A General Overview of the Sales of Goods Act

Introduction:

The Indian Sale of Goods Act, 1930 came into existence during the British Raj on 1 July 1930. The act borrowed heavily from the Sale of Goods Act 1893. It is a Mercantile Law. It extends to the whole of India except the State of Jammu and Kashmir. The rights, obligations and titles acquired before the commencement of the Act are not affected by this Act. Mortgage or pledge of goods are not dealt with in the act, it deals with the sale. The contracts for the sale of goods are subject to the general principles of the law relating to contracts i.e. the Indian Contract Act. However, a contract for the sale of goods has certain features such as transfer of ownership and delivery of goods, rights and duties of the buyer and seller, conditions and warranties implied under a contract for the sale of goods, etc. These features form the subject matter of the provisions of the Sale of Goods Act, 1930. This Act is not applicable to immovable which are governed by the Transfer of Property Act, 1882 and is applicable only to movables other than actionable claims and money.

Definitions

Sale

A sale of goods is defined under Section 4. According to the definition, a contract of sale is in which the seller moves or agrees to move the property or goods to the buyer for an amount upon a contract. There may be an agreement of sale between one part-owner and another. The contract may be oral or in written and also may be complete or dependent.

In simple terms, an agreement of sale occurs when one party makes a tender to buy or sell goods for an amount and the other party accepts such a tender. The term ‘contract of sale’ includes both a sale and an agreement to sell.

When the property in the goods is moved from the seller to the buyer, it is termed as a ‘sale’, whereby the ‘agreement to sell’ occurs when the property in the goods is to be moved afterwards or subject to certain conditions subsequently to be fulfilled. When the time has passed or the conditions, upon which the property in the goods is to be moved are fulfilled an agreement to sell will be converted to a sale.

Buyer and seller

Buyer is defined under sec 2(1). A buyer is someone who has bought or has agreed to purchase goods. Since a sale is a contract between two parties, a buyer is one of the parties to the contract. Seller is defined under sec 2(13). A seller is a person who has sold or concurred to sell the goods.

Goods

According to sec 2(7), goods includes

• all types of movable property
• stock and shares
• growing crops
• grass 
• things joined to or forming part of the land which are concurred to be separated before the sale will be considered goods.

Goods are further classified as:-

1. Existing goods
2. Future goods
3. Contingent goods

Delivery

The discretionary shifting of possession from a person to another person is delivery. There are various forms of delivery like:-

• Actual delivery
• Constructive delivery
• Symbolic delivery

The Document of Title to Goods

As per Sec 2(4), the documents of title to goods includes

• the bill of lading
•  dock-warrant,
• warehouse keeper’s certificate
•  railway receipt
• warrant or order for the conveyance of goods

And it also includes any other document used in the usual conduct of business which can be used as evidence of the possession or authority of goods or permitting, either by approval or by delivery, the possessor of the document to shift or receive goods thus constituted.

Insolvent 

Sec 2(8) defines an insolvent person. An insolvent person is one, if he has performed an act of insolvency or not, and has concluded to pay his debts in the normal conduct of business.

Mercantile Agent

Sec 2(9) defines the Mercantile agent. He is a person who has the power to sell or assign goods under the agreement in the presence of one or both of the parties. Examples for Mercantile agents are auctioneers, agents, brokers, factors etc.

Price

As per Sec 2(10), the price is described as the monetary payment for a sale of goods.

Property 

As per Sec 2(11), property means the common property or all ownership right over the goods. 

Quality of Goods

As per Sec 2(12), the quality of goods is referred to as their situation or position.

Condition and Warranty

The breach of a condition gives a right to treat the contract as broken.It is a stipulation essential to the main purpose of the contract. The breach of a warranty gives rise to a claim for damages but not to a right to reject the goods and treat the contract as broken. Warranty is a stipulation collateral to the main purpose of the agreement.¹ (Zishaan Hayath, 2013)

Types of Goods

The types of goods are mentioned in Section 6 of The Sale of Goods Act, 1930. According to Sec.6, goods can be either existing or future goods. It includes-

1. The goods which form the subject matter of sale may be either existing goods, owned or possessed by the seller, or future goods.
2. The sale contract of goods in the acquisition of which by the seller depends upon a contingency which may or may not happen.
3. Whereby a contract of sale the seller claims to result in a present sale of future goods, the contract operates as an agreement to sell the goods.²(Indian kanoon)

Duties of the Buyer in a Sale Contract

1. According to Sec.31, it is the duty of the buyer to accept the goods and pay for them for the delivery of the goods within a reasonable time.
2. According to Sec 35, it is the duty of the buyer to apply for delivery.
3. According to Sec 36(4), it is the duty of the buyer to demand delivery of the goods within a reasonable time.
4. According to Sec 38(2), if the contract specifically provides for the delivery of the goods by the seller by instalments, the buyer shall accept such a delivery.
5. According to Sec 40, it is the duty of the buyer to take the risk of deterioration in the goods which is necessarily incident to the course of transit.
6. According to Sec 43, if the buyer refuses to accept the goods, it is his duty to inform the seller about it.
7. According to Sec 44, if the seller delivers the goods as per the contract, it becomes the duty of the buyer to take delivery of the same a reasonable time. He remains liable to the seller for any loss arising on account of his refusal to take delivery.
8. According to Sec 55, if the ownership rights have already been passed on to the buyer by the seller, the former has the duty to pay the price as per the terms of the contract.
9. According to Sec 56, if the buyer wrongfully refuses to accept and pay for the goods, he will have to compensate the seller for damages for non-acceptance.³(Account learning, 2019)

Conditions and Warranties

There are certain stipulations which are essential for the main purpose of the contract of sale of goods which go the root of contract and non-fulfilment these cause frustration of contract. These are termed as ‘conditions’. Other stipulations, which are not essential are termed as ‘warranty’. Both of these are collateral to a contract of sale of goods. A contract cannot be avoided for breach of warranty, but the aggrieved party can claim damages.

A stipulation in a contract of sale with reference to goods which are the subject thereof may be a condition or a warranty.  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. 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.

Where a particular stipulation in the contract is a condition or warranty depends on the interpretation of terms of the contract. Mere stating ‘Conditions of Contract’ in an agreement does not mean all stipulations mentioned are ‘conditions’.

1. Express and Implied Conditions

Generally, conditions which are agreed to by the parties, are commonly referred to as express conditions. Express conditions usually consist of language like “if”, “on condition that”, “provided that”, “I the even that”, and “subject to”. But usually, in a dispute it is the court which decides the nature of a particular clause by the process of interpretation.

If an agreement does not make an event a condition then the court may supply a term to that effect. Such conditions will be referred to as “implied” conditions since a court uses the process of implication to determine whether to supply a term that makes an event a condition or not and if yes then what term to supply. The distinction between express and implied conditions is of practical importance because the rule of strict compliance is limited to express conditions.⁴(Law teacher, 2019)

2. Express and Implied Warranties

Warranties that are inserted into the contract at the will and knowledge of the parties are said to be expressed warranties or the Express Warranties.

Implied Warranties are disclosed in Section 14 and 16 of the Sale of Goods Act, 1930 and are the warranties which the law implies into the contract. In case the parties don’t want any of the implied warranties to be included, they will have to expressly mention that in the contract. Implied Warranties are as follows.

• Warranty As To Undisturbed Possession
• Warranty As To Non-Existence Of Encumbrances
• Disclosure Of Dangerous Nature Of Goods
• Warranty As To Qualify Or Fitness By Usage Of Trade⁵ (topper)

Transfer of Property in Goods

Section 19 to section 22 of The Sale of Goods Act, 1930 deals with the transfer of goods in a case where the goods are specific and ascertained in character. The transfer of property in the goods from the seller to the buyer is the essence of a contract of sale. The property in goods passes from the seller to the buyer is significant for the following reasons:

• Ownership
• Risks follow ownership
• Action against third parties
• Suit for price
• Insolvency

Essentials for Transfer of Property

The two essentials for effecting a transfer of property in the goods are:

1. Goods must be ascertained: Unless the goods are ascertained, the property cannot pass from the seller to the buyer. Thus, where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained
2. Intention to Pass property in goods: There must be an intention to pass the property in goods.  In a 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 regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case.⁶ (AdvocateKhoj)

Formalities of a Sale contract

Section 5 provides for the following formalities in a Sale Contract or Agreement to sale:

1. Offer and Acceptance – A sale contract is an offer made by one to buy or sell the goods for a price and acceptance of such offer.
2. Delivery and Payment – The payment for the goods to the seller and delivery of goods to the buyer can be at different times as per contract it is not essential to make such payment and delivery simultaneously.
3. Express or Implied – The contract of sale can be Express or implied. Express writing can either be writing or oral.⁷(K, 2015)

Essentials of a Sale Contract 

The five essential features of a Sale contract are as follows:-

1. Two parties – For a valid Sale contract or agreement to sale, there must be 2 distinct parties i.e. a buyer and a seller. They must be competent to contract. 
2. Goods – there must be some goods as property for being transferred from the seller to the buyer. The subject-matter of the contract of sale that is the goods must be movable, must not be immovable.
3. Price – It is an essential ingredient for all transactions of sale and normally money is considered as price. 
4. Transfer of general property – From the seller to buyer, there should be a transfer of general property in goods.
5. Essential elements of a valid contract – Contract of sale must contain all essential elements of a valid contract. ⁸ (N.D Kapoor, 2019)

Examples

• ‘B’, a famous artist painted a portrait. That portrait was bought by ‘A’. So, in this example it is a contract of sale as the substance of the work is the delivery of the portrait.⁹( K, 2015)

• ‘X’ wanted to purchase a car from ‘Y’, which can have a mileage of 20 km/lt. ‘Y’ suggested a particular car and said that it will suit ‘X’. Later ‘X’ bought the car but found out that car only has a top mileage of 15 km/ litre. In this example, the mileage was a stipulation for the main purpose of the contract made by the seller and hence its breach is a breach of condition.¹⁰( Zishaan Hayath, 2013)

Case laws

• In this case of Commissioner of Sales Tax vs. Madhya Pradesh Electricity Board¹¹, the Supreme Court held that electricity can be transmitted, transferred, delivered, stored, possessed, etc., in the same way as any other movable property. If there can be sale and purchase of electric energy like any other movable object, we see no difficulty in holding that electric energy was intended to be covered by the definition of “goods”.

• In this case H. Anraj vs. Government of Tamil Nadu¹², it was held that lottery tickets are goods and not actionable claims. Thus, the sale of lottery tickets is the sale of goods.¹³(K, 2015)

Conclusion

So, in order to meet the complexities of growing mercantile transactions, this act was enacted. This Act applies only to movables other than actionable claims and money and not to immovable which are governed by the Transfer of Property Act, 1882. The contract for sale does not result in any transfer of ownership. However, a sort of obligation is created in respect of the ownership of the property.

References:

1. Zishaan Hyath, (2015). The Sale of Goods Act 1930. www.toppr.com. https://www.toppr.com/guides/business-law/the-sale-of-goods-act-1930/.

2.https://indiankanoon.org/doc/411791/#:~:text=Section%206%20in%20The%20Sale%20of%20Goods%20Act%2C%201930&text=(1)%20The%20goods%20which%20form,the%20seller%2C%20or%20future%20goods

3.Account learning. (2019). Rights and Duties of Buyer in a Contract of Sale. https://accountlearning.com/rights-duties-buyer-contract-sale/. www.accountlearning.com

4. www.lawteachers.net. (2019, July 17). Conditions and Warranties in Sale of Goods . https://www.lawteacher.net/free-law-essays/commercial-law/conditions-and-warranties-in-sale-of-goods-commercial-law essay.php#:~:text=A%20stipulation%20in%20a%20contract,a%20condition%20or%20a%20warranty.&text=A%20condition%20is%20a%20stipulation,treat%20the%20contract%20as%20repudiated. www.lawteacher.net

5. toppr. Express and Implied Warranties . https://www.toppr.com/guides/business-laws/the-sale-of-goods-act-1930/express-and-implied-warranties/#:~:text=In%20case%20the%20buyer%20is,law%20implies%20into%20the%20contract. www.toppr.com. www.toppr.com

6. Advocatekhoj. Transfer of Property in Goods. https://www. advocatekhoj.com/library/lawareas/saleofgoods/transfer.php?Title=Sale%20of%20Goods&STitle=Transfer%20of%20Property%20in%20Goods. www.advocatekhoj.com

7.K. (2015, June 20). SALE OF GOODS ACT,1930(PART 1- INTRODUCTION). https://kanwarn.wordpress.com/2015/06/20/sale-of-goods-act-1930-part-i-introduction/. www.kanwarn.wordpress.com

8. N. D. K. (2019, August 12). The Sale of Goods Act 1930. https://www.lawteacher.net/free-law-essays/contract-law/the-sale-of-goods-act-1930-contract-law-essay.php.

9.K. (2015, June 20). SALE OF GOODS ACT,1930(PART 1- INTRODUCTION). https://kanwarn.wordpress.com/2015/06/20/sale-of-goods-act-1930-part-i-introduction/. www.kanwarn.wordpress.com

10.Zishaan Hyath, (2015). The Sale of Goods Act 1930. www.toppr.com. https://www.toppr.com/guides/business-law/the-sale-of-goods-act-1930/.

11. 1970 AIR 732, 1969 SCR (2) 939

12. 1986 AIR 63, 1985 SCR Supl. (3) 342

13. K. (2015, June 20). SALE OF GOODS ACT,1930(PART 1- INTRODUCTION). https://kanwarn.wordpress.com/2015/06/20/sale-of-goods-act-1930-part-i-introduction/. www.kanwarn.wordpress.com