Sale of Goods

Definition of a Contract for the Sale of Goods

Definition
A contract of sale of goods is defined by as : ‘a contract by which the seller transfers
or agrees to transfer the property in goods to the buyer for a money consideration
called the price’.

It is not necessary to observe complex formalities to create a contract for the sale of
goods; It may be in:
 writing
 by word of mouth,
 partly in writing and partly by word of mouth,
 implied from the conduct of the parties.

.
There may be a contract of sale between one part owner and another..
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.
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.

Quality of goods includes their state and condition and the following aspects of
quality:
(a) fitfulness for all purposes for which goods of the kind in question are commonly
supplied;
(b) appearance and finish;
(c) freedom from minor defects;
(d) safety; and
(e) durability.

CLASSIFICATION OF GOODS/TYPES OF GOODS

Existing Goods:
-Goods owned and possessed by the seller at the time of the making of the contract of
sale are called existing goods.
Sometimes, the seller may be in possession but may not be the owner of the goods.

For example, in the case of sale by a mercantile agent or a pledge the goods
are possessed but not owned by the seller.
-Where the existing goods are the subject –matter of a contract, it is essential that they
must be in actual existence, for a present sale can be made only of a subject matter
having actual or possible existence.
 Thus, for example: A sells his horse to B, believing it to be in existence but in
fact the horse is dead, no contract will arise.

The existing goods can be further classified as under

I) Specific Goods.
(II) Ascertained Goods.
(III) Uncertainty Goods.

Specific goods are those goods which are identified and agreed upon at the time of
contract of sale is made.
It is essential that the goods are identified and separated from the other goods at the
time of contract of sale is made and the goods merely in an identifiable position does
not make the goods specific.

For Example: In the case of sale of one horse out of 25 horses, goods shall be specific
if the horse is selected before the contract of sale is made. Here it is important to note
all the horses are horses but they cannot be exactly similar to each other. Therefore, it
is essential to select the horse out of the lot as specific goods.

Ascertained Goods: Sometimes the terms specific goods and ascertained goods are
used interchangeably. But actually they are not same and different in the sense that
specific goods are identified at the time of contract of sale whereas ascertained goods
are identified after the contract of sale as per the terms decided.
It is important to note here that the goods are almost of exactly the same type and
quality and the buyer is to select keeping in mind the defective prices only

For Example: If there is going to be sale of 25 chairs for an office out of a lot of
100 such chairs of the same design and quality, the goods are unascertained till 25
particular chairs are selected so that they are not defective in any way and are
considered to be the best of the lot for the satisfaction of the buyer, though they are all
best and equal in quality, from the point of view of the seller. When the required 25
chairs are selected out of the lot, the goods are said to be ascertained goods for the
contract of sale.

Unascertained Goods: When the goods are not separately identified or ascertained at
the time of making a contract of sale, are known as unascertained goods. When the
buyer does not select the goods for him from a lot of goods, but are defined or
indicated only by description, we call them unascertained goods.

2. Future Goods:
These are goods which a seller does not possess at the time of the contract of sale, but
will be manufactured, produced or acquired by him after making the contract of sale,
is known as future goods.

3. Contingent Goods: contingent goods are future goods. These are the goods, the
acquisition of which by the seller depends upon a contingent even, which may or may
not happen.
. For Example: X agrees with Y to sell him 100 quintals of wheat @ Rs.500 per
quintal, provided there would be good rains and he would have a good crop. It is a
contract to sell contingent goods.
 Terms implied by sales of Goods act 1979 and changes made by the sales and
supply of goods acts 1994

The Sale of Goods Act 1979 defines a contract for the sale of goods and lays down
compulsory legal rules concerned with presumptions and implied terms reflecting
commercial expectations in commonly agreed sales contracts.

The Act requires that goods must be reasonably fit for the purposes for which the
buyer or consumer wants them.

The Sale and Supply of Goods Act 1994 amended the Sale of Goods Act 1979 and
governs commercial contracts, including the sale of specific goods, future goods, and
unascertained goods.
The 1994 Act made provisions as to the terms to be implied in certain agreements for
the sale of goods
.
Since 1979, there have been numerous minor statutory amendments and additions to
the 1994 Act

They include:
 The Sale of Goods Act 1979 applies to contracts of sale of goods made on or
after 1 January 1894, while the Sale and Supply of Goods Act 1994 governs
commercial contracts.
 The Sale of Goods Act 1979 defines a contract for the sale of goods and lays
down compulsory legal rules concerned with presumptions and implied terms
reflecting commercial expectations in commonly agreed sales contracts, while
the Sale and Supply of Goods Act 1994 made provisions as to the terms to be
implied in certain agreements for the sale of goods.
 The Sale and Supply of Goods Act 1994 governs the sale of specific goods,
future goods, and unascertained goods, while the Sale of Goods Act 1979 does
not make such distinctions.
 The Sale and Supply of Goods Act 1994 amended the law relating to the sale
of goods, while the Sale of Goods Act 1979 consolidated the original Sale of
Goods Act 1893 and subsequent legislation.
 The Sale and Supply of Goods Act 1994 is a more recent piece of legislation
than the Sale of Goods Act 1979, which has been amended numerous times
since its enactment

Definition and Essentials of a Contract of Sale

Two parties: The first essential is that there must be two distinct parties to a contract
of sale…. a buyer and a seller, as a person cannot buy his own goods

Transfer of property: Property here means ownership. Transfer of property in the

goods is another essential of a contract of sale of goods. A mere transfer of possession
of the goods cannot be termed as sale.

Goods: 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”.

Price: The consideration for a contract of sale must be money consideration called the
price.
A contract of sale of goods is a contract by which the seller transfers or agrees to
transfer the property in goods to the buyer for a money consideration, called the price

Sale: Where under a contract of sale the property in the goods is immediately
transferred at the time of making the contract from the seller to the buyer, the contract
is called a sale

An agreement to sell: Where under a contract of sale the transfer of the property in
the goods is to take place at a future time or subject to some condition later to be
fulfilled the contract is called an agreement to sell.
For example: On 1st January, A agrees with B that he will sell B his scooter
on 15 January for a sum of Rs.30; 000.It is an agreement to sell, since A agrees to
transfer the ownership of the scooter to B at a future time.

Distinguish between Sale and Agreement to Sell

The difference between sale and an agreement to sell depends upon the crucial point
whether the property in goods has passed or is yet to pass from the seller to the buyer.

Transfer of property:
In a sale, the property in the goods passes from the seller to the buyer immediately so
that the seller is no more the owner of the goods sold.
In an agreement to sell, the transfer of property in the goods is to take place at a
future time or subject to certain conditions to be fulfilled.

Risk of loss:
In a sale, if the goods are destroyed, the loss falls on the buyer even though they
were in the possession of the seller.
In an agreement to sell, if the goods are destroyed, the loss falls on the seller, even
though they were in the possession of the buyer.

Consequences of breach by buyer:

In a sale, if the buyer fails to pay the price of the goods or if there is breach of
contract by the buyer, the seller can sue for the price even though the goods are still
in his possession.
In agreement to sell, if there is a breach of contract by the buyer, the seller can only
sue for damages and not for the price even though the goods are in the possession of
the buyer.
Insolvency of the seller:
In a sale, if the seller is declared insolvent, the buyer is entitled to recover the goods
from the official receiver or assignee as he (buyer) has the ownership of the goods
sold.
 In an agreement to sell, the buyer who has paid the price cannot claim the title of
goods from the seller, if he is declared insolvent. He can only claim a rateable
dividend from the official receiver or assignee of the insolvent seller.

Right to recover damages:

In a sale, if the seller commits a breach, the buyer may compel the seller to deliver
him the goods or pay the damages on the basis of difference the selling price and
market price on the date of breach.
In the case of an agreement to sell, the buyer, in case of breach committed by the
seller, can sue for damages only; as the ownership in good has not been transferred
to him, he cannot compel for delivery of goods.

Performance:
Performance of sale is absolute and without any condition; while in case of an
agreement to sell, performance is conditional and is made in future.

Price
The price is such a fundamental part of the transaction that it will normally be fixed
by the contract. However, it may be ascertained by the course of dealing between
the parties or the contract may provide a mechanism for determining the price, such as
by arbitration.
The parties may make their own agreement as to the time of payment. The seller may
insist on payment in advance of delivery or he may be prepared to extend a period of
credit

Time of Performance
It is the duty of the seller to deliver the goods and the buyer’s duty to accept and pay
for them. The parties are free to make their own arrangements about the time and
place of delivery and payment. sets out the obligations of the seller and buyer when
they have not dealt with these matters specifically in their agreement.

Sample
Sale by sample is a contract based on understanding between the parties. Goods not
exhibited must conform to the standard exhibited by the sample. The sample is a fair
representation of the quality of the bulk, and the seller is bound by the warranty.

In a contract of sale by sample there is an implied condition:

■ that the bulk will correspond with the sample in quality;
■ that the buyer will have a reasonable opportunity of comparing the bulk with the
sample;
■ that the goods will be free from any defect making their quality unsatisfactory
which would not be apparent on reasonable examination of the sample.

Delivery
Delivery in the context of the Act means the voluntary transfer of possession from one
person to another. The delivery may consist of:
■ physically handing over the goods;
■ handing over the means of control of the goods, e.g. the keys to the premises where
they are stored;
■ transferring documents of title;
■ where the goods are in the possession of a third party, an acknowledgement by the
third party that he is holding the goods on behalf of the buyer.

Place of delivery
In the absence of any agreement to the contrary, the place of delivery is the seller’s
place of business; it is up to the buyer to come and collect the goods

Delivery to a carrier
If the seller agrees to send the goods and engages a carrier for this purpose,provides
that delivery to the carrier is deemed to be delivery to the buyer.
Time of delivery
The parties may have fixed a delivery date. Failure to make delivery by that date is a
breach of condition, which entitles the buyer to repudiate the contract and sue for non-
delivery
Delivery of the wrong quantity
If the seller delivers:
- a smaller quantity than ordered, the buyer may reject the consignment, but, if he
decides to accept the goods, he must pay for them at the contract rate.
-If the seller sends a larger quantity than agreed, the buyer has the following
choices:
■ he may accept the goods he ordered and reject the rest;
■ he may reject the lot;
■ he may accept the whole consignment, paying for the
extra goods at the contract rate.

Acceptance And Rejection

The buyer is bound to accept the goods which the seller delivers in accordance with
the contract.
If the goods do not meet the requirements of the contract, the buyer will have a claim
against the seller. The remedies for breach of a condition depend on whether the
goods have been accepted.
If the goods have not been accepted, the buyer is entitled to reject the goods and
claim his money back.

Ways in which a buyer could accept the goods:

1 he could expressly tell the seller that he had accepted the goods
2 he could do something to the goods which was inconsistent with the seller’s
ownership
3 he could retain the goods for a reasonable time without telling the seller that he had
rejected them.

Remedies of the parties

Seller’s remedies
Two sets of remedies are open to the seller.
1. personal remedies
2. real remedies against the goods.

1)Personal remedies
The seller can sue the buyer for the contract price or for damages for non-acceptance.
1 Action for the price
The seller can bring an action for the contract price in two situations:
 where the property in the goods has passed to the buyer
 where the buyer has failed to pay by a specified date, irrespective of whether
ownership has passed to the buyer.
2 Damages for non-acceptance
If the property in the goods has not passed and the buyer will not accept the goods,
the seller can sue for non-acceptance. The measure of damages is the estimated loss
directly and naturally resulting in the ordinary course of events from the buyer’s
breach of contract

If the buyer wrongfully refuses to accept and pay for the goods, the seller is expected
to mitigate his loss and sell them elsewhere for the best possible price.

2Real remedies
The unpaid seller has three possible remedies in respect of the goods, even though the
property in the goods has passed to the buyer.
They are
 lien,
 stoppage in transit
 resale.

1 Lien
A lien is the right to retain possession of goods (but not to resell them) until the
contract price has been paid.
It is available in any of the following circumstances:
■ where the goods have been sold without any mention of credit;
■ where the goods have been sold on credit but the period of credit has expired;
■ where the buyer becomes insolvent( unable to pay debts owed)

The seller will lose his right of lien if the price is paid or tendered or the buyer obtains
possession of the goods.
The seller cannot exercise this right to retain the goods if he has handed the goods to a
carrier for transportation to the buyer without reserving the right of disposal of
the goods or where he has given up the right.

2 Stoppage in transit
This is the right of the seller to stop goods in transit to the buyer, regain possession of
them and retain them until payment has been received.
The seller can exercise his right to stoppage in transit in only one situation – where
the buyer has become insolvent.
3 Right of resale
The rights of lien and stoppage in transit by themselves do not give the seller
any right to resell the goods.
He is allowed, however, to resell the goods in the following circumstances:
■ where the goods are of a perishable nature;
■ where the seller gives notice to the buyer of his intention to resell and the buyer
does not pay or tender the price within a reasonable time;
■ where the seller expressly reserves the right of resale in the event of the buyer
defaulting.
The seller can exercise the right of resale and also recover damages for any loss
sustained by the buyer’s breach of contract. .

A Romalpa clause is used by a seller of goods who does not wish to transfer
ownership thereof to the buyer until the latter has paid for those goods or, very often,
for all of the goods that have been delivered to the buyer

A good Romalpa clause should do the following:

 Provide a measure of security in the event that a buyer becomes insolvent

regarding the supplied products.
 Allow the seller to recover supplied products if they have not been paid for in
full according to the terms of the contract.

This clause will normally also specify that, until the specific conditions of the
contract have been fulfilled, the buyer is required to keep the seller's products separate
from the other stock in their possession.

Buyer’s remedies
Various remedies are available to the buyer where the seller is in breach of contract.

Rejection of the goods

The buyer is entitled to repudiate the contract and reject the goods where the seller is
in breach of a condition.

An action for damages

1 Non-delivery
The buyer can sue for nondelivery when the seller wrongfully neglects or refuses to
deliver the goods.
The measure of damages is the estimated loss directly and naturally resulting in the
ordinary course of events from the seller’s breach of contract.
If the buyer has paid in advance and the goods are not delivered, he can recover the
amount paid because there has been a total failure of consideration.

2 Breach of warranty (s 53). The buyer can sue for damages in the following
circumstances:
■ where the seller is in breach of a warranty;
■ where the seller is in breach of a condition, but the buyer has chosen to carry on
with the contract and claim damages instead;
■ where the seller is in breach of a condition, but the buyer has lost the right to reject
the goods (because he has accepted them).
The measure of damages is the estimated loss directly and naturally resulting from the
breach. This is usually the difference in value between the goods actually delivered
and goods fulfilling the warranty.

3.Specific performance
The buyer may sue for specific performance, but only in cases where the goods are
specific or ascertained and where monetary damages would not be an adequate
remedy.
A court is unlikely to make such an order if similar goods are available elsewhere.

Additional rights of buyers in consumer cases

The additional rights are as follows:
1 Repair or replacement The buyer has the right to require the seller to repair or
replace the goods within a reasonable time and without causing significant
inconvenience to the buyer.
The seller must bear any necessary cost associated with the repair or replacement,
e.g. cost of labour, materials or postage.

2 Reduction of the purchase price or rescission of the contract

If repair or replacement are not practicable remedies or the seller has not fulfilled the
requirement to repair or replace within a reasonable time and without significance
inconvenience, the buyer is entitled to a partial or full reduction of the purchase price
or to rescind the contract.
If the buyer decides to rescind the contract, any refund may take into account
the use that the buyer has had of the goods since they were delivered.

The Supply of Goods And Services Act 1982

The Supply of Goods And Services Act (SGSA) 1982 requires that service providers
carry out work, with reasonable care and skill, in a reasonable time (where a definite
completion date was not agreed) and at a reasonable price (where a fixed price was
not set in advance)
The main difference between the Sale of Goods Act and the Supply of Goods and
services act is:

 Sales of Goods Act – specifies that goods provided for sale must be as described,
of satisfactory quality and fit for the purpose so this covers the PRODUCT only.
 Supply of Goods and Services Act – details that if a consumer enters into a
contract for the supply of goods or services they must be supplied with reasonable
care and skill within a reasonable time and at a reasonable charge. This covers the
PRODUCT and the SERVICE supplied under contract.