It is an Act to define and amend the law relating to the sale of goods. It tells about the meaning of sale and goods, warranties and conditions, property transfer and includes the rights of unpaid seller. The contracts for the sales of goods are subject to legal principles similar to the all other contracts .This law is included in chapter VII of the Indian Contract Law, 1872[sections 2(5) and 3]. It first came into force from 1st July 1930.
It has been re-enacted again in 1930 as sale of goods act [section 4]. Contract of sale of goods:
A contract of sale of goods act is an agreement contract between the seller and buyer to transfer the goods at an agreed price. This includes transfer of goods, both with immediate effect (called as sale) and at a future date (known as agreement of sale) Essentials of a contract of sale:
1) Bilateral contract: It should be a bilateral contracts as the property has to transfer from one party to another.
A party can’t sell to himself. 2) Transfer of property: The object should be the transfer of property (ownership) in goods from one person to other.
3) Goods: The subject matter should be goods.
4) Price: The consideration should be money (price). Exchange of goods with that of other is not considered as sale, but barter.
5) All essential elements of a valid contract must be present in contract of sale.
Contract of Sale Formation:1
Sale and agreement to sell:
A contract of sale of goods is nothing but the seller agrees to transfer the resources in goods to the buyer for a certain price.
There might be a contract of sale between one owner and another counterpart. A contract of sale can be conditional or an absolute one
Difference between sale and agreement to sale:
1) Nature of contract: Sale is an executed contract whereas Agreement to sell is an executory contract.
2) Creation of Right: A sale creates a ‘right in rem’. An agreement of sale creates ‘right in personam’.
3) Passing of property: In a sale, the goods and risk passes to buyer but in agreement of sale, the goods and risk are still with the seller only.
4) Risk of loss: In case of loss of goods, the loss falls on buyer even if the goods are still in possession of seller. This is because risk is associated with ownership. In agreement of sale, the loss has to borne by the seller only.
5) Remedies in case of a breach: Seller can sue for price of goods in a sale but in agreement to sell seller can sue only if the contract is not performed.
6) Insolvency: In a sale, seller need to deliver the goods to the buyer even though payment is not paid. But in agreement to sell, seller may refuse to deliver until payment is made. An agreement to sell becomes a sale when the time passes by or the conditions are satisfied referring to which the resources in the goods are to be transferred. How is a Contract of Sale made?
A contract of sale is made by an offer or acceptance to such an offer to buy or sell goods at a certain price It might provide delivery of the resources or goods or price payment or both either immediately or in instalments. It can also be postponed. A Contract of Sale might be in written document or by verbal evidence or both done partly which is acceptable to the provisions of law. Hire Purchase Agreement:2
Hire purchase agreement had been regulated by Hire Purchase Act, 1972. Parties interested in the goods but do not have sufficient money enter into hire-purchase agreement for the sake of enjoying the goods. Usually, this agreement must be in writing. A hire-purchaser is not eligible to sell the goods he possessed until the party pays all the instalments because until then the ownership lies with the other party i.e., vendor. This shows that the purchasers do not have ownership rights as it involves only transfer of goods. A hire-purchaser has the freedom to choose whether to end it or continue to pay the instalments. Aspects of Hire Purchase Agreement:
Bailment refers to a legal bonding in terms of law where possession of property, or goods, is transferred from one party (the ‘bailer’) to another party (the ‘Bailee’) who consequently has possession of the property or goods. It arises when a party gives property to another party for safekeeping. Element of Sale:
It takes place when the option to purchase will be exercised. A hire-purchaser cannot claim the implied conditions and warranties benefits as per the law as sale is not complete.
A stipulation is nothing but a condition or warranty subject to the agreement made in a contract of sale with reference to goods. These are usually not essence of contract when the time of payment is considered. It all depends on the terms of contract whether to consider the stipulation as of time as essence of sale of contract or not. Conditions and warranties are the two among many stipulations under the contract of sale of goods. Implied conditions and warranties are those which are prescribed by law or custom; these shall exist in a contract of sale unless the persons agree to the opposite. Conditions:4
Conditions are the very basis part of the Contract of Sale and breach of it would make the whole contract repudiated. Hence it is very important to see that it is fulfilled in the contract in order for its validity for both the parties. Express conditions:
These are explicitly and expressly provided in the contract. Condition as to title — In every contract of sale, there is an implied condition on the part of the seller, unless the parts of the contract are such as to showcase a different intention that : a. Sale: the party has a right to sell the goods, and
b. Agreement to sell: The party will have a right to sell the goods at the time when the property is to actually pass. If the seller’s title turns out to be not effective, the buyer might reject the goods. Condition as to Description — In this the goods corresponds to the description. a) Where the buyer buys the goods without seeing them but only relying on the description given. b) Packing might sometimes be a part of the description.
Condition as to Quality or Fitness – In this the buyer relies on skill of seller or his judgment. Condition as to Merchantability – In this goods correspond to merchantable quality. Merchantable quality refers that the goods would be saleable commercially at their full value with the description by which they are known in the market.
Condition as to Wholesomeness — In this goods would be wholesome and this includes eatable and food stuff. The word ‘wholesomeness’ means that these goods are for human consumption. Conditions in a sale by Sample as well as by Description: In this goods correspond to sample as well as description.
Condition is a warranty when a contract of sale is referred to any condition to be satisfied by the seller, the buyer might refuse the condition or breach the condition as a breach of warranty. The contract of sale is not that severe in cases where it is excused by law by some reasons. It is not as vital as condition.
In this buyer’s shall have and enjoy quiet possession of the goods unless there is a contrary intention. In case if the buyer’s right to enjoyment and possession of the goods is disturbed as a result of the seller’s defective entitlement, the buyer can sue the seller for damages under the warranty breach. Implied Warranty of Freedom from Encumbrances –In this the goods are free from any encumbrances or charges in favor of any third party which is not mentioned or known to buyer at the time of the contract formation.