Sale Of Goods Act, 1930
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This Blog is written by Abhishek Kishan from Central University of South Bihar, Gaya. Edited by Srishti Tiwari.
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INTRODUCTION
As a mercantile law, the Sales of Goods Act 1930 came into the act on 1 July, 1930. Its provisions for the setting up of contracts where the seller transfers or agrees to transfer the title (ownership) in the goods to the buyer for consideration. Under the act, goods sold from owner to buyer must be sold for a certain price and at a given period of time. The contracts for sale of goods are subject to the general principles of the law relating to contracts i.e. the Indian Contact Act. A contract for sale of goods has, however, certain peculiar features such as transfer of ownership of the goods, distribution of goods rights and obligations of the buyer and seller, remedies for breach of contract, conditions, and warranties implicatively insinuated under a contract for sale of goods, etc. These peculiarities are the subject matter of the provisions of the Sale of Goods Act, 1930. The Act consists of 7 chapters and each chapter has itself hold immense significance. Hereunder the chapters have been categorically mentioned along with the provisions therein [1]: –
1) CHAPTER 1 :- PRELIMINARY
2) CHAPTER 2: – FORMATION OF THE CONTRACT
3) CHAPTER 3: – EFFECTS OF THE CONTRACT
4) CHAPTER 4: – PERFORMANCE OF THE CONTRACT
5) CHAPTER 5: – RIGHTS OF UNPAID SELLER AGAINST THE GOODS
6) CHAPTER 6: – SUITS FOR BREACH OF THE CONTRACT
7) CHAPTER 7: – MISCELLANEOUS
First among all, we need to discuss the definition of the “SALE” before it kicks in further discussion.
Section 4 of the Act defines and gives the essential condition for a contract to be called a sale deed of a contract of sale. It says: – “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”
Secondly, this section construes the nature of the contract and says “A contract of sale may be absolute or conditional”. A contract of sale of goods is a contract whereby the seller transfers or accedes to transfer the property in goods to the buyer for a price. Such a contract of sale may be absolute or conditional. Absolute contract is without any conditions. A conditional contract may be a contract with condition precedent or condition subsequent. When a condition is to be first performed before an acquiescent to sell would become a sale, the condition is a condition precedent. Where there is a sale but subject to performance or non-performance of a condition, the condition is a condition subsequent. The conditions may have to be consummated by the seller or by the buyer.
Thirdly, the section makes a clear distinction between a sale deed and an agreement “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, the contract is called an agreement to sell.”
Fourthly, this section gives the condition following which an agreement to sell upgrades into a sale deed as it says “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”. Any agreement becomes a contract until and unless have a valid and lawful consideration and a reasonable time span for the execution of that contract. The same thing has been implied herein in this section.
The Sale of Goods Act lays down a minuscule number of compulsory licit rules concerned with an array of posits and implicatively insinuated terms, which aim to reflect the commercial prospects in the most commonly concurred sales contracts. In the absence of contrary acquiescence, these terms will govern a contract within the Act’s remit.
WHAT CONSTRUES A GOOD
A “Good” as per defined under the section 2(7) of the Act as “every kind of movable property other than actionable claims and money; and includes stocks and shares, growing grass or thing attached to or forming a part of the land which are agreed to be served before a sale or under the contract of sale.
Here ‘Actionable claims’, means the claims which can be enforced from the court for example debt due upon one person owed by another person. Here are categorical classifications of types of goods as classified in the Act.
The Sales of Goods Act 1930 is an Act that regulates the sale of goods that are bought and sold in India and the binding contract between both parties. The contract of sale states that the transfer of property from a seller to a buyer is consummated through a money transaction, kenned as the price.
Goods must determine a caliber of copacetic quality for the price that the consumer is disposed to pay, and meeting the description and pertinent factors at the time of purchase. These factors might include the caliber of the prospect that an item may conjure, for example, second-hand goods will provide much less prospect than that of a pristinely incipient product which will have a much higher prospect with regards to its quality and will cause concern about prospect if it has a defect.
Goods should be fit for purport, i.e. that they are capable of carrying out the purport for what they were designed to do. A seller should express the purport of their goods and has a responsibility to ascertain that they procure that state.
CONDITION AND WARRANTY
Section 12(2) defines “condition” as following “a condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat a contract repudiated”.
Subsequently, Section 12(3) defines the term ‘warranty’; “A warranty is the stipulation collateral to the main purpose of the contract, the breach of which given rise to only claim for damage however it doesn’t confers the right to reject the goods or consider the contract to be repudiated”
The condition of warranty could be both implied and expressed, when the condition is given in the black and white or in plain meaning, it shall be construed as expressed, whereas the stipulation deems to be there in the contract but no trace of intimidation as such, then such stipulations shall be categorized in the implied warranty.
THE DOCTRINE OF CAVEAT EMPTOR
Caveat emptor is a neo-Latin phrase meaning “let the buyer beware.” It is a principle of contract law in many jurisdictions that places the onus on the buyer to perform due diligence afore making a purchase. The term is commonly utilized in genuine property transactions but applies to other goods, as well as some accommodations.
The phrase is an ancient principle that is intended to resolve disputes arising from information asymmetry, the pervasive situation in which the seller knows more than the buyer about the quality of a good or service for instance, if I ought to buy myself one car from the owner of the same, it should be my responsibility to run the check upon the technical and mechanical aspects of the car. It shall be my responsibility to check that car out. The only onus on the part of the owner shall be to allow me to inspect the stipulated car.
No onus can be held upon the seller after the purchase is done if I have skipped this inspection.
In Ward v. Hobbes (1878) 4 AC 13, the House of Lords held that a vendor cannot be expected to use artifice or disguise to conceal the defects in the product sold since that would amount to fraud on the vendee; yet the doctrine of caveat emptor does not impose a duty on a vendor to disclose each and every defect in the product. The caveat emptor imposes such as vendee to use his wisdom and skills while making the purchase.
In Wallis v. Russell (1902) 2 IR 585, the Court of Appeal explained the scope of caveat emptor-obligations on vendee to use care and skill while purchasing such product.
“Caveat emptor does not mean in law that the buyer must “take a chance,” it means he must “take care.” It applies to the purchase of specific things, e.g. a horse, or a picture, upon which the buyer can, and usually does, exercise his own judgment; it applies also whenever the buyer voluntarily chooses what he buys; it applies also whereby usage or otherwise it is a term of the contract, that the buyer shall not rely on the skill or judgment of the seller.”
Exception of the doctrine
Subsection (1) of Section 16 of the said Act provides for the circumstances in which the seller is obligated to supply the purchaser with goods for the reason for which he intends to make a purchase. It states that where the seller is aware, either expressly or by reason of necessity, of the purpose for which the buyer makes the purchase and thus relies on the skill and judgment of the seller and the goods to be purchased.
In the Shital Kumar Saini v. Satvir Singh[2]the petitioner purchased a one-year warranty compressor. The defect came to light within three months. The petitioner demanded a replacement. It was replaced by the seller but without any further warranty. The State Commission allowed it to be rejected stating that Section 16 of the Sale of Go guaranteed an implied warranty.
THE RIGHTS OF UNPAID SELLER
For each contract of sale, the seller is under an obligation to deliver the goods sold and the purchaser is under an obligation to pay the required amount or quid pro quo, i.e. something in return under the contract of sale. This is known as a reciprocal promise under Section 2(f) of the Indian Contract Act. In other words, any set of promises made that connotes a consideration or part of consideration for each other called reciprocal promises and every contact of sale of goods consist of reciprocal promise.
Right against buyer
A. Suit for price
When any goods are handed over to the purchaser and the purchaser has wrongfully neglected or refused to pay in accordance with the terms and conditions of the contract, the seller may sue him in accordance with Section 55(1), as the purchaser is bound to pay the price once the property has been passed on.
But in the case the due date of payment has been passed and goods had not been delivered yet, the seller can sue the buyer for the wrongful neglect or refusal on his part according to clause 2 of Section 55.
B. Suits for damage
In case there is a wrongful refusal on the part of the buyer for acceptance of goods and payment of money, the seller can sue him for damages of non-acceptance as per Section 56. For calculating the quantum of damages Section 73 and 74 of the Indian Contract Act applies.
In case the goods have a ready market, the seller has to resell the goods and the buyer has to pay the losses if incurred. If the seller does not resell the goods the difference between contract and market price on the day of the breach is taken as a measure for damages. If the difference between them is nil sellers get nominal value.
There is a duty of mitigation on the part of the seller, which means that injured has to make reasonable efforts to minimize the loss from that breach. For instance, if the seller can resale the goods, the difference in price in contract and resale price is given to the seller but if the seller deliberately refuses to resale the goods and its market value reduces then the buyer will not be liable for the exaggerated loss.
The nature of the mitigation duty has been explained by the Supreme Court in the case of M. Lachia Shetty v. Coffee Board [3], where the dealer who made the bid at the coffee auction had been accepted, refused to enter into the contract, therefore, the coffee was re-opened at the next best bidding price and the dealer who refused the bid had to give the difference in the amount of the loss to the board of directors.
C. Suits for interest
As specified in Section 61, if there is a clear agreement between the purchaser and the seller with regard to interest on the price of the goods from the date on which payment is due, the seller may recover interest from the purchaser. But if such an agreement has not been reached, the seller may charge interest on the date of notification to the buyer.
If there is no contract to the contrary, the court of law may grant interest to the seller at the rate it considers appropriate for the price to be paid from the date on which the amount is due.
D. Repudiation of the contract before the due date
Pursuant to Section 60, the rule of anticipatory breach of contract shall apply where, if the purchaser repudiates the contract before the date of delivery, the seller may consider the contract to be canceled and may sue for damages arising out of the infringement
According to this clause, if one party objects before the due date, the other party has two courses of action. He can instantly recognize the breach and bring a suit for damages, the contract is canceled and the damages will be measured on the basis of the rates then prevailing, or he can wait until the date of delivery. For the second scenario, the contract is available at risk and would benefit all parties.
RIGHT AGAINST GOODS
A. Lien
Lien is the right which the seller of the goods may exercise if the purchaser has not paid the price of the goods, under that right the seller may maintain possession of the goods as an agent or bailee for the purchaser. Under the following circumstances, the seller may retain his possession in accordance with Section 47:
(1) In case the buyer is insolvent.
(2) When the term of the good sold on credit expires.
(3) Goods sold without any stipulation as to credit.
When the goods are sold on credit the right to lien is suspended during the term of credit and lien exists only for the price of goods, not any additional charges.
According to Section 48, if the seller has supplied part of the goods unpaid, the seller may exercise his right of bond on the remainder. In Grice v. Richardson [4], the sellers had supplied one of the three parcels of tea included in the sale and had not been paid for the portion that remained with them. They were allowed to keep it until the price was paid. However, where a portion of the product is supplied which shows an agreement to waive the lien, the seller cannot the remainder.
Termination of the lien occurs when the seller loses possession of the goods. As per Section 49, the right to link is terminated in the following circumstances-
1) Waiver of lien.
2) When buyer or agent lawfully obtains possession of goods.
3) When the seller delivers goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the right of disposal of the goods.
When the seller has delivered goods to the carrier for transmission, his right of lien is ceased but the right to stoppage in transit is still accessible by him. In case the seller regains possession of goods in transit by stoppage his right to lien is revived [5].
B. Stoppage
When the goods have been transferred to the carrier or bailee for the purpose of transmission to the purchaser who has become insolvent, the seller has the right to stop the goods in transit in order to protect him against losses that may arise as a result of insolvency. As per Section 50, there are four basic requirements for stopping goods in transit.
1) Unpaid seller.
2) Buyer insolvent.
3) Property should have passed to the buyer.
The transit process relies on the intermediary’s capacity to carry the goods. Middleman will be an intermediary between the seller who has parted with the goods and the customer who has not yet obtained the goods as held in the case of Schotsmans v Lancashire & Yorkshire Rly co. Property [6] should be in course of transit.
Section 5 sets out the rules and regulations relating to the commencement and end of transit. This section is divided into seven sub-sections which resolve all issues relating to the commencement and end of transit:
a. Delivery to the buyer.
b. Interception by the buyer.
c. Acknowledgement to the buyer.
d. Rejection by the buyer.
e. Delivery to ship charted by the buyer.
f. Wrongful refusal to delivery.
g. Part delivery.
C. Resale
Exercising the right of bond or stop does not rescind the agreement, but reselling goods does, and without that right, the other two rights of bond and stop would not be of much use, because it can only retain goods under that right until the purchaser pays back the money.
The unpaid seller can exercise his right under following conditions and circumstances;-
1) Before reselling the goods, the seller must send a notice to the buyer, except in the case of perishable goods, giving him the last chance to pay the price and take the goods back within a reasonable time. If the buyer does not pay the money back to the seller, he has the right to resell the goods. If the seller refuses to provide notice of his intention to resell, he shall not be entitled to seek damages from the buyer, and he shall be liable for damages.
2) If there is any loss in the resale of goods he can claim the loss from the buyer, on the contrary, if there is profit buyer cannot claim it.
3) Seller gives rightful ownership to the purchaser after resale, regardless of whether the resale notice is given or not to the defaulted purchaser.
4) Sometimes the seller reserves the exclusive right to resale the goods if the buyer defaults on payment, in such cases the buyer cannot claim a profit on resale if no notice is given and the seller has the exclusive right to resale.
CONCLUSION
The Selling of Goods Act, 1930 is a simple, detailed and well-established piece of legislation. It confers rights as well as duties on both the buyer and the seller through its doctrines, as already discussed in this article. In this commercially proactive era, such legislation provides a better way to resolve conflicts and to ensure justice for the victim in a more efficient manner.
REFERENCES
[1] http://legislative.gov.in/sites/default/files/A1930-3_0.pdf.
[2] (2005) 1 CPR 401.
[3] MANU/SC/0095/1980
[4] 1877, 3 App. Cas. 319.
[5] https://blog.ipleaders.in/rights-of-an-unpaid-seller/.
[6] (1865) L.R. 1 Eq. 349.