Sale of Goods Act, 1930

SALE OF GOODS ACT, 1930

PRESENTED BY

GROUP V

INTRODUCTION

• The Sale Of Goods Act 1930 deals with the law relating to

sale of goods in India.

• The term ‘goods’ means every kind of movable property,

other than money and actionable claims.

• The act containing 66sections came into force from 1st July,

1930

CONTRACT OF SALE

• “A contract of sale of goods is a contract whereby the

seller transfers or agrees to transfer the property in

goods to a buyer for a price.” (sec 4)

• Consists of the following:

Sale [ or Absolute Sale]

Agreement to sell [ or Conditional Sale]

• Sale or Absolute Sale

Where the property(ownership) in the goods is immediately

transferred from the seller to buyer, and nothing is left on the part

of the seller, there is a sale or absolute sale. Counter sale in a shop

is a sale or an absolute sale.

• Agreement to sell or conditional sale

Where the transfer of property(ownership) in the goods shall take

place in future or on the fulfillment of certain conditions, it shall be

an agreement to sell or a conditional sale.

The property in goods shall not be transferred until and unless

some condition is fulfilled

HOW AGREEMENT TO SELL BECOMES A SALE ?

• In the 1st stage every contract of sale is an agreement to sell.

• When seller and buyer agrees to sell and buy some goods at a price, there is an agreement between the two

• Now only transfer of property or ownership remains

• If immediately transfers it becomes ‘sale’

• If transfers only after fulfilment of some conditions- remain as an agreement to sell till the condition is fulfilled

ESSENTIALS OF A CONTRACT OF SALE

1. A VALID CONTRACT :-It should satisfy all the essentials of a valid contract.

2. TWO PARTIES :- There must be two parties, one the seller and the other the buyer.

3. AGREEMENT FOR THE TRANSFER OF OWNERSHIP:- there should be immediate transfer or an agreement to transfer the general property in goods sold or agreed to be sold

4. GOODS :- Subject matter must be ‘goods’. Goods means every

kind of movable property other than actionable claims and money.

- Includes stocks and shares.

- Growing crops, grass, trees and things attached to or forming

part of the land which are agreed to be severed before sale or

contract of sale

Example – where the trees were sold so that they were to be cut

out and separated from land and taken away by the buyer. The

contract was for sale of trees as movable goods. [ Kurseer vs.

Timber Operators & Contractors Ltd.]

a debt is not goods because it can only be assigned as per

Transfer Of Property Act but cannot be sold.

Money, actionable claims and immovable property are

excluded.

Money :- legal tender – essential aspect of every sale – money

itself cannot be a subject matter.

Actionable claims :- claims which can be enforced by a legal

action or a suit.

Example- book debts, bill of exchange, promissory note etc.

- Can be transferred by Negotiable instruments act, 1881

Immovable property :- sale of immovable property is

governed by Transfer of Property Act,1882.

5. PRICE:- to constitute a valid contract of sale, consideration for

transfer must be money paid or promised.

- Where there is no money consideration-no contract of sale. For

example remuneration for work or labour.

- However an existing debt due from the seller to the buyer is

sufficient.

- Consideration can be partly in money and partly in goods or

some other articles of value.

Example -: a refrigerator company supplies a new refrigerator of

rs.9000 in exchange of old refrigerator and rs.6000 in cash. It is

a sale.

Difference between Sale and agreement

Difference between Sale and Agreement to Sell

Sl.no Points of distinction

sale Agreement to sell

1 Nature of contract

Sale is an executed contract, where one of the parties has already performed his part of the contract

Agreement to sell is an executory contract, where both the parties are yet to perform their mutual promises within agreed time.

2 Creation of right

Sale creates a jus in rem i.e right on the goods against the whole world

It creates a jus-in-personam, i.e personal right only against the person in default for fulfilling his part of agreement

3 Passing of property

The property in the goods passes to the buyer with the risk

In this, risk and property do not pass to the buyer immediately

Difference between Sale and Agreement to Sell –Contd..

4 Remedies on breach of contract

The seller is entitled to sue for the price of the goods and also has a right of lien, stoppage in transit, and resale

The seller has the right only to sue for damages for non performance of the contract

5 Risk of loss The loss will be borne by the buyer even if the possession of goods is with the seller

The loss will be borne by the seller since the ownership in the goods has not passed to the buyer

6 Insolvency of buyer before he pays for the goods

if the buyer becomes insolvent before he pays the price of the goods, the seller will have to deliver the goods to the official assignee or receiver and he can only claim dividend for the price of the goods.

if the buyer becomes insolvent and has not paid the price, the seller can refuse to deliver the goods to the official assignee or receiver until paid in full.

Difference between Sale and Agreement to Sell –Contd..

7 Insolvency of seller if the buyer has already paid the price

The buyer is entitled to receive the goods from the Official Assignee or Receiver

The buyer has to prove the amount he has paid and can only claim a rate-able dividend. He cannot compel receiver to sell and deliver the goods

8 Right of resale The property is with the buyer and as such the seller (in [possession of goods after sale )cannot resell the goods.

The seller can dispose of the goods as he likes and the original buyer can sue him for breach of contract only.

Difference between sale and contract of sale

CONTARCT OF SALE – HOW IT IS MADE?

A contract of sale be made in writing or by word of mouth, or partly by word of mouth or may be implied from the conduct or dealings of the parties

There must be a offer to sell and acceptance to buy

Immediate delivery, instalments or future date

May be for existing or future goods

Posses all essentials of an ordinary contract

Difference between sale and contract of sale

• Sale- immediate transfer of ownership of goods or property

• Contract of sale- transfers or agrees to transfer property in goods, it consisit of sale as well as agreement to sell.

DIFFERENCE BETWEEN SALE AND BAILMENT

Sale Bailment

PossessionPossession of goods is transferred to the buyer.

Possession of goods is transferred to the bailee.

OwnershipOwnership is transferred to the buyer.

Ownership resides with the bailor.

UsageThe buyer may use the goods in any way he likes.

A bailee can use the goods only according to the directions of the bailor.

ReturnThere is no return of goods from the buyer to the seller, unless there is breach.

The goods are returned after the specified time or accomplishment of the purpose.

ConsiderationThe consideration is the price in terms of money.

The consideration is an undertaking to return the goods after the accomplishment of the purpose.

Charges

The question of any charges to be paid by the seller to buyer or vise versa does not arise.

The bailor has to repay the charges which the bailee has incurred in keeping the goods safe.

Duration

Final. Once the sale is transacted, the seller keeps the goods until he decides to sell them to another.

Temporary. The bailee has to return the goods to the bailor once the specified time is passed.

EXAMPLE

• when a bank holds a borrower's asset as collateral for a secured loan, this is a form of bailment. In this case, the bank is the bailee and the borrower is the bailor.”

DIFFERENCE BETWEEN SALE AND MORTGAGE OF GOODS

SALE

• According to sec.4(3), “where under a contract of sale, the property in goods is transferred from the seller to the buyer, it is called a sale.

• In case of sale, the transfer of property in goods takes place immediately.

MORTGAGE

• Mortgage is an important method of creating charge over securities while granting loans and advances to borrowers.

• It is a method of creating charge on immovable properties like land and buildings.

• According to Section 8 of the Transfer of Property Act 1882, mortgage is defined as follows:

“ A mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability”.

• The person who transfers the interest in specific immovable property is called the mortgagor and the person to whom such interest is transferred is called the mortgagee.

• The advance of money in respect of which the mortgage is effected is called the mortgage money, and the instrument by which the mortgage is created is called the mortgage deed.

Differences b/w Sale& Mortgage• In a sale, ownership of the goods as a whole is

transferred from the seller to the buyer, but in the case of mortgage, only the possession is transferred and ownership transfer is only of a limited interest.

• The buyer becomes absolute owner of goods in a sale, where as, ownership of the goods remains vested in the mortgagor.

• In a sale, consideration is the price, but in a mortgage, consideration is the advance of loan and securing of the debt.

DIFFERENCE BETWEEN SALE AND HIRE PURCHASE

HIRE PURCHASE SYSTEM

A trader could sell goods either for cash or for credit. For goods sold on credit, the payments may be made by the buyer in lump sum on a future date, or in installments spread over for a specified period of time.

When goods are sold on credit, for which payment is made by the buyer in installments over a period of time, it is called hire purchase system or installment system.

Hire Purchase System refers to the system wherein, the seller of goods delivers the goods to the buyer without transferring the ownership of goods.

The payment for the goods will be made by the buyer in installments. If the buyer pays all the installments, the ownership of the goods will be transferred, on payment of the last installment.

However, if the buyer does not pay for any installment, the goods will be repossessed by the seller and the money paid on earlier installments will be treated as hire charges for using the goods.

So, under this system, the transaction may result in purchasing of goods by the buyer or in hiring the goods. Hence, the system is called Hire Purchase System.

Few examples:X takes a TV set from Y on hire. It is agreed that X will pay Rs. 3000 per month for 10 months and if he pays regularly for 10 months the TV set will become his property. After making the payment for 5 months, X defaults. Y can recover the TV set from X and the five instalments paid by X would be treated as hire charges so that X will not be entitled to recover anything from Y.

SALE HIRE PURCHASE

1. A ‘sale’ is governed by the sale of Goods Act, 1930

1. Hire purchase is governed by the Hire Purchase Act, 1972.

2. In case of sale, the ownership of the goods is transferred to the buyer immediately.

2. In case of Hire purchase, the ownership of goods is transferred to buyer on payment of all installments

3. In case of sale, the buyer makes payment in lump sum. (if the lump sum payment is made immediately on transfer of ownership and possession of goods, it is called Cash Sale and if the payment is made on a specified future date, it is called credit sale

3. In case of hire purchase, the payment is made in installments

4. The buyer pays only for the price of goods. 4. The hire purchaser pays for the price of goods and also some amount of interest.

5. On non-payment of the consideration the seller cannot take back the goods, but can only take legal action on buyer.

5. On non-payment of any installment, the seller can re-possess the goods.

6. Once a sale has taken place, neither the seller, nor the buyer can terminate the contract (unless it is for genuine reason like damage of goods etc.)

6. Either the buyer or the seller can terminate the contract at any point of time, until the payments of last installment.

7. When the buyer becomes insolvent, the seller has to undertake the risk of loss

7. When the hire purchaser becomes insolvent, the seller can reposes the goods, and hence need not undertake the risk of loss.

8. A sale is subject to levy of sales tax at the time of contract of sale.

8. In this case, the sales tax will be lerviable at the time of ownership (i.e. on payment of last installment).

PASSING OF PROPERTY OFGOODS

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PASSING OF PROPERTY – 5 RULES

• Rule 1 – Goods in Deliverable State

• Nature• Unconditional sale

• Specific goods

• In deliverable state

• Time of Transfer• When contract is made

• Irrelevant that price or delivery is postponed

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• Rule 2 – Goods to be put in Deliverable State

• Nature• Seller required to do something to put goods into deliverable state

• Time of Transfer• Seller has done the required things

• Notice given to buyer

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• Rule 3 – Goods to be weighed, measured, tested

• Nature• Seller required to do some act to ascertain price of specific goods

• Time of Transfer• Act or thing has been done

• Notice given to buyer

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• Rule 4 – Future Goods sold by Description

• Nature• Goods not yet produced

• Ordered by description

• Time of Transfer• Produced and in a deliverable state

• Unconditionally appropriated to the contract

• By buyer with assent of seller; or

• By Seller with assent of buyer

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• Rule 5 – Goods on Approval

• Nature• Specific goods “on approval” or with return privileges

• Time of Transfer• Buyer does something to signify acceptance or approval of goods

or adopts the contract

• Lapsing of a reasonable period of time or a fixed period of time

UNPAID SELLER AND HIS RIGHTS

Who is an Unpaid Seller?

• Seller of the goods who has not been paid or tendered the whole of the price or

• One who has received payment in the form of bill of exchange or other negotiable instrument which has been dishonored.

Rights of an Unpaid Seller

Rights of an unpaid seller against the good Right of Lien Right of Stoppage in Transit Right of Resale

Rights of an unpaid seller against the buyer personally Suit for price Suit for damages for non-acceptance of delivery Suit for interest or special damages

RIGHT OF LIEN

A lien is a right to retain POSSESSION of goods until payment of

the price

Right of Lien of Unpaid Seller –Sec. 47

• Applicability:

Where the goods have not been sold on credit

Goods sold on credit, credit-term expires

Buyer becomes insolvent, seller possesses goods

Right of Stoppage in Transit-Section 50

• This is just an extension of Right of lien and this means the right of stopping the goods while they are on the way to the buyer’s place

Right of Stoppage in Transit-Sec 50

Essentials :

Seller must be partially/wholly unpaid Buyer must have become insolvent Goods must be in transit

Right of Resale of unpaid seller -Section 54

• Unpaid seller can resale his goods after executing his Right of Lien on retaining his goods or after exercising his Right to Stoppage in Transit upon insolvency of the buyer under some circumstances.

Circumstances for Resale:

Where goods are perishable

Where seller gives notice to buyer of his intention to resell and buyer does not pay the price within a reasonable time after the notice

Where seller has expressly reserved his right of resale in case of default

Sec. 55 & 56 – Other RightsSue the buyer for price of goods

Seller may sue buyer for damages for wrongfully neglecting/refusing to accept the goods

Recover interest from buyer where there is a specific agreement to that effect. If there is no agreement, seller may charge interest on price when it becomes due

Documents

Sale of Goods Act, 1930