Notes

Program Name- Master of Business Administration (MBA)

Course Name- Legal Aspects of Business Sem- I
Unit Number- 2 Unit Name- Sale of Goods Act, 1930
Topic Name – The contract of the sale of goods

Introduction:
The contract of the sale of goods is governed by The Sale of Goods Act, 1930. The Act
extends to the whole of India except the state of Jammu & Kashmir. Till 1930, all the
transactions related to the sale of goods was regulated by The Indian Contract Act, 1872. In
1930, Sections 76-123 were replaced by the Act of 1930. A contract for the sale of goods has
certain unusual features such as transfer of ownership of the goods, delivery of goods, rights
and duties of the buyer and seller, remedies for breach of contract, conditions and warranties
implied under a contract for the sale of goods, etc. These unusualities are subjected to the
provisions of the Sale of Goods Act, 1930.
Content:
Contract of the sale is an agreement between the buyer and the seller intending to exchange
property. Section 4(1) defines the contract of the sale as – a contract of the sale of goods is a
contract whereby the seller transfers or agrees to transfer the property in goods to a buyer for
a price.
Definitions.—In this Act, unless there is anything repugnant in the subject or context,—
(1) “buyer” means a person who buys or agrees to buy goods;
(2) “delivery” means voluntary transfer of possession from one person to another;
(3) goods are said to be in a “deliverable state” when they are in such state that the buyer
would
under the contract be bound to take delivery of them;
(4) “document of title to goods” includes a bill of lading, dockwarrant, warehouse keeper’s
certificate, wharfingers’ certificate, railway receipt, 5 [multimodal transport document,]
warrant or
order for the delivery of goods and any other document used in the ordinary course of
business as
proof of the possession or control of goods, or authorising or purporting to authorise, either
by
endorsement or by delivery, the possessor of the document to transfer or receive goods
thereby
represented;
(5) “fault” means wrongful act or default;
(6) “future goods” means goods to be manufactured or produced or acquired by the seller
after the
making of the contract of sale;
(7) “goods” means every kind of moveable 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;
(8) a person is said to be “insolvent” who has ceased to pay his debts in the ordinary course
of
business, or cannot pay his debts as they become due, whether he has committed an act of
insolvency or not;
(9) “mercantile agent” means a mercantile agent having in the customary course of business
as
such agent authority either to sell goods, or to consign goods for the purposes of sale, or to
buy goods, or to raise money on the security of goods;
(10) “price” means the money consideration for a sale of goods;
(11) “property” means the general property in goods, and not merely a special property;
(12) “quality of goods” includes their state or condition;
(13) “seller” means a person who sells or agrees to sell goods;
(14) “specific goods” means goods identified and agreed upon at the time a contract of sale is
made; and
(15) expressions used but not defined in this Act and defined in the Indian Contract Act, 1872
The essentials to constitute a contract of the sale are as follows:

Two parties

There must be 2 distinct parties i.e. a buyer and a seller, to effect a contract of the sale and
they must be competent to contract. ‘Buyer’ as defined under Section 2(1) means a person
who buys or agrees to buy goods. ‘Seller’ has been defined under Section 13 which states that
a person who sells or agrees to sell goods.

Goods

There must be some goods, the property which is or is to be transferred from the seller to the
buyer. The subject-matter as to the goods under the Contract of Sale must be movable
property. This Act does not concern the immovable property as its subject-matter.

Price

The most important essential for the enforceability of the Contract of Sale of goods is
the price. The price can be termed equivalent to the consideration. In the absence of such
price or consideration, the transfer cannot be termed as a sale. The transfer by way of the sale
must be in exchange for a price. The payment of the price can be made in two modes:

1. Paid fully in cash; or

2. Paid partly and rest promised to be paid partly in future.
The price can be determined through an instrument of agreement between the parties before
the conveyance (transfer) of the property.

Transfer of general property

There are two types of property on the basis of its nature, i.e., general property and special
property. The subject-matter of the contract of Sale of Goods deals with the special property.
For the enforceability of such a contract, there must be a transfer of special property from the
seller to the buyer. For e.g., if A owns certain goods he has general property in the goods. If
he pledges them with B, B has a special property in the goods.

Essential elements of a valid contract

All essential elements of a valid contract must be present in the contract of the sale, i.e.,

• An offer,
• An acceptance,
• An intention to create a legal relationship, and
• A consideration

Formalities of the contract of sale of goods

Except where specifically mentioned by the law, there is no prescribed form required to draft
a contract of the sale of goods. The agreement between the parties, i.e., the buyer and the
seller may be implied or may be expressed acknowledged by the conduct of the parties.
Section 5 of the Sale of Goods Act, 1930 describes as to how the contract of the sale of goods
can be framed. Therefore, the contract of the sale of goods can be made-

1. By an offer from the buyer to buy and seller to sell goods for a fixed consideration
mentioned in the agreement. Such an offer of buying or selling must have an
acceptance of the opposite party. The delivery of the goods can be executed in the
following manner:

• immediate delivery of the goods; or

• immediate payment of the price or both; or
• by delivery or payment in instalments; or
• the delivery or payment or both to be postponed.
2. Subject to the provisions of any law for the time being in force, a contract of the sale may
be made in writing or by word of mouth, or partly in writing and partly by word of mouth or
may be implied by the conduct of the parties.

In nutshell, a contract of the sale may be made in any of the following modes:

1. There may be an immediate delivery of the goods; or

2. There may be an immediate payment of a price, but it may be agreed that the
delivery is to be made at some future date; or
3. There may be an immediate delivery of the goods and an immediate payment of
the price; or
4. It may be agreed that the delivery or the payment or both are to be made in
instalments; or
5. It may be agreed that the delivery or the payment or both are to be made at some
future date.

Deeming provisions

3 (1) A thing is deemed to be done in good faith within the meaning of this Act when it is in
fact done honestly, whether it be done negligently or not.

(2) A person is deemed to be insolvent within the meaning of this Act who either has ceased
to pay his debts in the ordinary course of business or cannot pay his debts as they become
due.

(3) Goods are in a deliverable state within the meaning of this Act when they are in such a
state that the buyer would, under the contract, be bound to take delivery of them. R.S., c. 408,
s. 3.
Further interpretive provisions

4 (1) 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 money consideration, called the "price", and
there may be a contract of sale between one part owner and another.

(2) A contract of sale may be absolute or conditional.

(3) 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".

(4) 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. R.S., c. 408, s. 4.

Laws governing capacity to buy and sell

5 (1) In this Section, "necessaries" means goods suitable to the condition in life of such infant
or minor or other person, and to his actual requirements at the time of the sale and delivery.

(2) Capacity to buy and sell is regulated by the general law concerning capacity to contract
and to transfer and acquire property, provided that where necessaries are sold and delivered
to an infant or minor, or to a person who by reason of mental incapacity or drunkenness is
incompetent to contract, he must pay a reasonable price therefor. R.S., c. 408, s. 5.

Contract may be written or by parole or implied

Subject to this Act and to any statute in that behalf, a contract of sale may be made in
writing, either with or without seal, by word of mouth, partly in writing and partly by word of
mouth or may be implied from the conduct of the parties, provided that nothing in this
Section shall affect the law relating to corporations. R.S., c. 408, s. 6.

Summary:

The Act deals with the subject-matter of movable property. This Act does not deal with the
sale of immovable property. The transaction relating to immovable properties, e.g., the sale,
lease, gifts, etc., are governed by a separate Act known as the Transfer of Property Act, 1882.

Self-Assessment Questions:

1. What is a contract of sale called? Explain with suitable examples.

2. What do you mean by sale of goods?
3. State the essential features of Contract of Sale of Goods.
1. Mr. Raj agrees to deliver in future 100 computer sets for Rs. 30 lakhs in exchange of
200 fridge sets worth Rs. 40 lakhs and Rs. 60,000 in cash. This is a
(a) Barter
(b) Agreement to sell
(c) Hire-purchase Agreement
(d) Pledge.
2. The Sale of Goods Act applies only to
(a) Sale of goods
(b) Sale of services
(c) Both sale of goods and sale of services
(d) Mortgage of property or barter of goods.