THE SALE OF GOODS ACT, 1930
Introduction of SOGA Act
Sale of goods is one of the specific forms of contracts recognized and regulated by law in India. Sale is a typical bargain between the buyer and the seller. The Sale of Goods Act, 1930 allows the parties to modify the provisions of the law by express stipulations. However, in some cases, this freedom is severely restricted. Sale of Goods Act, 1930 is an Act to define and amend the law relating to the sale of goods. It extends to the whole of India. It came into force on 1st July, 1930.
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1.1 SCOPE OF THE ACT
The provisions of the Act are applicable to the contracts related to the sale of goods which means movable properties. The Act is not applicable for the sale of immovable properties like land, shop or house etc.
The general provisions of the Indian Contract Act, 1872 apply to a Contract of Sale of Goods in so far as they are not inconsistent with the express provisions of the Sale of Goods Act.
The expressions used but not defined in the Sales of Goods Act, 1930 and defined in the Indian Contract Act, 1872 have the meanings assigned to them in that Act.
The customs and usages will bind both parties if these are reasonable and are known to the parties at the time of entering the contract.
1.2 DEFINITIONS OF THE SALE OF GOODS ACT, 1930
The Sale of Goods Act, 1930 defines the terms which have been frequently used in the Act, which are as follows –
(A) Buyer and Seller: ‘Buyer’ means a person who buys or agrees to buy goods [Section 2(1)]. ‘Seller’ means a person who sells or agrees to sell goods [Section 2(13)]. The two terms, ‘buyer’ and ‘seller’ are complementary and represent the two parties to a contract of sale of goods. Both the terms are, however, used in a sense wider than their common meaning. Not only the person who buys but also the one who agrees to buy is a buyer. Similarly, a ‘seller’ means not only a person who sells but also a person who agrees to sell.
(B) Goods and other related terms:
“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. [Section 2(7)]
‘Actionable claims’ are claims, which can be enforced only by an action or suit, e.g., debt. A debt is not a movable property or goods. Even the Fixed Deposit Receipts (FDR) are considered as goods under Section 176 of the Indian Contract Act read with Section 2(7) of the Sales of Goods Act.
“Goods” include both tangible goods and intangible goods like goodwill, copyrights, patents, trademarks, etc. Stock and shares, gas, steam, water, electricity, and decree of the court are also considered to be goods.
Classification of Goods
(i) EXISTING GOODS are such goods as are in existence at the time of the contract of sale, i.e., those owned or possessed or acquired by the seller at the time of contract of sale (Section 6).
The existing goods may be of following kinds:
(a) Specific goods means goods identified and agreed upon at the time a contract of sale is made [Section 2(14)].
Example: Any specified and finally decided goods like a Samsung Galaxy S7 Edge, Whirlpool washing machine of 7 kg etc.
Example: ‘A’ had five cars of different models. He agreed to sell his ‘Santro’ car to ‘B’ and ‘B’ agreed to purchase the same car. In this case, the sale is for specific goods as the car has been identified and agreed at the time of the contract of sale.
(b) Ascertained Goods are those goods which are identified in accordance with the agreement after the contract of sale is made. This term is not defined in the Act but has been judicially interpreted. In actual practice, the term ‘ascertained goods’ is used in the same sense as ‘specific goods.’ When from a lot or out of large quantity of unascertained goods, the number or quantity contracted for is identified, such identified goods are called ascertained goods.
Example: A wholesaler of cotton has 100 bales in his godown. He agrees to sell 50 bales and these bales were selected and set aside. On selection, the goods become ascertained. In this case, the contract is for the sale of ascertained goods, as the cotton bales to be sold are identified and agreed after the formation of the contract. It may be noted that before the ascertainment of the goods, the contract was for the sale of unascertained goods.
(c) Unascertained goods are the goods that are not specifically identified or ascertained at the time of making of the contract. They are indicated or defined only by description or sample.
Example: If A agrees to sell to B one packet of salt out of the lot of one hundred packets lying in his shop, it is a sale of unascertained goods because it is not known which packet is to be delivered. As soon as a particular packet is separated from the lot, it becomes ascertained or specific goods.
Example: X has ten horses. He promises to sell one of them but does not specify which horse he will sell. It is a contract of sale of unascertained goods.
(ii) FUTURE GOODS means goods to be manufactured or produced or acquired by the seller after making the contract of sale [Section 2 (6)].
A contract for the sale of future goods is always an agreement to sell. It is never actual sale because a person cannot transfer what is not in existence.
Example: 1,000 quintals of potatoes to be grown on A’s field, is not illegal, though the actual sale of future goods is not possible. This is an example of agreement to sell.
Example: P agrees to sell to Q all the milk that his cow may yield during the coming year. This is a contract for the sale of future goods.
Example: T agrees to sell to S all the oranges which will be produced in his garden this year. It is contract of sale of future goods, amounting to ‘an agreement to sell.’
(iii) CONTINGENT GOODS: The acquisition of which by the seller depends upon an uncertain contingency (uncertain event) are called ‘contingent goods’ [Section 6(2)].
Contingent goods also operate as ‘an agreement to sell’ and not a ‘sale’ so far as the question of passing of property to the buyer is concerned. In other words, like the future goods, in the case of contingent goods also, the property does not pass to the buyer at the time of making the contract.
Example: A agrees to sell to B a Picasso painting provided he is able to purchase it from its present owner. This is a contract for the sale of contingent goods.
Example: P contracts to sell 50 pieces of particular article provided the ship which is bringing them reaches the port safely. This is an agreement for the sale of contingent goods.
(C) Delivery - its forms and derivatives: Delivery means voluntary transfer of possession from one person to another [Section 2(2)]. As a general rule, delivery of goods may be made by doing anything, which has the effect of putting the goods in the possession of the buyer, or any person authorized to hold them on his behalf.
Forms of delivery: Following are the kinds of delivery for transfer of possession:
Delivery of Goods
(i) Actual delivery
(ii) Constructive delivery
(iii) Symbolic deliver
Actual delivery
When the goods are physically delivered to the buyer. Actual delivery takes place when the seller transfers the physical possession of the goods to the buyer or to a third person authorised to hold goods on behalf of the buyer. This is the most common method of delivery.
Constructive delivery
When it is effected without any change in the custody or actual possession of the thing as in the case of delivery by attornment (acknowledgement)
Example: Where a warehouseman holding the goods of A agrees to hold them on behalf of B, at A’s request.
Constructive delivery takes place when a person in possession of the goods belonging to the seller acknowledges to the buyer that he holds the goods on buyer’s behalf.
Symbolic delivery
When there is a delivery of a thing in token of a transfer of something else,
i.e., delivery of goods in the course of transit may be made by handing over documents of title to goods, like bill of lading or railway receipt or delivery orders or the key of a warehouse containing the goods is handed over to buyer. Where actual delivery is not possible, there may be delivery of the means of getting possession of the goods.
Goods are said to be in a deliverable state when they are in such a condition that the buyer would, under the contract, be bound to take delivery of them [Section 2(3)].
Example: When A contracts to sell timber and make bundles thereof, the goods will be in a deliverable state after A has put the goods in such a condition.
(D) “Document of title to goods” includes bill of lading, dock-warrant, warehouse keeper’s certificate, wharfingers’ certificate, railway receipt, multimodal transport document, warrant or order for the delivery of goods and any other document used in the ordinary course of business as proof of the possession or control of goods or is for authorizing or purporting to authorize, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented. [Section 2(4)]
Example: Bill of lading, dock warrant, warehouse keeper’s certificate, wharfinger’s certificate, railway receipt, warrant, an order of delivery of goods.
The list is only illustrative and not exhaustive. Any other document which has the above characteristics also will fall under the same category. Though a bill of lading is a document of title, a mate’s receipt is not; it is regarded at law as merely an acknowledgment for the receipt of goods. A document amounts to a document of title only where it shows an unconditional undertaking to deliver the goods to the holder of the document.
However, there is a difference between a ‘document showing title’ and ‘document of title’. A share certificate is a ‘document’ showing title but not a document of title. It merely shows that the person named in the share certificate is entitled to the share represented by it, but it does not allow that person to transfer the share mentioned therein by mere endorsement on the back of the certificate and the delivery of the certificate.
(E) Mercantile Agent [Section 2(9)]: It means an agent who in the customary course of business has, as such agent, authority either to sell goods or to consign goods for the purpose of sale or to buy goods or to raise money on the security of the goods.
Example: Such kind of agents are auctioneers or brokers, etc.
(F) Property [Section 2(11)]: ‘Property’ here means ‘ownership’ or general property. In every contract of sale, the ownership of goods must be transferred by the seller to the buyer, or there should be an agreement by the seller to transfer the ownership to the buyer. It means the general property (right of ownership-in-goods) and not merely a special property.
The property in the goods means the general property i.e., all ownership rights of the goods. Note that the ‘general property’ in goods is to be distinguished from a ‘special property’. It is quite possible that the general property in a thing may be in one person and a special property in the same thing may be in another e.g., when an article is pledged. The general property in a thing may be transferred, subject to the special property continuing to remain with another person i.e., the pledgee who has a right to retain the goods pledged till payment of the stipulated dues.
Example: If A who owns certain goods pledges them to B, A has general property in the goods, whereas B has special property or interest in the goods to the extent of the amount of advance he has made.
(G) Insolvent [Section 2(8)]: A person is said to be insolvent when he ceases to pay his debts in the ordinary course of business, or cannot pay his debts as they become due, whether he has committed an act of insolvency or not.
(H) Price [Section 2(10)]: Price means the money consideration for a sale of goods. It is the value of goods expressed in monetary terms. It is the essential requirement to make a contract of sale of goods.
(I) Quality of goods includes their state or condition. [Section 2(12)]
1.3 SALE AND AGREEMENT TO SELL (SECTION 4)
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”. There may be a contract of sale between one part-owner and another.
A contract of sale may be absolute or conditional. [Section 4(2)]
Where under a contract of sale, the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, it is called an agreement to sell. [Section 4(3)]
An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred. [Section 4(4)]
Analysis
A contract for the sale of goods may be either sale or agreement to sell.
Sale: In Sale, the property in goods is transferred from seller to the buyer immediately. The term sale is defined in the Section 4(3) of the Sale of Goods Act, 1930 as – “where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale.”
Agreement to Sell: In an agreement to sell, the ownership of the goods is not transferred immediately. It is intending to transfer at a future date upon the completion of certain conditions thereon. The term is defined in Section 4(3) of the Sale of Goods Act, 1930, as – “where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, it is called an agreement to sell.”
Thus, whether a contract of sale of goods is an absolute sale or an agreement to sell, depends on the fact whether it contemplates immediate transfer from the seller to the buyer or the transfer is to take place at a future date.
Example: X agrees with Y on 10th October, 2020 that he will sell his car to Y on 10th November, 2020 for a sum of ` 3 lakhs. It is an agreement to sell.
When agreement to sell becomes sale: An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.
The following elements must co-exist so as to constitute a contract of sale of goods under the Sale of Goods Act, 1930:
(i) There must be at least two parties, the seller and the buyer and the two must be different persons. A person cannot be both the seller and the buyer and sell his goods to himself.
(ii) The subject matter of the contract must necessarily be goods covering only movable property. It may be either existing goods, owned or possessed by the seller or future goods.
(iii) A price in money (not in kind) should be paid or promised. But there is nothing to prevent the consideration from being partly in money and partly in kind.
(iv) A transfer of property in goods from seller to the buyer must take place. The contract of sale is made by an offer to buy or sell goods for a price by one party and the acceptance of such offer by other.
(v) A contract of sale may be absolute or conditional.
(vi) All other essential elements of a valid contract must be present in the contract of sale, e.g. free consent of parties, competency of parties, legality of object and consideration etc.
1.4 DISTINCTION BETWEEN SALE AND AN AGREEMENT TO SELL
The differences between the two are as follows:
1.5 SALE DISTINGUISHED FROM OTHER SIMILAR CONTRACTS
(i) Sale and Hire Purchase: Contract of sale resembles with contracts of hire purchase very closely, and indeed the real object of a contract of hire purchase is the sale of the goods ultimately.
Hire purchase agreements are governed by the Hire-purchase Act, 1972. Term “hire-purchase agreement” means an agreement under which goods are let on hire and under which the hirer has an option to purchase them in accordance with the terms of the agreement and includes an agreement under which—
(a) Possession of goods is delivered by the owner thereof to a person on condition that such person pays the agreed amount in periodical instalments, and
(b) The property in the goods is to pass to such person on the payment of the last of such instalments, and
(c) Such person has a right to terminate the agreement at any time before the property so passes; Nonetheless, a sale has to be distinguished from a hire purchase as their legal incidents are quite different.
The main points of distinction between the ‘sale’ and ‘hire-purchase’ are as follows:
(ii) Sale and Bailment: A ‘bailment’ is the delivery of goods for some specific purpose under a contract on the condition that the same goods are to be returned when the purpose is accomplished to the bailor or are to be disposed of according to the directions of the bailor. Provisions related to bailment are regulated by the Indian Contract Act, 1872.
The difference between bailment and sale may be clearly understood by studying the following:
(iii) Sale and contract for work and labour: A contract of sale of goods is one in which some goods are sold or are to be sold for a price. But where no goods are sold, and there is only the doing or rendering of some work of labour, then the contract is only of work and labour and not of sale of goods.
Example: Where gold is supplied to a goldsmith for preparing an ornament or when an artist is asked to paint a picture.
1.6 CONTRACT OF SALE HOW MADE (SECTION 5)
According to Section 5(1), a contract of sale is made by an offer to buy or sell goods for a price and the acceptance of such offer. The contract may provide for the immediate delivery of the goods or immediate payment of the price or both, or for the delivery or payment by instalments, or that the delivery or payment or both shall be postponed.
Further, as per sub-section (2) of section 5, subject to the provisions of any law for the time being in force, a contract of sale may be made in writing or by word of mouth, or partly in writing and partly by word of mouth or may be implied from the conduct of the parties.
Example: R agrees to deliver his old motorcycle valued at ` 25000 to S in exchange for a new motorcycle and agrees to pay the difference in cash, it is a Contract of Sale.
Analysis:
A contract of sale may be made in any of the following modes:
(i) Contract of sale is made by an offer to buy or sell goods for a price and acceptance of such offer.
(ii) There may be immediate delivery of the goods; or
(iii) There may be immediate payment of price, but it may be agreed that the delivery is to be made at some future date; or
(iv) There may be immediate delivery of the goods and an immediate payment of price; or
(v) It may be agreed that the delivery or payment or both are to be made in instalments; or
(vi) It may be agreed that the delivery or payment or both are to be made at some future date.
1.7 SUBJECT MATTER OF CONTRACT OF SALE
Existing or future goods (section 6):
(1) The goods which form the subject matter of a contract of sale may be either existing goods that are acquired, owned or possessed by the seller, or future goods.
(2) There may be a contract for the sale of goods the acquisition of which by the seller depends upon a contingency which may or may not happen.
Example: A contract for sale of certain cloth to be manufactured by a certain mill is a valid contract. Such contacts are called contingent contracts.
(3) Whereby a contract of sale the seller purports to effect a present sale of future goods, the contract operates as an agreement to sell the goods.
Goods perishing before making of contract (Section 7): 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 contract.
Example: A agrees to sell B 50 bags of wheat stored in the A’s godown. Due to water logging, all the goods stored in the godown were destroyed. At the time of agreement, neither parties were aware of the fact. The agreement is void.
Goods perishing before sale but after an agreement to sell (Section 8): 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 or becomes void.
Perishing of future goods: If the future goods are specific, the destruction of such goods will amount to supervening impossibility and the contract shall become void.
1.8 ASCERTAINMENT OF PRICE (SECTION 9 & 10)
Ascertainment of price (Section 9):
(1) The price in a contract of sale may be fixed by the contract or may be left to be fixed in manner thereby agreed or may be determined by the course of dealing between the parties.
(2) 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.
Analysis:
‘Price’ means the monetary consideration for sale of goods [Section 2 (10)]. By virtue of Section 9, the price in the contract of sale may be-
(1) fixed by the contract, or
(2) agreed to be fixed in a manner provided by the contract, e.g., by a valuer, or
(3) determined by the course of dealings between the parties.
Agreement to sell at valuation (Section 10):
(1) Where there is an agreement to sell goods on the terms that the price is to be fixed by the valuation of third party and such third party cannot or does not make such valuation, the agreement is thereby avoided:
Provided that, if the goods or any part thereof have been delivered to, and appropriated by, the buyer, he shall pay a reasonable price therefore.
(2) Where such third party is prevented from making the valuation by the fault of the seller or buyer, the party not in fault may maintain a suit for damages against the party in default.
Analysis
Section 10 provides for the determination of price by a third party. Where there is an agreement to sell goods on the terms that price has to be fixed by the third party and he either does not or cannot make such valuation, the agreement will be void. In case the third party is prevented by the default of either party from fixing the price, the party at fault will be liable to the damages to the other party who is not at fault. However, a buyer who has received and appropriated the goods must pay a reasonable price for them in any eventuality.
Example: P is having two bikes. He agrees to sell both of the bikes to S at a price to be fixed by the Q. He gives delivery of one bike immediately. Q refuses to fix the price. As such P ask S to return the bike already delivered while S claims for the delivery of the second bike too. In the given instance, buyer S shall pay a reasonable price to P for the bike already taken. As regards the Second bike, the contract can be avoided.
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