The Sale of Goods Act, 1930 is a crucial piece of legislation that lays down the framework for the sale of goods in India. Almost every type of business somewhere or the other involves the sale and purchase of goods as part of its business operation.
In some cases, sales and purchases are made to support the main business framework, and in some cases, sales and purchases are the main business. Businesses often enter into a contract of sale to sell their commodities to their customers. The Sale of Goods Act, 1930 is an umbrella Act that governs all forms of sales. It is a fundamental aspect of the commercial industry that ensures that both buyers and sellers know and understand their rights, responsibilities and legal remedies.
Whether you are a consumer, a business owner or a law student, understanding this area of law is very important to navigate commercial transactions. In this article, we will explore key concepts related to Sale of Goods as well as its legal frameworks, its essential elements, types of goods, conditions and warranties and remedies for breach of contract.
Historical Background of Sale of Goods Act
Before 1930, the Sale of Goods Act was governed by the Indian Contract Act, 1872 . However, as trade and commerce expanded, the need for a distinct law arose. Hence, the Sale of Goods Act was enacted specifically so that it could regulate such transactions, which was inspired by the English Sale of Goods Act 1893.
Meanings and Definitions
The Sale of Goods Act defines many important terms in under Section 2 that build the foundation of the contract of sale.
- Sec 2(1) “buyer” means a person who buys or agrees to buy goods;
- Sec 2(7) “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;
- Sec 2 (10) “price” means the money consideration for a sale of goods;
- Sec 2(13) “seller” means a person who sells or agrees to sell goods;
- Sec 4 “sale & agreement to sell” – a sale is an immediate transfer of ownership whereas an agreement of sale is a future promise to transfer the ownership.
Essential Elements of a Sale
For any contract to qualify as a sale, it is very important that certain elements are complied with, such as –
1. There must be two parties as a buyer and a seller.
2. Transfer of ownership – The seller must have the right to transfer the ownership.
3. Considerations (price): Whatever goods will be exchanged, it should be for a price in money.
4. The subject matter of the contract of sale must be clear.
Difference between Sale and Agreement to sell
The main difference between sale and agreement to sell under this Act is when the ownership of the goods is transferred.
Sale
1. In sale the seller immediately transfers full ownership of goods to the buyer.
2. When the buyer pays its price and the seller delivers the goods, that’s when the transaction is fully complete.
3. It’s assumed that the buyer knows the risk or damages of the goods.
Agreement to sell
1. In this case, the seller promises to deliver the ownership of goods to the buyer in the future.
2. The seller holds the risk or damages and ownership of goods until the agreement is fulfilled.
Example: If you buy a car and take it home immediately, it’s a sale. However, if you book a car for delivery in a week, it’s an agreement to sell.
Conditions of a Valid Sale
For a sale to be legally valid, it must meet the following requirements:
1. Capacity of contracting parties – The buyer and seller both must be legally competent enough to enter into a contract as per the Indian Contracts Act, 1872.
2. The subject matter of a contract of sale is always goods, which includes every moveable property except money and actionable claims.
3. Transfer of property in goods means ownership is required in a contract of sale. So, the ownership must take place or agreed to take place from seller to buyer, which includes both the sale and agreement to sell.
4. The goods must be exchanged from seller to buyer for a price. A barter transaction does not qualify as a sale of goods.
5. The contract of sale must be free from coercion, fraud, misrepresentation, or undue influence.
6. All the essentials elements of a valid contract must be present in the contract of sale.
Types of Goods
The Sale of Goods Act classifies goods into various types based on their nature and availability, such as –
Existing goods
According to Section 6 of the Sales of Goods Act, 1930, “Existing goods are those goods that exist at the time of making a contract of sale or in other words these goods are physically present at the time of contract.” In simple terms it means Existing goods are available at the time of entering into the contract.
There can be three distinctions of existing goods:
Specific goods
According to Section 2(14) of the Sales of Goods Act, the goods which are specifically identified and agreed upon at the time of making the contract of sale are known as specific goods.
Ascertained goods
The term ascertained goods is not defined under the act but carved out by the judicial judgements and interpretations. Ascertained Goods are those goods that are selected from a larger group after the contract is initiated.
Unascertained goods
Unascertained goods are those goods which are not particularly identified at the time of contract formation. Those are identified by only the samples.
Future goods
According to Section 2(6) , “Future goods are those goods that are to be manufactured, produced or acquired by the seller after entering the contract of sale.” These are the goods which do not exist at the time of contract of sale and will be manufactured/ produced as per the terms of contract. It is considered as agreement to sell.
Contingent goods
According to Section 6(2) of the Act, “When the acquisition of goods is dependent upon an uncertain contingency or an uncertain event, it is called Contingent Goods.” This is appears as an agreement to sell and not a proper sale, because the transfer of property in goods has not been transferred to the buyer at the time of making a contract.
What are conditions & warranties under Sale of Goods Act?
Under the Sale of Goods Act, the terms, conditions and warranties play the most important role in defining the obligations and rights of both buyers and sellers. These two terms are referred as stipulations in the contract of sale.
According to the section 12(2), a condition is defined as fundamental and main purpose to a contract. If the condition of contract gets breached, then buyer has the right to cancel the contract and claim the damages.
Whereas, according to the section 12(3), the warranty defines as a secondary promise or collateral in the contract. It doesn’t affect the main purpose of the contract. If the warranty is breached, then the buyer has right to claim damages, but he can’t cancel the contract.
Rights and duties of buyers and sellers
Rights of Seller
1. A seller has the right that the goods delivered by him through contract of sale must be accepted by the buyer.
2. Right to receive the price of consideration of goods from the buyer as per the terms of the contract.
3. To initiate the legal action against the buyer if the price of the goods is not paid to him.
4. Right to claim any losses incurred if the buyer unlawfully refused to accept the goods from the seller.
Duties of seller
1. The seller is dutiful to deliver the goods as per the terms and conditions of the contract. And if the seller refuses to do so, the buyer can sue him for non delivery of the goods.
2. The seller has to refund any money which has been taken as advance before delivery of the goods, if he fails to deliver the goods.
3. If there is breach of warranty on part of the seller, he is bound to pay the damages to the buyer for the breach of warranty.
4. It’s the duty of seller to put goods in the deliverable state when it’s necessary.
Rights of buyer
1. The basic right of the buyer is to take the delivery of the goods after the payment of price.
2. The buyer may reject the delivery of goods from seller if he finds any quality or quantity issue with the goods.
3. The buyer has the right to examine the goods before taking their delivery.
4. Buyer may claim damages from the seller if he finds any defects in the goods after their delivery.
5. It is the right of the buyer to claim interest on price from the seller if there’s any delay regarding the delivery of goods which caused damage to the buyer.
6. to the buyer may sue the seller if he refused to perform the terms and conditions of the contract.
Duties of buyer
1. It’s the basic duty of the buyer to pay the consideration price to the seller on time.
2. The buyer must perform the agreement in true spirit. If he fails to do that, then the buyer will be held liable for the any loss or damages occurred to the seller.
3. The buyer has to accept the goods on time from the seller without any delay. If the buyer fails to do so, the seller won’t be liable for any damages occurred to the goods.
4. It is another duty of the buyer to pay damages to the seller, if the buyer refused to take the delivery of goods and if any loss occurred to the seller due to the same.
Doctrine of Caveat Emptor
According to the section of 16(1) of Sale of Goods Act, 1930, the principle of Caveat Emptor means “let the buyer be aware”. It implies that the buyer should be cautious before purchasing any goods. Under this principle, the seller is not liable for any defects in the goods unless expressly stated.
However, the Sale of Goods Act also provides some exceptions u/s 16(2), (3) where the seller must ensure that the goods meet certain expectations.
Breach of Contract and Remedies
Chapter VI of the Sale of Goods Act, 1930 relates to breach of contract and lays down the rights and liabilities of the seller unto the buyer and vice versa. Sections 55 to 61 deal with this.
Sections 55 and 56 focus on seller’s remedies against the buyer and entitles the seller to either sue for price of the goods or ask for damages for non-performance of the contract.
Whereas, Sections 57, 58 and 59 lay down the remedies available to the buyer against the seller in the event the latter breaches the contract. The buyer can seek damages for non-delivery of goods, damages for breach of warranty or specific performance of the contract.
Sections 60 and 61 address those special situations wherein a remedy for breach is available to both the buyer and seller.
Conclusion
The Sale of Goods Act, 1930 plays a very crucial role in protecting the interests of sellers and buyers, ensuring fair transactions and resolving disputes. While the traditional methods still hold their stand, modern transactions, especially in the digital commerce, require a continuous adaptation of the laws.
Understanding these legal aspects is important for anyone engaging in commercial transactions, ensuring the protection and enforcement of their rights.
The various aspects of the Sale of Goods Act have been explored by our intern, Ms Ankita Shaw. She has been assisting the team in bringing informational legal blogs.
