This article is written by Rachit Garg from the University of Petroleum and Energy Studies, Dehradun. This article aims to give a brief introduction to the Sale of Goods Act, 1930 to explain the rights available along with remedies in case of a breach to the buyers.
The contract of sale is governed under the Sales of Goods Act, 1930. The laws as to the sale of goods were a part of the Indian Contract Act, 1872 (from Section 6 to 123) but as it was found inadequate to meet the growing complexities of the sale of mercantile transactions, the Sale of Goods Act was enacted in 1930.
The act governs, regulates, and maintains the contract of sale between the buyer and the seller.
Under the act, the buyer has been given some rights so that he/she can protect his/her interest and can file suit for a breach of contract. However, before understanding the rights of the buyer, the following concepts need to be known.
Definition of sale
According to Section 4 of the Sale of Goods Act, sale or contract of sale is referred to when the seller agrees to or transfers the goods to a buyer for some price. The contract can be oral or in writing and it can be absolute or conditional.
However, according to Section 5, there are three steps to constitute a contract of sale:
- Offer and Acceptance: There must be an offer to buy or sell the goods for a certain price and its acceptance for the contract of sale to exist.
- Delivery and Payment: For a contract of sale to exist, it is not necessary for the delivery of goods and for its payment to happen simultaneously and they can be made at different times or in instalments as per the contract.
- Express or implied contract: The contract can be made orally, expressly or in writing and can be partly oral and partly written.
What are the essential elements of a contract of sales?
Buyer and Seller
The contract of sales is bilateral in nature, that is, there must exist two parties to the contract – the buyer and the seller. The buyer and seller must be a different person as he/she cannot be a seller of his own goods or buy them on its own.
Good’s subject matter
Goods under Section 2(7) have been defined as anything which is movable, other than actionable claims (claims to debt) and money. It also includes stocks and shares, and anything attached to the land, like growing crops or grass, which is removed before the sale or under the contract of sales.
Is the sale of immovable property covered under this act?
Sale of immovable property like real estate and the land is not covered under this act and comes under the ambit of the Transfer of Property Act, 1882. To clarify from any confusion, according to Section 3 of this act, standing timber or growing crops and grass is not counted as ‘immovable property’.
Transfer of ownership of goods
The property in the goods must be transferred to the buyer by the seller. Here, ‘property’ does not mean mere possession of goods but the ownership of those goods. The same shall be transferred by the buyer to the seller or there must be an agreement for the same. Also, here ‘property’ is referred to as ‘general property’, that is, all ownership rights of the goods and not the ‘specific property’, which means having specific rights like the right of pawnee.
According to the Indian Contract Act,1872, consideration is essential for a valid contract. There should be a price for consideration in a contract of sale. However, if the goods offered as consideration for goods, it will not be a sale but will amount to barter. Similarly, if there is no consideration, it is a gift. But when the goods are sold for a definite sum and price is paid partly in kind and partly in case, then the transaction will amount to sale.
It has been mentioned in Section 2(10) of the Sale of Goods Act that ‘price’ is money consideration for the sale and if the price is not fixed then the contract is void ab initio.
Essentials of a valid contract
For a contract of sale to exist, all the essential elements of a valid contract must be there, that is:
- Offer and Acceptance
- Intention to create a legal relationship
- Lawful Consideration
- Competent parties
- Free consent
- Lawful Object
- Not expressly declared void
The transfer of possession and ownership of goods has to be voluntary and must not be coerced.
Sale and Agreement to Sell
Contract of sale in its generic term includes both- actual sale and an agreement to sell. According to Section 4, a contract is called a sale when the goods are transferred from the seller to the buyer under a contract. Whereas, when the transfer of the goods takes place in future time or is subject to some condition that is yet to be fulfilled, then the contract is called an agreement to sell. When the prescribed time has lapsed or the condition has been fulfilled, then the agreement to sell becomes a sale.
Classification of Goods
Goods under this act can be classified into the following types:
These are owned or possessed by the seller at the time of the contract. These can be further classified as:
These goods are specified and agreed upon at the time contract of sale is made by the seller. For example, specified TV, ring, or car.
These goods are not specifically specified at the time of contract but indicated by description. For example, any 1 toy out of 50 toys.
These goods are referred to as those which are yet to be manufactured or produced after making the contract of sale and there exists an agreement to sell only.
For example, there is a contract between A and B to sell all the apples that will be produced in B’s farm and sold to A for a year.
These are those goods acquisition of which depend on a contingency that may happen in the future or not.
For example, A agrees to sell B a car if he is able to purchase it from its present owner.
Delivery is referred to as voluntary transfer of possession of goods from one person to another.
It can be categorized into three types:
It takes place when the goods are physically delivered to the buyer by the seller for the rightful possession of the goods.
It takes place when the person holds the goods in possession on behalf of the buyer and acknowledges it.
For example, A, a seller, holds the goods sold to B, acting as a bailee.
It happens by giving or indicating a symbol and the goods themselves are not delivered, instead, a means of obtaining the possession of those goods is delivered.
For example, delivery of car keys for the possession of a car.
Conditions and Warranties
When making a contract of sale, both the buyer and the seller make certain representations to each other. While some of these representations are mere opinions and are not part of the contract, while others may become a part of it. Those representations which become a part of the contract of sale can either be a condition or a warranty.
These are stipulations that are essential to the purpose of the contract of sale and their breach gives the right to the aggrieved party to terminate the contract.
For example, A purchases a car from B on the condition that the car has a mileage of 20km/lt. However, A finds out that the car has a mileage of 15km/lt and will amount to a breach of condition as this stipulation was the essential factor that formed the contract.
They are stipulations, collateral to the main purpose of the contract. However, their breach doesn’t give the aggrieved party the right to terminate the contract but they can claim damages for the same.
For example, A buys a car that was warranted to be comfortable while driving. Later A discovered that the car was not comfortable and A’s only remedy is to seek damage for the breach of warranty.
Rights of Buyer
Section 37 is about the delivery of the wrong quantity. It can be divided into three different cases:
- If the quantity delivered by the seller to the buyer is more than what was contracted for then the buyer can either accept that much and reject the remaining or he can reject the whole. If, however, he accepts the whole of goods that are delivered, he shall pay for it at the contract rate.
- If the quantity delivered by the seller to the buyer is less than to what was contracted, then the buyer can reject them. But if however, the buyer accepts the goods then he shall pay for it at the contract rate.
- If the seller delivers to the buyer mixed goods, that is, goods along with the ones not part of the contract, then the buyer can accept the goods in term with the contract and reject the rest, or he can reject the whole of them.
However, the buyer rejecting the goods does not mean the contract will be treated as cancelled. It will still be valid and subsisting. The seller has still the right to tender the goods again but the buyer can claim damages for the delay.
According to Section 38 (1), unless mentioned in the terms of the contract, if the seller delivers the goods in instalments, then the buyer can refuse to accept it.
As per Section 39(3), if unless otherwise agreed by them both, the seller shall inform the buyer if the goods are being delivered to him through sea route to get the goods insured. However, if the seller fails to do so then the goods shall be deemed to be at his own risk while being transmitted.
As per Section 41, the buyer must be given the opportunity to examine the goods on its delivery by the seller to ensure their conformity as per the contract.
According to Section 36(5), it is the responsibility of the seller to bear all the expenses to put the goods in a deliverable state unless otherwise agreed upon by the parties.
Right to file for a suit for breach of the Contract against the seller
Damages for Non-Delivery
Section 57 deals with damages from non-delivery, according to which if the seller has intentionally or wrongfully neglected the delivery of goods to the buyer then he/she can sue the seller for the same. If the property in the goods has been transferred to the buyer and he/she has the right to immediate possession, then he/she shall be remedied for any person whose activities are inconsistent with his rights.
To calculate the damages, the difference between the contract price and the market price is taken on which the damage has occurred. In case of advance payment by the buyer, it is to be calculated from the date he made that payment.
Suit for Specific Performance
According to Section 58, subject to the provision of the Specific Relief Act, 1877, the court may direct the defendant that the contract must be performed specifically in case of a breach of the contract. These situations occur when the damages are not necessarily sufficient as a remedy.
For example, A agrees to sell B a painting for Rs. 5 lakhs and later refuses to sell it. B can file a suit against A since there is no exact substitute for the painting.
Remedy for Breach of Warranty
According to Section 59, if there is a breach of warranty on the part of the seller, then the buyer cannot reject the goods on the basis of that but he can sue the seller for reduction or extinction of the price. In case the seller gave a warranty regarding the quality of the goods and it has been breached, then the damages are to be determined on the basis of the value of the goods at the time of the delivery and it should have been its actual worth according to the contract.
The contract of sale is governed by the Sale of Goods Act, 1872. There is a possibility of a breach of the contract by either of the parties, that is, the buyer and the seller. This makes it necessary for some remedies along with rights and duties to be made available to them in case of such breach, especially to the buyer as their rights can be violated by the seller for personal gains. These rights and duties act as a safeguard for the buyer, as well as for the seller.
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