Goods Act 1930
• Newsyllabus:
• Sale and Agreement to Sell, Hire Purchase –Pledge, Mortgage—
Hypothecation and Lease of Goods—Different types of Goods, Passing
Property in Goods, Conditions and Warranties, Doctrine of Caveat Emptor,
Rights of an unpaid Seller.
1

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.
2

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.
3

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.
4

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.
5

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.
6

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.
7

Sale and Hire Purchase Agreement
SALE
• Ownership transferred from seller
to the buyer immediately
• 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.
HIRE PURCHASE
• 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.
8

Pledge, Mortgage, Hypothecation and Lease of Goods
SALE IS DIFFERENT FROM PLEDGE, HYPOTHECATION AND LEASE OF GOODS. In
Sale, possession and ownership (property in goods) passes on to the buyer.
PLEDGE ALREADY COVERED IN MODULE 1 IN DETAIL
HYPOTHECATION:
• Hypothecation refers to creation of securities of movable goods, where the
borrower continues in possession of goods and uses the goods for his
business.
• A hypothecation agreement (letter of trust) is made in favour of the creditor
where the creditor step into the shoe of the borrower in case of default.
• The creditor can seize and sell the goods in case of default.
• Normally, stock-in–trade and vehicles are being HYPOTHECATED.
• Stock in Trade: The security is not the particular goods, but stock in trade not
exceeding a determined commercial value.
• Vehicles: As vehicles require RTO registration, the transfer takes place only
when there is change of ownership. Creditor can get the vehicle transferred in
his name and sell them when the borrower makes a default. Prompt
borrowers continue to enjoy the possession and use of the vehicles.
Innumerable vehicles are plying on the roads nationwide.
9

Pledge, Mortgage—Hypothecation and Lease of Goods
MORTGAGE:
• Mortgage relates to creation of security for purpose of obtaining loan
against IMMOVABLE PROPERTIES.
• Pledge refers to movables. Both pledge and mortgage refers intention to
create securities.
• In case of pledge, the goods being movable, the possession passes on to
the lender though the ownership remains with the borrower.
• In MORTGAGE, the goods being IMMOVABLE, the possession continues
with the borrower but a constructive and conditional transfer of certain
rights in favour of the creditor is made. Immovable properties are Lands,
Buildings, Commercial complexes, Highways, Railway Tracks etc.
• Creditors have to exercise two rights– one, a personal remedy of filing suit
and another, a remedy against security, enforcement of securities.
• In case of Bank loans against Mortgages, the law relating to Securities
Enforcement regulations are applicable.
10

Pledge, Mortgage—Hypothecation and Lease of Goods
LEASE OF GOODS:
• Lease is different from Sale, Hire Purchase.
• Lease refers to letting goods to be used on a rental basis.
• Ownership continues with the LESSOR.
• Lessee gets possession immediately and use them on rent.
• No opportunity to purchase as available in HIRE PURCHASE CONTRACT.
• The lease rental depends on the agreement among the parties and the life
of the goods or equipments.
• Normally, equipments, machineries are given on lease basis.
• There is no transfer of goods as a security. It is a transaction of use of
goods on rent.
• Lessee, however, has to take proper care of the goods as a man of
ordinary prudence.
11

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
12

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)
13

Subject matter of Contract of Sale
—Different types of Goods
• 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)
14

Passing of Property in Goods
• A contract of sale is complete when: a) when there is Transfer of property ,
b) when there is a transfer of possession and c) when there is a transfer of
the risk.
• “Property in goods” refers to ownership of goods which implies Right, Title
and Interest. Risks are associated with the ownership
• Property in goods remain with one person though the possession may be
with another person depending on the nature of contract.
Rules relating to PASSING OF PROPERTY IN GOODS
a) Goods must be ascertained
b) Intention of the parties
15

Passing of Property in Goods
• Passing of property in SPECIFIC GOODS can be made: a) at the time of the
contract itself (payment and/or delivery pending)—property passes
immediately; b) beyond the date of the contract—where the goods are
not in a deliverable state or when the price is to be ascertained by
weighing or doing some other activity ( like INCOTERMS IN international
trade) the property passes subsequently
• Passing of property in UNASCERTAINED GOODS or FUTURE GOODS: The
property passes only when the goods are ascertained. Until the goods are
ascertained, they are merely agreements to SELL. In case of Future goods,
they should have been appropriated to the specific contract. Delivery to
the carrier is an unconditional appropriation by the seller when he delivers
to the buyer, carrier or bailee for purpose of transmission to the buyer.
• Property in GOODS SENT ON APPROVAL passes on to the buyer when he
signifies his approval or acceptance to the seller or when he does any
other act adopting the transaction.
16

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
17

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
18

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.
19

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
20

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.
21

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
22

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.
23

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
24

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.
25

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
26

Right against the buyer personally
a) Suit for the price
b) Suit for damages
c) Repudiation of the contract
d) Suit for interest
27

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)
28

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.
29

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
30

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
31

Sale of goods act 1930

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