SALE OF GOODS ACT

INTRODUTION: The law relating to the sale of goods or movables in India is Containing in the Sales of Goods Act, 1930. before the passing of the present act, the law relating to the sale of goods was containing in previous chapter of Indian Contract, 1872. The act come into force 1st July, 1930. it contains 66 Sections & extend to whole of India except the State of Jammu and Kashmir.

CONTRACT OF SALE OF GOODS

According to 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. A contract of sale may be absolute or conditional. The term contract of sale is a general term and comprises of: 1. Sale; and 2. Agreement to sell

When agreement to sell becomes sale?

An agreement to sell becomes a sale when the time elapses or conditions are fulfilled subject to which the property in the goods is to be transferred. Every sale originates in an agreement to sell. It is an agreement of sale which gives birth to a sale. On a sale, the agreement of sale is completely exhausted and ceases to exist.

ESSENTIALS OF A CONTRACT OF SALE

To constitute a valid contract of sale, the following essentials must be present.

1.

Contract: contract means an agreement enforceable by law. It resume free consent on the parties who should be competent to contract. The agreement must be made for a lawful consideration and with a lawful object.

ESSENTIALS OF A CONTRACT OF SALE

Cont..

2.

Two Parties: To constitute a contract of sale, there must be a transfer or agreement of transfer the property in goods by seller to the buyer. It means that there must be two person, one seller and the other is Buyer. So a person can not buy his own products. e.g. A partnership firm was dissolved and the surplus assets including some goods were divided among the partners. Tax officer wanted to tax this as a sale. The held that it was not a sale.

There are certain exceptions to the rule that same person can buy his own products. a) When a persons goods are sold in execution of a decree, he may himself buy them. b) A part owner can sell his share to the other part-owner so as to make the other part owner the sole owner of the goods. c) If a person pledges some goods with the other person and take some loan. In that case, if pledger does not make payment then pledgee can sell these goods. d) A partner may also buy the goods from the firm in which he is a partner and vice versa.(e.g. joint scooter) e) In case there is sale by auction the seller may reserve right of making a bid at the auction and may thus purchase his own goods.

ESSENTIALS OF A CONTRACT OF SALE

3.

Cont..

Transfer of Property: There should be a transfer or agreement to transfer the absolute or general property in the goods sold or agreed to be sold. The sale of goods Act contemplates the transfer of general property in goods from the seller to the buyer. According to Section 2(II) property here means the general property in goods and not merely a special property. Where the seller transfers the ownership of goods to the buyer at the time of signing the contract, it is called a contract of sale

ESSENTIALS OF A CONTRACT OF SALE

Cont..

4. Goods: Goods of any kind except immovable goods may be transferred. It does not include

money and other actionable claims. The seller must be the owner of the goods the ownership of which is sought to be transferred. According to Section 2(7), goods means every kind of movable property other than actionable claims and money; and include stock and share, growing crops, grass and things attached to or forming part of the land which are agreed to be served before sale or under contract of sale

ESSENTIALS OF A CONTRACT OF SALE

5.

Cont..

Price: To constitute a valid contract of sale, consideration for transfer must be money paid or promised. Where there is no money consideration the transaction is not a contract of sale, as for instance goods given in exchange for goods or as remuneration for work or labour. According to Section 2(10) of sale of goods act price means, the money consideration for a sale of goods

Distinction Between Sale and Agreement to Sell

Nature of Contract An agreement to sell is an executory contract, whereas a sale is an executed contract. 2) Transfer of property/ownership in the sale of property goods passes from the seller to the buyer at the time the contract is made. But in an agreement to sell, the transfer of property takes place at some future time or until some condition is fulfill. 3) Risk of Loss In sale, the buyer becomes the owner of the goods and the risk as a rule passes to the buyer; under an agreement to sell, the seller remain the owner and the risk is within him.
1)

Cont..
4)

5)

Consequences of the breach on the breach of an agreement to sell by seller, the buyer has only a personal remedy against the seller. But if after the sale the seller breaks the contract (e.g. resell the goods) the buyer may sue for delivery of the goods. Insolvency of the buyer - In a sale, if the buyer become insolvent before paying the price, the ownership having passed to buyer, the seller shall have to deliver the goods to the official receiver. In an agreement to sell, when the buyer becomes insolvent before he pays for the goods, the seller may not part with the goods. The seller can refuse to deliver the goods to the official receiver.

Cont..
6) Insolvency of seller - In a sale, if the seller becomes insolvent, the buyer is entitled to recover the goods from the Official Receiver or assignee as the property of the goods is with the buyer. In an agreement to sell, if the buyer has already paid the price and the seller becomes insolvent, the buyer can claim only a rateable dividend and not the goods. 7) General & Particular Property-In case of an agreement to sell the buyer and seller get remedy against each other in case of breach of an agreement. The agreement of sale creates a right with which only the contracting parties are concerned and not the whole world, whereas in case of sale, the buyer gets an absolute right of ownership and this right of the buyer is recognized by the whole world.

Cont..
6) Right of Re-sale - In an agreement to sell, the property in the goods remains with the seller and he can dispose of the goods as he likes, although he may thereby commit a breach of his contract. In a sale, the property is with the buyer and as such the seller cannot resell the goods. If he does so, the buyer can recover the goods sometimes even from third party. 7) Start and end sale is the end of agreement to sell and agreement to sell is the beginning of contract of sale.

How contract of sale is effectively or legally made

According to section 3 of sale of Goods Act, the general rules of Indian Contract also applies on a contract of sale also. So in a contract of sale the offer for purchase or sale of goods must be made by one party and that offer must be accepted by the other parties. According to section 5 of the Sale of Goods Act, the contract of sale of goods can be made by any of the following methods: 1. The delivery of goods may be immediate i.e. at the time of contract itself. 2. Price can be paid immediately and the goods can be delivered on a future date. 3. Payment & delivery can be done simultaneously. 4. Both can be in installments. 5. Both can be on future date.

Sale distinguished from other transaction

1. Sale and barter system in a contract of sale consideration must be in form of money. If the payment is made in the form of money then the transaction is called a sale. If payment for goods purchased is made in the form of another commodity then that is not called sale but a barter system. But in an important case the court has given decision that when the consideration in a contract of sale is partly in money and partly in the form of commodity, the sale will be recognized as a sale under the Sale of Goods Act 1930.

Sale distinguished from other transaction

2. Sale and Gift in contract of sale, the seller transfers ownership of his goods, to the buyer, for a price. The price is called the money consideration in a contract of sale. This is essential requirement for a valid contract of sale. But when goods are transferred by one person to the another person without charging anything or without consideration then such transaction is known as a gift. In other words in case of gift, receiver does not pay anything in the form of money or otherwise. So contract of sale arises due to consideration whereas in case of gift no consideration arises.

Sale distinguished from other transaction

3. Sale and Bailment contract of sale is a contract in which seller transfer or agree to transfer the ownership of goods to buyer for a certain price. According to section 148 of Indian Contract act, A bailment is delivery of goods by one person to another for some purpose upon a contract that they shall, when the purpose is accomplished, be returned to the person delivering them.

Sale distinguished from other transaction

4. Sale and Hire Purchase Hire purchase agreement is a special method of sale or purchase of goods, in which payment of goods is not made immediately, but in installment. In hire-purchase agreement the ownership of the goods is transferred to the buyer only after the payment of final installment.

Sale distinguished from other transaction

5. Sale, mortgage and pledge in contract of sale ,the seller transfers or agrees to transfer the ownership of goods to the buyer for a certain price. Whereas when a person transfers the possession of his goods as a security for loan than it is called situation of pledge. The person taking loan is pledger and the person giving loan or to whom goods are pledged is called pledgee. Only movable goods like jewelry, shares of companies, govt. securities can be pledged. Mortgage means pledge of immovable property. In contract of sale, the transfer of possession as well as ownership is done on permanent basis whereas in pledge and mortgage the possession is transferred on temporary basis.

Goods
According to sec.6 of the sale of goods act the subject matter of

contract of sale is goods. Section 2(7) of the Sale of Goods Act describes as goods mean every 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 land which are agreed to be served before sale or under the contract of sale. According to sec6(1)of sale of Goods Act, The goods which forms the subject matter of contract of sale may be either existing goods owned or possessed by the seller or future goods.

Classification of Goods
Existing Goods: As per section 6 of the Act, existing

goods are those goods which are owned or possessed by the seller at the time of contract of sale. Two conditions must be fulfilled in case of existing goods. 1)The goods must Exist with the seller at time of contract of sale. 2)The goods must be in possession or ownership of the seller.

Existing goods may be further classified into following categories

Specified goods: According to section 2(14), Specified goods

means goods identified and agreed upon at the time of contract of sale. Example: A goes to a T.V shop. He selects a T.V. for purchase. The shopkeeper agrees to sell him that T.V. This is a contract of specific goods. Ascertained Goods: Generally ascertained goods are used as synonym for specific goods. But there is difference between the two .The distinguishing feature is that the ascertained goods are identified after the formation of contract of sale.

Example of Ascertained goods:

X has two cars. Y contracts with X to buy one car out of them. After the contract ,X keeps out one car to be given to Y. The car will now be called ascertained goods. It may be noted that when a contract is entered into for unascertained goods. In this situation when the ascertained goods are identified and agreed upon by the parties, the goods are called ascertained.

Unascertained Goods
These are the goods which are not identified and

agreed upon at the time when the contract is made. These are identified only by description or on the basis of sample. Example: X is a Rice- Merchant. He has different varieties of rice in his stock. Y makes a contract with X for the purchase of 100 bags of rice. But he does not identify the bags or quality of rice at the time of contract. This is a situation of existing goods which are yet unascertain. In this contract when Y will identify and separate 100 bags of rice from stock of X, then the goods will become ascertained goods.

Future Goods
As per section 2(6) of the act Future goods means goods to

be manufactured or produced or acquired by the seller after making the contract of sale. In simple words future goods are those goods which are either not in existence of the time of contract of sale or they may be in existence when the agreement of sale is made but have not been acquired by the seller by that time. Example: X, agrees to buy the entire crop of wheat that would yield in YS farm , at the rate of Rs 700 per quintal . This is an agreement of sale of future goods. As future goods are not in possession of the seller at the time of contract so according to sec 6(3), the transaction of future goods is treated as agreement to sale not the contract of sale.

Contingent Goods
Contingent goods are also a form of future goods.

According to sec 6(2), contingent goods are the goods the acquisition of which by the seller depends upon a contingency which may or may not happen. As these goods are obviously future goods so according to section 6(3) the transaction of future goods is treated as agreement to sell. Example: X agrees to sell his goods to Y, provided his ship arrives safely. Here the goods are contingent goods whose sale is dependent upon the safe arrival of ship.

Effect of Destruction/Perishing of Goods

Section 7 and 8 deal with the effect of perishing of goods on the right and obligations of the parties to a contract of sale. Under these section the word perishing means not only physical destruction of the goods but it also covers: a) Damages to goods so that goods have ceased to exit in the commercial sense, i.e., their merchantable character as such has been lost (although they are not physically destroyed), e.g. cement spoiled by water b) Loss of goods by theft c) Where goods have been lawfully requisitioned by the government.

Effect of Destruction/Perishing of Goods

1.

Perishing of goods at or before making the contract (sec. 7) a) In case of perishing of the whole of the goods where specific goods from the subject matter of a contract of sale (both actual sale and agreement to sell), and they, without knowledge of the seller, perish, at or before the time of the contract, the contract is void. e.g. A sold to B specific cargo of goods supposed to on its way from England to Bombay. It turned out, however, that before the day of bargain , the ship conveying the cargo had been cast away and the goods were lost. neither party was aware of the fact. the agreement was void.

Effect of Destruction/Perishing of Goods

1.

Cont..

Perishing of goods at or before making the contract (sec. 7) b) In case of perishing of only a part of the goods where in contract of specific goods, only part of the goods are destroyed or damaged, the effect of perishing will depend upon whether the contract is entire or divisible. If entire (i.e. indivisible) and part only of the goods has perished, contract is void. If contract is divisible, it will be not void. e.g. A contract to B, to supply 700 bags of Chinese groundnuts of certain quality. 109 bags were stolen. Seller want to deliver rest591 bags and , on the buyers refusal to take them , brought an action for the price . it was held that the contract being indivisible ,had become void.

Effect of Destruction/Perishing of Goods

Cont..

2. Perishing of goods 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 of buyer, perish before the risk is passes to the buyer, the agreement is thereby avoided, i.e., the contract of sale becomes void and both parties are excused from performance of the contract. If only a part of the goods agreed to be sold perish, the contract becomes void if it is indivisible, if it is divisible then the parties are absolved from their obligations only to extent of perishing of goods (contract remain valid)

Cont..
It must further be noted that if fault of either party causes the destruction of the good, then the party in default is liable for non-delivery or to pay of for the goods, as the case may be (Sec. 26) e.g. A took horse on a trial for 8 days on condition that if found suitable for his purpose the bargain would become absolute. The horse died on the 3rd day without any fault of either party . Held , the contract which was in the form of an agreement to sell , becomes void and the seller should bear the loss.

Effect of Perishing of Future Goods

As observed earlier, a present sale of future goods always operates as an agreement to sell [Sec. 6(3)]. As such there arises a question as to whether section 8 applied to contract of sale of future goods. C agree to sell H 2oo tones potatoes to be grown on Cs land. C sowed sufficient land to grow the required quantity of potatoes, but without any fault on his part, a disease attracted the crop and he could deliver only about ten tones. The contract was held to become void.

Price
According to section 2(1) of the Act , Money consideration for

sale of goods. No valid sale can take place without price. so it is essential that price must be there. The price is mandatory in terms of money. If no consideration is given then the transaction is called gift. Similarly if some goods are exchanged against some other goods that is not treated as sale, but a barter system. Thus the price has to be in terms of money. The price may be actual payment of price of goods or it may be in the form of promise of payment of price to be paid depending upon situation whether the contract is for cash or credit sale.

Modes of Ascertainment of price

By contract: According to section 9 the price in contract of sale

may be fixed by the contract between the parties. Both the parties can decide any price for the goods in a contract of sale .In this situation law will never check the adequacy of price. Partners decide whatever price they like, but it must be specific not vague. By the course of mutual dealings: according to section 9 (1)where the price is nether expressed in the contract nor any manner of fixing the price has been agreed between the parties , then price can be determined by the course of mutual dealings between the parties. By manner provided in the contract: according to section 9 (1) of the act ,sometimes the mode of fixation of price is clearly specified in the contract. In that situation price will be obviously according to that situation.

CONT
Reasonable price: According to section 9 (2) of the act, when

the price of goods is not fixed by any of the above methods, a reasonable price is considered as the price of the goods. So the buyer himself pay reasonable price to the seller. What is a reasonable price is question of fact dependent upon the circumstances of a particular case. By third party: According to section 10 of the act the parties make a provision to the contract that the price shall be fixed by a third person. The third person may be their well wisher or an expert of the market. If such third party cannot or does not fix the price , the agreement is treated as void and can be avoided.

So the price of goods can be fixed by any of the above mentioned methods, but In each method the following three conditions must be fulfilled.
Price must be in the form of money.
Price must be specific Price must be real not vague.

Mode of payment of price

By the consent of both the parties or by the term and

conditions of the contract ,the seller may accept the payment in any of the following ways a) By a cheque or draft b) By a letter of credit c) By a bank guarantee d) By any other mode

Effect of increase or decrease in the rate of tax on price

In a contract of sale if the contract is made for a

specific price (with tax) and the goods have not yet been delivered and the rate of tax changes . In this situation, seller can make the adjustment of increased or decreased tax and can charge the price from the buyer accordingly.

Earnest money
Sometimes a part of the price, is paid in advance by the buyer to

the seller for due performance of the contract. this amount is called earnest money. If the sales go through the earnest money is adjusted as part of the purchase price. If the contract of sale is not completed by reason of default or fault of the buyer, then the seller can rescind or terminate the contract and can retain the earnest money. Thus, he can forfeit the money in the form of compensation for breach of contract. If the seller makes default in his performance, the buyer will be entitled to any damages along with the earnest money deposited by him.