The Sale of Goods Act, 1930 - Study Notes

1. Introduction

• The Sale of Goods Act is a special contract and was passed in 1930.
• Before it, the sale of goods was governed by the Indian Contract Act, 1872, whose general provisions still apply to contracts of sale.

2. Contract of sale of goods (21.01)

A contract whereby the seller transfers or agrees to transfer the property (ownership) in goods to the buyer for a price. Mere possession does not give ownership; ownership lets the buyer dispose of the goods as he likes.

Essential elements

1. Two parties: seller and buyer must be different persons. A person cannot buy his own goods; distribution of partnership assets among partners on dissolution is not a sale.
2. Transfer of property: ownership must pass or be agreed to pass; transfer of possession alone is not a sale.
3. Goods: movable property such as stocks, shares, growing crops, goodwill, trade marks, copyrights and patents. Money, actionable claims and immovable property are excluded.
4. Price: the money consideration. Goods for goods is barter, not sale; goods partly for goods and partly for money is a sale.
5. Includes sale and agreement to sell.

3. Sale vs agreement to sell (21.02)

4. Types of goods (21.03)

Goods means every kind of movable property other than actionable claims and money. Actionable claims include a debt secured by mortgage, a Fixed Deposit Receipt, dividend due on shares, amount due under an LIC policy and a claim for future rent.

• Existing goods: owned or possessed by the seller at the time of contract.
  • Specific goods: identified and agreed upon at the contract (a saree chosen from many).
  • Ascertained goods: similar to specific; may also be identified after the contract.
  • Unascertained or generic goods: not identified at the contract (car models in a showroom).
• Future goods: to be manufactured, produced or acquired after the contract (a contractor supplying rice bags for a marriage feast).
• Contingent goods: a part of future goods; acquisition depends on an uncertain event (a painting if obtained from C; basmati rice if supplied from Pakistan).

5. Transfer of ownership (21.04)

Property means ownership; possession means only custody or control. Transfer of title is called passing of property.

• Specific goods not in a deliverable state: ownership passes only after the seller completes acts such as painting, checking or weighing that make them deliverable.
• Price to be fixed by weighing or testing: ownership passes after the act is done and the buyer knows of it.
• Unascertained goods: ownership passes when goods are ascertained (identified by the seller alone), appropriated to the contract (identified with the consent of both parties), or delivered to a carrier without the seller reserving the right of disposal. A railway receipt or bill of lading in the buyer's name shows no such reservation.

Goods on approval or on sale or return

6. Conditions and warranties (21.05)

• Condition: essential to the main purpose; breach cancels the contract.
• Warranty: collateral; breach gives damages only. In the motorbike example, mileage is a condition and colour is a warranty.

Implied conditions

1. Title: the seller has a right to sell.
2. Description: goods must match the description.
3. Sample: bulk must correspond with sample in quality, buyer must have a chance to compare, and goods must be free from defects making them unsaleable.
4. Quality or fitness: only where the buyer makes his purpose known, relies on the seller's skill, and the goods are of a kind the seller deals in.
5. Merchantability: a watch that will not keep time or a pen that will not write is not merchantable.
6. Wholesomeness: eatables must be wholesome (milk with typhoid germs).
7. Trade usage.

Implied warranties

Quiet possession; freedom from any encumbrance; warning in the case of dangerous goods.

7. Unpaid seller (21.06)

A seller is unpaid when the whole price is not paid or a negotiable instrument given to him is dishonoured. Part payment still leaves him unpaid.

• Right of lien: retain goods till paid; depends on actual possession. Lost on delivery to a carrier without reserving disposal, when the buyer lawfully obtains possession, or when the seller waives it.
• Stoppage in transit: goods in the hands of a carrier and the buyer insolvent. Ends when goods reach the buyer or his agent, or the carrier tells the buyer he holds them on his behalf.
• Resale: perishable goods; buyer does not pay within reasonable time after notice; or right expressly reserved.
• Against the buyer personally: suit for price, suit for damages for non-acceptance, suit for cancellation before the due date, suit for interest.