CS Foundation Sale of Goods Act, 1930 Notes
As per Section 4 in a contract of sale seller transfers or agrees to transfer the goods for money. The expression “contract of sale” includes both a sale where the seller transfers the ownership of the goods to the buyer and an agreement to sell where the ownership of goods is to be transferred at a future time or subject to some conditions to be fulfilled later on.
→ Essentials of a Valid Contract of Sale:
- There must be Two parties-There must be at least two parties, i.e. one buyer and the other seller. A person cannot buy his own goods
- The subject matter of Sale must be “goods” -The subject matter of the contract of sale must be movable goods
- Transfer of property in the goods: It is the ownership that is transferred in a Contract of sale.
- Consideration in Price: Consideration in a contract of sale has necessarily to be money.
→ Distinction between Sale and agreement to sale Sale:
- Transfer of ownership of goods takes place immediately
- It is an executed contract because nothing remains to be done,
- Buyer gets a right to enjoy the goods.
- Transfer of risk of loss of goods takes place immediately because ownership is transferred. As a result, in case of destruction of goods, the loss shall be borne by the buyer even though the goods are in the possession of the seller.
- On buyers breach a seller can claim for the price of goods, o In case of sellers breach buyer has a personal remedy.
→ Agreement to Sale
- Transfer of ownership of goods is to take place at a future time or subject to fulfillment of some condition,
- It is an executory contract because something remains to be done
- Buyer does not get such right to enjoy the goods
- Transfer of risk of loss of goods does not take place because ownership is not transferred. As a result, in case of destruction of goods, the loss shall be borne by the seller even though the goods are in the possession of the buyer.
- On buyers breach the seller can claim only for damages.
- In case of seller breach the buyer can claim only for damages.
→ Sale and Bailment
A contract of sale is a straight forward contract where a person may buy goods, services or property from a seller in exchange for remuneration, usually in the form of money. Essentially, in abailment contract, the bailor gives the goods, assets or property to the bailee for a specific amount of time. However, the goods, assets or property still belongs to the bailor.
→ Sale and Hire Purchase Agreement
Sale is a type of contract in which the goods passes from seller to buyer on payment of price
Hire purchase agreements are a type of contract in which the goods are passes on hire. Under a hire purchase agreement, the creditor remains the legal owner of the goods until you have repaid the sums due under the agreement. At the end of the agreement, you as the debtor have the option purchase the goods or return them to the creditor.
Since the hirer is not the owner of the goods so he can not transfer the title of the goods to anyone else.
In case of hire purchase agreement the risk involved with the goods remain with the owner on a condition that reasonable care has been taken by hirer while in case of sale the risk is with the buyer even if the goods are purchased on instalments.
→ Subject matter of Contract:
Goods -” goods” means every kind of movable property other than actionable claims 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;
Goods which are physically in existence and which are in seller’s ownership and or possession, at the time of entering the contract of sale are called ‘existing goods. Goods which are identified and agreed upon at the time of making of the contract of sale are called ‘specific goods’ while the goods which are not separately identified or ascertained at the time of making of the contract are known as ‘unascertained goods’.
future goods means goods to be manufactured or produced or acquired by the seller after the making of the contract of sale.
Goods, the acquisition of which by the seller depends upon an uncertain contingency are called contingent goods. For example, A sell a thing to B subject that A gets that thing from C thus if the condition is fulfilled then only the sale contract is enforceable.
Goods perishing before making of contract:
Where there is a contract for the sale of specific goods, the contract is void if the goods without the knowledge of the seller have, at the time when the contract was made, perished or become so damaged as no longer to answer to their description in the contract.
Goods perishing after agreement to sell:
Where there is an agreement to sell specific goods and subsequently the goods without any fault on the part of the seller or buyer perish or become so damaged as no longer to answer to their description in the agreement before the risk passes to the buyer, the agreement is thereby avoided.
price” means the money consideration for a sale of goods.
- The price in a contract of sale may be fixed by the contract, may be left to he fixed in manner thereby agreed or may be determined by the course of dealing between the parties.
- Where the price is not determined in accordance with the foregoing provisions, the buyer shall pay the seller a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each particular case.
→ Conditions and warranties
- 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.
→ Condition to be treated as warranty:
- Where buyer waives the condition
- When buyer treats the condition as warranty
- Where the contract is indivisible and the buyer has accepted the goods the breach of condition can be treated as breach of warranty
- Nothing in this section shall affect the case of any condition or warranty fulfillment of which is excused by law by reason of impossibility of otherwise.
→ Implied conditions/warranties
Those conditions are not included in the contract but the law presumes their existence in the contract are called implied conditions.
In a contract of sale, unless the circumstances of the contract are such as to show a different intention, there is
(a) an implied warranty that the buyer shall have and enjoy quiet possession of the goods
(b) an implied warranty that the goods shall be free from any charge or encumbrance in favour of any third party.
(c) if the goods are dangerous then seller must warn buyer regarding it.
Implied undertaking as to tile:
In a contract of sale, unless the circumstances of the contract are such as to show a different intention there is an implied condition in the case of a sale, he has a right to sell the goods and that, in the case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass.
Implied condition in Sale by description:
Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description,
Implied condition as to quality or fitness:
There is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale, excepts
- Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller’s skill or judgement and the goods are of a description which it is in the course of the seller’s business to supply, there is an implied condition that the goods shall be reasonably fit for such purpose.
- Where goods are bought by description from a seller who deals in goods of that description), there is an implied condition that the goods shall be of merchantable quality. Provided that, if the buyer has examined the goods, there shall be no implied conditions as regards defects which such examination ought to have revealed.
- An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade.
- An express warranty or conditions does not negatively a warranty or condition implied by this Act unless inconsistent therewith.
→ Doctrine of Caveat Emptor:
Caveat emptor means let the buyer beware or the buyers should examine check for themselves things which they intend to purchase. According to the doctrine of caveat emptor, the buyer is encouraged to “examine, judge and test for him/herself.” This principle in basic form is embodied in section 16 that subject to provisions of Sale of Goods Act.
→ Exceptions to Doctrine of Caveat Emptor:
- Seller actively conceals the defect
- Seller makes a false statement
- Goods are bought by description
- When buyer has expressly communicated his purpose to seller looking into the judgement and skill of seller
- Transfer of property means transfer of goods ownership. While transfer of possession of goods refers to the custody of goods.
- The ownership of the goods may pass to the buyer but possession may remain with the seller.
- In other case possession may pass to the buyer but ownership remain with the seller.
→ Transfer of property in specific or ascertained goods
- Where there is a contract for the 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 transferred.
- For the purpose of ascertaining the intention of the parties, regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case.
→ Transfer of property in unascertained goods:
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
→ Transfer of property in Specific goods:
Where there is a contract for the 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 transferred
→ The common law principle of Nemo dat quod non-habet
Subject to this Act, where goods are sold by a person who is not their owner and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of goods is by his conduct precluded ffpm denying the seller’s authority to sell.
In effect a person cannot give a better title than the one he/she has.
- sale by an agent o sale under voidable title o seller in possession after sale
- Buyer in possession after sale.
- Sale by co-owner o Saleby unpaid seller
Delivery (Section 33):
Delivery of goods sold may be made by doing anything which the parties agree shall be treated as delivery or which has the effect of putting the goods in the possession of the buyer or of any person authorised to hold them on his behalf. Rules governing delivery
- Delivery should have the effect of putting the buyer in possession o Seller is to deliver the goods when buyer applies for delivery o Place of delivery is usually stated in the contract
- Seller has to bear the cost of delivery .
- Unless otherwise agreed the buyer is not bound to accept delivery in instalments
- Where the goods, at the time of sale, are in the possession of a third person, there is no delivery by seller to buyer unless and until such third person acknowledges to the buyer that he holds the goods on his behalf
Acceptance of goods by buyer:
- Where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may reject them, but if the buyer accepts the goods so delivered he shall pay for them at the contract rate, accept the quantity ordered and reject the rest
- Presumed to be accepted if buyer does not intimate the seller within reasonable time regarding his rejection Delivery in instalments
- Where there is a contract for the sale of goods to be delivered by stated instalments which are to be separately paid for and the seller or buyer makes a breach then it is a question in each case, depending on the terms of the contract and the circumstances of the case, whether the breach of contract is a repudiation of the whole contract or whether it is a severable breach giving rise to a claim for compensation but not to a right to treat the whole contract as repudiated.
→ Suits for breach of Contract:
- Where, under a contract of sale, the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may maintain an action against him for the price of the goods.
- Where, under a contract of sale, the price is payable on a day certain irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price, the seller may maintain an action for the price.
- Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may maintain an action against him for damages for non-acceptance.
- Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may maintain an action against the seller for damages for non-delivery.
→ Anticipatory Breach of Contract:
A breach of contract caused by a party’s unequivocally repudiating the contract, i.e. indicating that he will not perform when performance is due. In such case the other party may either treat as still subsisting and wait for delivery or may treat the contract rescinded and sue for damages.
→ Unpaid seller
“Unpaid seller” is defined as
The seller of goods is deemed to be an” unpaid seller” within the meaning of this Act
(a) when the whole of the price has not been paid or tendered;
(b) 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.
Unpaid seller’s rights:
(1) Subject to the provisions of this Act and of any law for the time being in force, notwithstanding that the property in the goods may have passed to the buyer, the unpaid seller of goods, as such, has by implication of law:
(a) a lien on the goods for the price while he is in possession of them;
(b) in case of the insolvency of the buyer a right of stopping the goods in transit after he has parted with the possession of them;
(c) a right of re-sale
(2) Where the property in goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies, a right of with- holding delivery similar to and co- extensive with his rights of lien and stoppage in transit where the property has passed to the buyer.
Lien of unpaid seller: Subject to this Act, the unpaid seller of goods who is in possession of them is entitled to r retain possession of them until payment or tender of the price in the following cases, namely:
(a) where the goods have been sold without any stipulation as to credit;
(b) where the goods have been sold on credit, but the terms of credit have expired;
(c) where the buyer becomes insolvent.
Loss of lien: The unpaid seller of goods loses his lien or right of retention thereon
(a) when he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the right of disposal of the goods;
(b) when the buyer or his agent lawfully obtains possession of the goods;
(c) by waiver thereof.
→ Auction sales:
In the case of sale by auction,
(a) where goods are put up for sale by auction in lots, each lot is prima facie deemed to be the subject of a separate contract of sale;
(b) a sale by auction is complete when the auctioneer announces its completion by the fall of the hammer, or in other customary manner and, until such announcement is made, any bidder may retract his bid;
(c) where a sale by auction is not notified to be subject to a right to bid on behalf of the seller, it shall not be lawful for the seller to bid himself or to employ any person to bid at such sale or for the auctioneer knowingly to take any bid from the seller or any such person and any sale contravening this rule may be treated as fraudulent by the buyer
(d) a sale by auction may be notified to be subject to a reserved or upset price and a right to bid may also be reserved expressly by or on behalf of the seller
(e) where a right to bid is expressly reserved, but not otherwise, the seller, or any one person on the sellers behalf, may bid at the auction
→ Trading contract involving sea and rail route:
Contracts dealing with goods to be shipped often include an F.O.B.or C.I.F. clause
- F.O.B.- FOB stands for Free On Board. With the FOB type of shipping agreement, the seller or shipper arranges for goods to be moved to a designated point of origin.
- C.I.F.- CIF stands for Cost, Insurance and Freight – shipping agreement is used, the seller has responsibility for the cost of the goods in transit, providing minimum insurance and paying freight charges to move the goods to a destination chosen by the buyer. From the point of delivery at the destination, the buyer assumes responsibility for unloading charges and any further shipping costs to a final destination.
- F.O.R. – Stands for free on rail. The conditions are similar to F.O.B.
Ex -Ship – Here the seller has to make arrangement of the shipment of the goods to port or inland place specified by buyer