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Sales of Goods Act 1930

By Prof. Poonam Khandelwal ACCOUNTING ACADEMY

Introduction
It governs transfer of property in goods It does not include transfer of immovable property which is governed by the Transfer of Property Act, 1882. Contract of Sale of Goods is a special contract. As per section 3 of the Sale of Goods Act, the principles of the Contract Act relating to formation of contract, performance of contract, law of damages etc are also applicable to contract of the sale of goods in so far as they are not inconsistent with the express provisions of the Sale of Goods Act

Contract of Sale
A contract of sale of goods is a contract Whereby the seller Transfers or Agrees to Transfer the property / ownership In Goods To the Buyer For a price

Essentials of Contract of Sale

Two parties: A contract of sale is made between
two parties. They are known as seller and buyer.

Goods : Goods mean every kind of movable

property other than actionable claims and money

Price: Price means the money consideration for a

sale of goods

Essentials of Contract of Sale

Transfer of property: absolute ownership Free consent Sale or arrangement to sell Essential elements of a contract

SALE Vs. AGREEMENT TO SELL

Sale: Where under a contract of sale the
property in the goods is transferred from the seller to the buyer.

Agreement to Sell: Where the transfer of

the property in the goods is to take place at a future time or subject to some conditions thereafter to be fulfilled.

Points
Nature

SALE
Executed contract

Agreement to Sell
Executory contract

Transfer to
ownership

transferred
immediately

future time or on
fulfillment of conditions

Conveyance
of property Type of goods

right in rem ie.

Rights against the whole world. existing and specific

Right in personam i.e

rights against the seller

future or contingent or unascertained

existing goods.

Points
Risk of loss Rights of seller

SALE

Agreement to Sell

risk passes with the the seller is to bear the risk ownership i.e risk of of loss even though the goods buyer are in possession of the buyer if seller is an unpaid If the buyer makes the breach of seller, he can sue the contract the seller can sue the buyer for price + buyer for damages right of lien or stoppage in transit or resale Buyer can sue for the buyer can sue the seller for damages on breach of damages. If the seller resells the goods, the contract. buyer can even sue the 3r party for recovery of the goods.

Rights of buyer

Points
Insolven cy of the buyer. Insolven cy of the Seller.

SALE
Official assignee/receiver can claim the goods because the buyer is the owner of goods. The seller is entitled to ratable dividend for the price only. the buyer can claim the goods from official Assignee/ Receiver. It is because ownership of the goods is with the buyer.

Agreement to Sell
the seller is not bound to deliver the goods unless the full price of the goods is paid to him because the ownership of the goods is still with the seller. If the seller becomes insolvent after agreement to sale, the buyer can claim ratable dividend for the price of the goods if he has already paid

Points
Transfer of ownership Position of parties. Termination of contract

SALE

HIRE PURCHASE

ownership of goods is ownership of goods passes to immediately the hirer when he pays all transferred. the installment of hire. buyer is in the The hirer is in a position of a position of an owner bailee. of goods seller or buyer A hirer has an option to cannot terminate terminate the contract of the contract. If hire at any time. anyone does so, he is liable to pay damages.

Points
Transfer of ownership Return in goods Price

SALE

BAILMENT

ownership of goods is There is only a transfer of immediately possession of goods from a transferred. bailor to a bailee. the buyer does not Bailee is bound to return return goods to the the goods to the bailor when seller purpose of bailment is accomplished A price is paid in may be without money as consideration, consideration. gratuitous bailment. any i.e.

Sale & contract for work and labor.

One party agrees to render service or exercise skill on the material supplied by another party. Thus, the essence of the contract of work and labour is the exercise of skill or rendering of services by a party on material supplied by another

 Sale & barter or exchange Sale & gift. Sale & mortgage or pledge

GOODS
Goods means very kind of Movable property Other than actionable claim 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

Classification of goods
Sale of Goods

Existing Goods

Future goods

Contingent Goods

Specific Goods

Ascertained Goods

Unascertained Goods

 Existing goods: Owned or possessed by the seller at time of contract or sale

Specific goods.
Specific goods means the goods identified and agreed upon at the time a contract of sale made.[Sec.2(14)]. In other words, the goods whose individuality has been found out at the time of making the contract are called as specific goods. Example: out of four cars in different colors displayed in a show room, A selects white car and agrees to buy it. The white car is specific existing goods.

Unascertained or generic goods. The goods, which are not identified and agreed upon at the time of making of contract of sale, are known as unascertained goods. Such goods are indicated or defined by description at the time of contract of sale.
Example: A had ten horses. He agreed to sell one horse to B. in this case, the contract is for sale of unascertained goods as the horse has not been identified at the time of contract of sale.

Ascertained goods.

Generally, the term specific goods and ascertained goods are used for the same kind of goods. But, more specifically, the term ascertained goods is used to denote the goods, which is

ascertained after formation of contract of sale.

Example: A had 100 bales of cotton lying in his godown. He
agreed to sell 50 bales of cotton to B, who agreed to purchase the same. After making of the contract, the cotton bales to be delivered to B was identified & kept separate by A, and B agreed to take delivery of the same. In this case, the contract is for sale of ascertained goods, as the cotton bales to be sold are identified & agreed after the formation of contract. It may be noted that before ascertainment of the goods, the contract was or sale of unascertained goods.

Future goods. Future goods means the goods to be

manufactured or produced or acquired by the seller after making of the contract of sale. where a contract of sale of future goods is made, it is an agreement to sell & not a sale. It is because the property in the goods can be transferred only at a future date when the goods shall be manufactured or acquired. Example: A, a manufacturer of table fans, contracted to sell 100 fans to B at a certain rate. B agreed to purchase the fan. However, the fans were yet to be manufactured by A. This is an agreement to sell & not sale.

Contingent goods. Contingent goods are the goods, the acquisition of which depends upon the happening or nonhappening of a contingency i.e. contingent event.[Sec.6(2)] Example: P contract to sell 50 pieces of particular article provided the ship which is bringing them reaches the port safely. This is an agreement for the sale of contingent goods.

Destruction of subject matter

Goods perishing before making contract. A contract of sale of goods is void if(i)The contract is for the sale of some specific goods, (ii)The goods have perished, and (iii)The seller was having no knowledge of the destruction of the goods at the time of contract of sale. (Sec.7)

Goods perishing before sale but after agreement to sell. An agreement to sell goods becomes void if (i)The agreement to sell is for specific goods, (ii)The goods perish subsequent to the agreement to sell the goods is made but before the risk passes to the buyer, and (iii)Goods perish without any fault on the part of the seller or buyer (Sec.8)

(i) Where the seller has knowledge of the destruction of the goods. (ii)Where the contract of sale is not for specific goods but for generic or unascertained goods. Example: A agreed to sell to B 10 bales of Egyptian Cotton out of 100 bales lying in his godown. The goods were already destroyed by fire before the contract of sale. But both A and B did not know about the fire. In this case, the contract is not void as it was not for the sale of specific goods, but for sale of unascertained goods. And thus, A is liable to supply 10 bales to B, or pay him damages for the breach of contract.

Exceptions: Section 7 and 8

Document of Title to Goods

(i) A document of title to goods symbolizes the goods; therefore, it can become subject matter of contract of sale.

(ii) It authorizes its possessor to receive or to transfer the goods

represented by it. (iii)The possessor of the documents of title to the goods can effect

actual sale as well as make an agreement to sell.

(iv)A transfer of such document of title operates a Symbolic delivery of goods.

(v)A transfer of such document operates as transfer of the

property in the goods to the transferee.

PRICE OF THE GOODS

a.May be left to be fixed in an agreed manner

(such as market price or fixation of price by a third

party). b.May be determined by the course of dealings between parties. (Such as manufacturing cost, market price ).

c. A reasonable price

FIXATION OF PRICE by 3rd PARTY

Consequence of Non-Fixation of Price by Third Party The parties may agree to sell and buy goods on the terms that the price is to be fixed by the valuation of a third party. If such third party fails to make the valuation the contract becomes void.

However, if the buyer has received and appropriated the goods or any part thereof, he becomes bound to pay reasonable price.

If the third party is prevented from making the valuation by the fault of the seller or the buyer, the innocent party may maintain suit for damages against the party in fault.

STIPULATION

Conditions
Condition: A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated. & non-fulfillment of it defeats the very purpose for which the contract was made

WARRANTIES
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

He cannot reject the goods

POINTS

Condition

Warranty

Nature

A condition is stipulation that is essential to the main purpose of the contract.

A warranty is a stipulation that is collateral to the main purpose of the contract.

Significan It is essential to the very It cannot be considered purpose of the contract that as failure to perform ce its non-performance may be the contract. considered as failure to perform the contract. Consequ The aggrieved party may The aggrieved party cannot ence of treat the contract as repudiate the contract but breach repudiated. can claim damages. Treatmen A breach of condition may A breach of warranty t be treated as breach of cannot be treated as warranty. breach of condition.

IMPLIED CONDITIONS
Condition as to title. In a contract of sale, there is an implied condition on the part of the seller that(i)In case of sale, he has a right to sell the goods, and (ii)In case of agreement to sell, he will have a right to sell the goods at the time when the property is to pass.

 Condition as to description
Condition as to sample.

The bulk shall correspond with the sample in quality.

The buyer shall have a reasonable opportunity of

comparing the bulk with the sample.

The goods shall be free from any defect, which

would not be apparent on reasonable examination of the sample. If the defect is visible and can be discovered on inspection, the seller cannot be held liable for the same.

 Condition as to sample as well as description

Condition quality as to merchantable

Condition as to wholesomeness (eatables)

 Condition as to quality or fitness. General rule is that there is no implied condition as to quality or fitness for any particular purpose of goods supplied
Except:

The buyer expressly or by implication makes known to the seller the particular purpose for which the goods are required. The buyer relies on the sellers skill or judgment.

But the condition of fitness or quality does not apply in the following specific cases, even if the buyer has made known to the seller the purpose for which he is buying: (i) Where the goods sold is a specified article under its patent or other trade mark.(Proviso to Sec.16(1)] This exception is applicable only when the buyer does not rely on the sellers skill and judgment.

(ii)Where the product is used only for a particular purpose

but buyer fails to disclose his abnormal circumstances. (iii)Where the goods can be used for more than one

purpose and buyer fails to make known to the seller the

purpose of his buying, the seller is not be liable.

IMPLIED WARRANTIES
Warranty as to quiet possession of goods Warranty as to freedom from charge or encumbrance

Warranty as to quality or fitness by usage of

trade

Warranty to disclose dangerous nature of

goods

Doctrine of Caveat Emptor

It is buyers duty to examine goods thoroughly. The buyer should ensure at the time of

purchase that the goods conform to his

requirements. If the goods turn out to be defective, buyer cannot hold the seller responsible.

Exceptions to rule of Caveat Emptor

Fitness as to quality or use Sale of goods by description. Where the seller is guilty of fraud Where seller actively conceals a defect Sale by sample

TRANSFER OF PROPERTY Specific & Ascertained Goods

Transfer of Property in Unascertained or Future Goods The goods must be appropriated to the
contract either by the buyer or by the seller with the consent of the other party. The goods appropriated must be of the same

description as given in the contract.

The appropriated goods must be in a

deliverable state.
The appropriation must be unconditional

 Appropriation of Goods: It is a process by which the goods to be delivered under the contract are identified and set apart with the mutual consent of the seller & buyer. It is a bilateral act of the seller and the buyer to identify and set apart the goods Deemed appropriation of goods:. Where the seller delivers the goods to any of the following for the purpose of transmission to the buyer without reserving the right of disposal he is deemed to have unconditionally appropriated the goods to the contract:
to the buyer, To a carrier or to a Bailee.

Transfer of Property in the Goods Sent on Approval

When the buyer signifies his approval adopts the goods by his acts buyer retains the goods without signifying approval buyer makes the return of the goods impossible

Transfer of Property when Right of disposal is reserved

The property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled, even if the goods have been delivered to the buyer, or to a carrier or to other bailee for the purpose of transmission to the buyer
Right of disposal is presumed to be reserved if: - Document of title is in Sellers name or his agents name - If seller sends BOE along with to documents of tile to the buyer

TRANSFER OF TITLE BY NON-OWNERS

That nobody can give what he himself has not got It means that no seller can transfer a better title than he himself has.
Exceptions:
Sale by a person under the implied authority of the owner or transfer by estoppel: causes the new

buyer to believe that the seller of the goods has the authority to sell them

 Sale by mercantile agent.

mercantile agent having possession of goods or documents of title ordinary course of business buyer must act in good faith
joint ownership Any one joint owner is in the sole possession The buyer must act in good faith

Sale by one of the joint owners.

Sale by person in possession of goods under voidable contract

contract must not have been rescinded at the time of the sale. The buyer must act in good faith

 Sale by seller in possession of goods.

seller must be in possession of the goods & with the consent of the buyer. NEW buyer must not have notice of the previous sale

Sale by buyer in possession of goods

buyer must in possession of the goods with the consent of the seller NEW buyer must act in good faith

Resale by unpaid seller.

unpaid seller seller must be in possession of the goods must have exercised his right lien or stoppage in transit

 Sale by finder of goods. Sale by Pawnee Sale by official Receiver/Assignee/Liquidator

DELIVERY OF GOODS
Delivery means voluntary transfer of possession of goods Actual delivery: manual transfer Symbolic delivery: seller does something, which has the effect of putting the goods in possession of the buyer Constructive or fictitious delivery or delivery by attornment: when the seller does some act which expresses his intention to transfer property in the goods sold to the

buyer

Rules Relating to Delivery of Goods.

Payment and delivery are concurrent conditions Place for delivery of goods
In case of sale, goods sold are to be delivered at the place at which they are at the time of the sale. In case of an agreement to sell, goods agreed to be sold are to be delivered at the place at which they are at the time of the agreement to sell. If goods are not in existence at the time of contract of sale, the goods are to be delivered at the place at which they are manufactured or produced

Rules Relating to Delivery of Goods.

the expenses of and incidental to putting the goods into a deliverable state shall be borne by the seller Delivery of wrong quantity
Delivery of lesser quantity Delivery of larger quantity Delivery of goods mixed with other goods

Deterioration of goods during transit: the buyer shall bear risk of deterioration in the goods necessarily incidental to the course of transit

UNPAID SELLER
The seller of goods is deemed to be an unpaid seller:
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 instrument or otherwise

Rights of unpaid seller

A lien is a right to retain satisfied Subject to:

the possession of goods until some claim due against it is

Right of Lien

a. The seller must be in possession of the goods sold

b. The lien can be exercised only when the goods are not sold on credit.(Sec.47) c. Where the goods have been sold on credit, the term of credit must have expired.(Sec.47) d. Where the part delivery of goods does not imply that the seller has waived the lien, the seller can exercise lien on remaining goods.(Sec.48)

e. The right of lien can be exercised only when the seller has not waived his
right expressly or impliedly.[Sec.49(1)] f. The unpaid seller of goods, having a lien thereon, does not lose his lien by reason only that he has obtained a decree for the price of the goods

Right of lien
When Lien can be exercised?
Where the goods have been sold without
any stipulation as to credit.

Where the goods have been sold on credit,

but the term of credit has expired. Where the buyer becomes insolvent.

Right of lien
Termination or Loss of Lien a.Deemed appropriation of goods b.The sellers lien is also lost when the buyer or his agent lawfully obtains possession of the goods. c.The seller also loses his right of lien once he waives this right, expressly or impliedly.

Right of Stoppage of Goods in Transit

with a view to regain actual or constructive possession of the goods till the price is paid.

(i)If the seller is an unpaid seller. (ii)If he has parted with the possession of goods to carrier. (iii)If the goods are in the transit. (iv)If the buyer of the goods has become insolvent.

Basis Right of lien Right of Stoppage in Transit Possession In order to exercise lien, In order to exercise the right of seller must be in stoppage in transit, the carrier possession of the or the other bailee must be in goods. possession of goods on behalf of the seller. Nature and Right of lien is a right to Right of stoppage in transit is a purpose of retain the goods until right to regain possession. right price due thereon is paid. Availability Seller gets right of lien Seller gets the right of stoppage of the right when the buyer fails to in transit only when the buyer pay. becomes insolvent. End and Lien comes to an end Right of stoppage in transit commence when the seller delivers commences when the seller ment of the goods to a carrier or delivers goods to a carrier or right bailee. bailee. Exercise of The seller himself can The seller through the carrier or right exercise lien. bailee of the goods can exercise this right.

Right of Resale
Where the goods are of a perishable nature, the unpaid seller can resale the goods without any notice to the buyer Where the seller has given a notice to the buyer of his intention to resale the goods, may resale them if the buyer does not within a reasonable time pay the price When a seller expressly reserves a right of resale in case of default in payment, the seller may resale the goods

Right against the buyer

Suit for price Suit for damages for non-acceptance Suit for repudiation of contract before due date Suit for interest

AUCTION SALE
the sale is complete when the auctioneer announces its completion by the fall of the hammer Auction sale could be conditional or unconditional the property in the goods passes to the buyer by the fall of hammer A right to bid may be reserved expressly by or on behalf of the seller through white bonnet, by bidder, or decoy duck orpuffer

AUCTION SALE
sale by auction may be notified to be subject to a reserve price or upset price Pretended bidding: is voidable at the option of the buyer Knock-out or agreement not to bid each other: Such combinations or knock-out is not illegal Damping is unlawful: Damping is any act by which an intending bidder is dissuaded or discouraged from bidding.

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