This article is written by Kishita Gupta, a Unitedworld School of Law, Karnavati University, Gandhinagar, graduate. The article deals with a thorough discussion of Sale of Goods Act, 1930. The article will also discuss various case laws on the subject.
It has been published by Rachit Garg.
Table of Contents
We are aware that every business entity runs by buying or selling commodities. In India, such sales of goods are governed by the Sale of Goods Act, 1930. This Act has been codified as a separate enactment of the law relating to the sale of goods, which was contained in Sections 76 to 123 of the Indian Contract Act of 1872. Those sections of the Contracts Act have been repealed by the Sale of Goods Act. This was done because the provisions of the Contract Act were found to be inadequate to deal with the new situations that were arising due to an increase in mercantile transactions in the wake of rapid industrialisation. Hence, a new law was formed to deal with the sale of goods which incorporates various provisions of the English Sale of Goods Act, 1893. However, despite the separate legislation in terms of the Sale of Goods Act, the Contract Act continues to apply to the contracts relating to the sale of goods. The Act lacks in defining some of the expressions and words that are otherwise defined in the Contract Act. In this article, the author will be discussing the Sale of Goods Act, 1930 in detail by analysing all the important provisions and case laws.
Let us begin with a thorough understanding of the definition clause of the Act for a better understanding. Section 2 of the Sales of Goods Act of 1930 deals with the definitions relating to the subject. Some of the clauses of Section 2 are mentioned below:
In clause 1 of Section 2, the term ‘buyer’ is defined to include both a person who actually purchases the goods and a person who is almost willing to do so. However, it was observed in Helby v. Mathews (1895) that a person is not regarded as a buyer if an agreement essentially grants him the option to purchase the products without subjecting him to any legal obligation to do so.
Clause 2 defines the term ‘delivery’ to involve a transaction of a transfer of possession which is done voluntarily. Delivery can be actual or constructive. It becomes ‘actual’ when the buyer receives the actual products or receives the key to the warehouse where the goods are kept. Whereas, when a delivery is made without affecting the custody or actual ownership of the item, such as when attornment (acknowledging) a delivery or making a symbolic delivery, it is said to be a constructive delivery.
Clause 7 deals with the “goods,” which refers to any movable property that is neither money nor actionable claims.
The following list of items is considered goods as per the interpretations given by the Indian judiciary:
The following list of items was considered to be ‘not goods’ under this Section:
Clause 14 of Section 2 deals with ‘Specific Goods.’ Specific goods are utilised as an alternative to generic or unascertained goods. The items are specific if they are identified at the moment of sale. However, they are unascertained goods if the items are not identified at the moment of the sale. For example, the sale of a car in a person’s possession would be considered to be the sale of a specific good. Whereas a sale of a car from a showroom that contains different variants of a car is a contract for the sale of unascertained goods.
Section 4 of the Act discusses sales and the agreement to sell. The term “contract of sale” is generic in nature. It tends to include both agreements to sell and sale. It was formerly called “bargain and sale.”
Subsection 3 of Section 4 defines the sale and the agreement to sell. The contract of sale is known as a sale when the property in the products is transferred from the seller to the buyer under it, thereby transferring ownership from the seller to the buyer. A sale can also be called an executed contract of sale. However, a contract is referred to as an agreement to sell when the transfer of property in the goods is supposed to happen at a future date or is dependent on the fulfilment of a subsequent condition. An agreement to sell may also be called an executory contract of sale.
It was held in the State of Uttaranchal v. Khurana Brothers (2011) that when the time elapses or the condition gets fulfilled, at that time an agreement to sell becomes a sale.
Subsection 1 also permits a person who owns the goods partially to sell the goods or transfer the ownership to that extent.
In Camera House, Bombay v. State of Maharashtra (1969), the Bombay High Court ruled that providing a print, processing film, and taking a picture in a studio are all separate transactions. Therefore, it is obvious that the first two contracts call for the use of a photographer’s artistic talent and labour. However, the final contract for providing copies of it to clients is a contract of sale.
A contract of sale may be either absolute or conditional. When the property is actually sold to the buyer and transferred completely, it is considered absolute. If the parties annex conditions to the contract, it is conditional. These situations could be either subsequent or preceding. When a sale is to be completed subject to the fulfilment of a specific condition, the condition is known as a “condition precedent.” It is common for an auction sale of goods to include a clause stating that if the purchase price is not made within a certain period of time, the item may be resold. In this scenario, there is a real sale when the property is transferred to the buyer, but if the transaction is not completed, the seller retains ownership of the goods.
Section 5 provides for the bare formalities for making “contracts of sale.”
The following prerequisites must be met for a contract to be formed:
The basic requirements for a contract of sale are as follows:
A Constitution Bench determined in Poppatlal Shah v. The State of Madras (1953) that the phrase “sale of goods” is a composite statement made up of several components or ingredients. The exchange of money or the promise to exchange money, the delivery of goods, and the actual transfer of title are the components of a contract of sale. However, until the buyer becomes the legal owner of the goods, the sale has not been completed.
As per Section 6, the following types of existing or future goods form a part of the subject matter of the contract.
Only specific goods are covered under Section 7. It states that the contract is void if the goods have expired at the time of the contract without the seller’s knowledge. This Section is based on the principle that a contract is void if both parties are in error regarding a fact that is material to it.
The Section further states that the contract is void if the products have been sufficiently damaged that they no longer match the contract’s description without the seller’s knowledge. The seller’s knowledge is crucial in this situation.
Section 8 deals with the case where the goods perish, etc., after the agreement to sell is made and before the risk passes to the buyer. It applies only to specific goods.
Sections 14 to 17 of the Sale of Goods Act of 1930 deal with implied conditions and warranties.
According to Section 14(a), in every contract of sale, unless the circumstances of the contract are such as to show a different intention, there is an implied condition on the part of the seller that, in the case of a sale, he has a right to sell the goods.
The fundamental yet crucial implied terms on the part of the seller are as follows in any contract of sale:
As a result, the buyer has the right to reject the products if the seller does not have the title to sell them. He has the right to receive his entire purchase price back.
The case of Rowland v. Divall (1923) observed that if the seller has no title and the buyer has to give up the goods to the real owner, he is entitled to a return of the price.
Section 15 of the Act states that there is an implied condition that the products meet the description in a sale of goods by description. There is a condition that the goods shall meet the description. It is a fundamental requirement of the contract, and if it is breached, the buyer is entitled to reject the goods regardless of whether they can be inspected.
Section 16 lays down exceptions to the rule of caveat emptor. These are as follows:
The following are the essentials of this condition as mentioned in sub-section (1):
The second exception, as stated in sub-section (2), is when the goods are purchased by description from a seller, whether or not he is the manufacturer, who deals in goods of that description. There is an implied condition that the goods must be of merchantable quality in such circumstances.
When there is an express or implied clause in the contract to that effect, Section 17 considers the sale to be by sample. The seller expressly assures that the goods sold on a sample sale should match the description of a small parcel approved at the time of the transaction.
As per Section 14(b), every contract of sale contains an implied warranty that the buyer will have and that they shall enjoy quiet possession of the goods unless the conditions of the contract indicate a different condition. The seller is responsible for compensating the buyer for any damages if this warranty is breached.
Section 14(c) states that there is an implied warranty from the seller that the goods are unencumbered by any charge or encumbrance. The seller is responsible for compensating the buyer for damages if it is later discovered that the goods are subject to a charge in the favour of a third party.
A provision in a legal agreement that stipulates that something must be done or exist is how the term is defined in the dictionary. The term “expressed conditions” refers to clauses that both parties agree to include in the contract and that are necessary for it to work. Those warranties that are included in the contract and are typically accepted by both parties are referred to as “expressed warranties.”
In cases where the goods are specific and ascertained as stated in Section 18, Sections 19 to 22 govern their transfer. The following is explained as follows:
According to Section 19 of the Act, the property only becomes transferable when both parties to a contract intend it to. Whether that stage has been reached in each case depends on the creation of a contact. Regard must be given to the contract’s terms, the parties’ behaviour, and the case’s circumstances in order to determine the parties’ intentions.
According to Section 20, in the event of an unconditional contract of sale for specific commodities in a deliverable state, the property in the goods passes to the buyer at the period designated by the parties. When an unconditional contract of sale for “particular things” in a “deliverable state” is made, the property in the goods passes to the buyer at the time the contract is made, according to Section 20, which also contains the first rule for determining the parties’ intention.
Section 21 states that it is irrelevant if the price payment or the time of delivery of the goods, or both, is delayed where there is an unconditional contract for the sale of specific goods in a deliverable form. The property in the goods goes to the buyer at the time the contract is made.
Section 22 states that when there is a contract for the sale of specific goods in a deliverable condition but the seller is required to weigh, measure, test, or carry out another action with regard to the goods in order to determine the price, the property does not transfer until the seller carries out the required action and notifies the buyer of it.
The Supreme Court outlined the structure of the provisions relating to the transfer of title of goods in the case of Contship Container Lines Ltd. v. D.K. Lall (2010). According to Section 19, in a contract of sale of specific or ascertained goods, the property in them is transferred to the buyer at the time specified in the contract by the parties, and for the purpose of determining the parties’ intention, consideration must be given to the contract’s terms, the parties’ behaviour, and the circumstances of the case. The rules for determining the parties’ intentions for the moment at which the property is to pass to the buyer are set forth in Sections 20 to 24 of the aforementioned Act.
According to Section 23 of the Act, when goods of that description are unconditionally appropriate to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods passes to the buyer. This applies when the contract is for the sale of unascertained goods or future goods by description. Additionally, if the seller does not reserve the right to dispose of the goods when delivering them to the buyer, a career, or another bailee for transmission to the buyer, he is believed to have unconditionally appropriated the items to the contract.
The Supreme Court in the case of Arihant Udhyog v. the State of Rajasthan (2017) observed that it is evident from a joint reading of Sections 23 and 24 that title to goods only transfers from the seller to the buyer upon a sale of those things. The purpose of the parties with respect to the conditions of the contract must be determined in order to determine when such a sale fructifies and the property passes. The property in goods passes when they are in a deliverable state and there is an unconditional contract for the sale of certain things, unless it is clear from the terms of the contract that there is no such purpose.
“Nemo dat quod non habet,” a Latin maxim, states that no one can give what they do not have. The underlying idea behind the transfer of title is this. These rules regarding the transfer of title are outlined in Sections 27 – 30 of the Sale of Goods Act of 1930. Let us have a look at it in detail.
As a general rule, no man can sell goods or give a good title to them unless he is the owner, or someone has his authority or consent, i.e., an agent. The rule is the same, although the sale is accompanied by a transfer of a bill of lading, delivery order, warrant, or similar documents.
The sale by a person who is not the owner is covered under Section 27. Consider a sales contract where the seller –
The following are the exceptions to the rule that no seller of goods gives to the buyer thereof a better title than his own, namely, –
Consider a mercantile agent who, with the owner’s permission, is in possession of the goods or a document proving ownership of the items. When functioning as a mercantile agent in the regular course of business, such an agent is permitted to sell the products. If the buyer acts in good faith and has no cause to suspect that the seller has the legal authority to sell the items, the sale shall be deemed valid. In this situation, the transfer of title is legitimate.
Goods are usually bought under joint ownership. The goods are frequently held in the possession of one of these joint owners with their consent. If this person, who is the only owner of the goods, sells them, the buyer becomes the new owner of the goods’ property. As long as the buyer acts in good faith and has no grounds to suspect that the seller has the authority to sell the goods, this is permissible.
Section 28 lays down three conditions for validating a sale by one of the co-owner. These are as follows:
Take into account a person who obtains possession of specific goods through a contract that can be cancelled owing to pressure, deception, fraud, or undue influence. The buyer obtains a good title to the goods if this individual sells them before the original owner of the goods terminates the contract. This is covered under Section 29 of the Act.
As per Section 30(1), the following conditions enable the seller to pass a good title:
Consider a buyer who, with the seller’s consent, takes possession of the goods before the property in them is transferred to him. He is free to dispose of the goods by selling, pledging, or giving them away.
The second buyer acquires a fair title to the goods if he accepts delivery of them in good faith without being made aware of the lien or any other claim of the first seller.
A hire-purchase agreement, which gives the beneficiary personal possession of the goods and the option to buy them unless a sale is agreed upon, is an exception to this norm.
Goods were confirmed to have been received in complete and satisfactory functioning condition in State Bank of Mysore v. Machado Computer Services (2009). As a result, it was determined that the plaintiff had exercised his entitlement under Section 41 of the Sale of Goods Act and was considered to have accepted the goods upon making the notification of acceptance to the supplier as specified in the delivery challan. According to Section 42 of the Act, both the quality and quantity of the supplied goods were accepted. Further, the description of the goods as to the make or brand is also deemed to have been accepted upon such acceptance following examination of the goods specifically accepted, and no defect could be stated to be in respect of such brand in accordance with the second proviso to Section 16 of the Act. Therefore, the supplier’s obligation under the sales contract was fulfilled. The goods were accepted by the plaintiff. The plaintiff was therefore obligated to pay for the goods after accepting them in accordance with the injunction granted by Sections 31 and 32 of the Act.
According to Section 45 of the Act of 1930, a seller of goods is considered “unpaid” if he has not received the whole of the price, as well as if the buyer has provided him with a bill for the amount due but the bill is not honoured. The phrase “the whole of the price” refers to the total sum agreed upon with respect to the entire contract, and in the event that the contract is severable, the price of the severable component is divided. In each instance, it is an issue of fact as to whether it was given as an unconditional or conditional payment. Partially unpaid sellers are on par with fully unpaid sellers.
The unpaid seller, by the implications of Section 46, has the following rights:
The lien of an unpaid seller is a right to retain possession of the goods until tender or payment of the price. The unpaid seller is entitled to a lien only in three situations, as mentioned in Section 47 of the Act. These are as follows:
As was already noted, a lien depends on the actual ownership of goods. When the possession is removed from the seller, the lien disappears along with it, as noted in Section 49. In the following situations, an unpaid seller of goods loses his lien thereon:
This right entails stopping the products while they are in a carrier’s control or lodged at any point during transmission to the buyer, regaining ownership of them, and holding onto them until the price is tendered or paid. To exercise the right, the seller must be unpaid, the buyer must be insolvent, the seller must have parted with possession of the goods, and the buyer must not have acquired them.
Additionally, the delinquent seller may use both of his stoppage-in-transit rights:
Such instructions may be delivered to the person who actually owns the goods. In the latter scenario, the contract must be reached well in advance to allow the superior to contact his agent or servant in time to deliver the goods to the consumer.
He could be held accountable for the conversion if he offers the goods to the buyer while making an error. The seller must put up with the redelivery expenses.
Sub-section (1) of Section 55 deals with a contract where the property in the goods has passed irrespective of delivery. This will involve two types of cases:
The contingent situations contemplated by sub-section (2) are as follows:
Section 56 says that where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for damages for non-acceptance of the goods.
The Indian Contract Act of 1872’s provisions Section 73 and Section 74 serve as the foundation for calculating the damages. In accordance with Section 73 of the Indian Contract Act, when a contract is broken, the party who suffers as a result of the breach is entitled to receive compensation for any loss suffered by him as a result, which naturally results from the breach in the ordinary course of events or which the parties knew would likely occur when they entered into the contract.
The methods that were available for resolving the discomfort brought on by the contract’s non-performance must also be taken into consideration when calculating the loss or damage brought on by a breach of contract.
The day on which the contract should have been fulfilled by delivery and acceptance as specified by the agreement, or, in the absence of a time frame, at the moment of non-performance, is the date at which the market price is to be determined.
The buyer may file a lawsuit against the seller for non-delivery damages if the seller willfully neglects or declines to deliver the goods to the buyer under Section 57. The buyer has all the rights of an owner against individuals who act on the property in a way that violates his rights once it has passed, provided that he is entitled to instant possession. Therefore, if the seller wrongfully resells them, the buyer may bring a lawsuit against both the seller and the second buyer. However, the rights against the latter may be limited by the provisions of sections 30 and 54.
The seller cannot be accused of ignoring or refusing to deliver the goods if the buyer has not made payment for earlier deliveries within 15 days of the date of delivery and the seller withholds delivery. The seller would have the right to demonstrate that it would be impossible for him to fulfil his end of the bargain.
Under Section 58 of the Act, in any suit for breach of contract to deliver specific or ascertained goods, the court may, if it thinks fit, on the application of the plaintiff, by its decree directs that the contract shall be performed specifically, without giving the defendant the option of keeping the goods in exchange for payment of damages. This is subject to the provisions of Chapter II of the Specific Relief Act, of 1877. The plaintiff may file an application at any time prior to the decree, and the court may grant the decree unconditionally or with such terms and conditions as damages, payment of the purchase price, or other matters as it may deem just. This Section is the only one in this Act that deals with the equitable right to a specific performance.
Section 59 of the Act deals with four remedies for the breach of warranty. These are as follows:
A breach of warranty does not give the buyer the right to return the goods, and his only options are those listed in Section 59, which are to hold the seller liable for the breach of the warranty by reducing or eliminating the price or suing the seller for damages as a result. According to the definition of ‘warranty’ provided in Section 12(3), only the buyer has the right to file a claim for damages when the warranty is breached.
This Section outlines the procedures a buyer who, in either scenario, has a claim for damages may use to pursue it. It does not address situations in which a fraudulent misrepresentation may allow the buyer to void the contract or situations in which, according to the contract’s specific terms, the buyer may return the goods in the event of a warranty breach.
Section 60 outlines the procedure a buyer who, in either scenario, has a claim for damages may use to pursue it. It does not address situations in which a fraudulent misrepresentation may allow the buyer to void the contract or situations in which, according to the contract’s specific terms, the buyer may return the goods in the event of a warranty breach.
Very frequently, situations may emerge where the promisor declares that he will not carry out his share of the performance when the time for performance approaches, even when the performance is to take place in the future. Not doing an act while it is not yet contractually required is not a breach. For this reason, this Section allows the promisee the choice of treating the contract as cancelled in advance or waiting until the day of performance to treat it as subsisting.
The right to seek interest, extra damages, or money paid in the absence of consideration is preserved under Section 61. The Interest Act of 1839 allowed interest to be awarded in the following circumstances at the going rate:
In the case of M/s M.K.M. Moosa Bhai Amin, Kota v. Rajasthan Textile Mills, Bhawanimandi (1974), the plaintiff sued for the cost of the delivered products as well as interest on the unpaid cost. The District Judge rejected the interest claim on the grounds that there was no contract to pay interest if the cost of the supplied items was not paid in full. The plaintiff argued that under Section 61(2) of the Sale of Goods Act, 1930, the plaintiff was entitled to a reasonable interest even in the absence of the contract. The supply had been made up until September 18, 1962, and under normal circumstances, the defendant should have paid the cost of the goods within a reasonable amount of time after delivery. However, the payment was over a year late, forcing the plaintiff to file a lawsuit to recover the money. According to a ruling, in these situations, the lower courts ought to have erred on the side of the plaintiff and applied Section 61(2) of the Sale of Goods Act to grant interest on the amount of the purchase price of the goods. The Rajasthan High Court permitted interest at 6% annually, which was regarded as a reasonable rate of interest.
The Supreme Court in the case of Marwar Tent Factory v. Union of India (1989) observed that an award of interest to a seller on an amount of price not paid by the buyer within a reasonable time cannot be denied merely because in the notice served under Section 80 of the Code of Civil Procedure (CPC), the seller had not claimed interest. The Court held that, on the facts, the seller is entitled to a decree of interest at a rate of 6 percent per annum on the unpaid price from the date of delivery of goods.
The 11th April 1980 adoption of the United Nations Convention on Contracts for the International Sale of Goods (CISG), commonly known as the Vienna Convention, established a legal text that states in Article 1 that it applies to contracts for the sale of goods between parties whose places of business are in different States (a) when the States are contracting States; or (b) when the principles of private international law require the application of the law of a contracting State.
India has neither signed nor ratified the Convention on the International Sale of Goods, despite a number of other nations have done so. But when handling cases involving parties from two separate countries, the Indian Courts occasionally refer to the Convention.
The two Indian Acts were created many years ago, and as a result, they do not reflect the situations of the present. The clauses in these two Acts are outdated and irreverent, and they do not address the requirements of contemporary sales and contacts that involve a variety of sophisticated aspects. Therefore, the Convention on International Sale of Commodities should be ratified for the reason that it was just established and would assist India to meet the requirements of contemporary contracts and sales of goods. A more uniform and effective way to conduct international sales of commodities would be made possible by the convention, which would also benefit India. The CISG would be very beneficial in addressing the shortcomings and loopholes in the domestic legal framework. This universal law agreement will address elements like cross-border contracts that are not covered by the domestic Sale of Goods Act. Several clauses in the Convention are very helpful in day-to-day business operations.
The article has covered all the important topics and provisions along with case laws. As stated above, the author would like to conclude by stating that it is high time India updated itself by following global standards. The Sale of Goods Act is pre-independence legislation and is mostly inconsistent with today’s trade regimes. If India upgrades the laws as per the United Nations Convention on Contracts for the International Sale of Goods 1980, it will be easier and better to deal with private international laws as well as if there is a conflict of laws, then also globally used legislation would be better to be used, considering exports and imports. There have been very few cases of the Sale of Goods Act in recent years. One of the reasons may be that the provisions are kind of outdated to tackle the new era problems.
It is crucial to comprehend the major terminology used in the Sale of Goods Act in order to fully comprehend the Act. The two parties (the buyer and the seller), the mercantile agent, the goods, the price, and the transfer of general property are among them. The Act further deals with the formation and the formalities of a contract. It also covers the suits for breach of contract of sales by both buyer and seller.
In essence, when one party fails to complete the sale, the other may claim damages for breach of contract. In the event of a default by the seller, he is required to reimburse the buyer for any additional, justifiable costs. The opposite party might also try to force the wrongdoer to carry out the agreement’s terms. Getting the sale agreement is generally advised from the perspective of the buyer.
The owner of the goods bears the risk of loss or damage to goods, according to the common rule in use in India. Res perit domino, a Latin maxim, means the object is lost to the owner of the property. This theory is applicable when selling movable property. According to Section 26 of the Sale of Goods Act of 1930, ownership of the goods remains with the owner if it has not been done so already. The products, however, are at the risk of the buyer if the property has been transferred to them. If the parties to the contract have not agreed to any other explicit provision referencing this in their contract, then this clause will apply. No matter what, this rule is relevant.
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