Contacts for sale of goods

The contacts for sale of goods are subject to the general principles of the law relating to contracts i.e. the Indian Contact Act. A contract for sale of goods has, however, certain peculiar 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 sale of goods, etc. These peculiarities are the subject matter of the provisions of the Sale of Goods Act, 1930.

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 price. It thus includes both an actual ‘sale’ and an ‘agreement to sell’, which has been distinguished later.

Goods

‘Goods’ means every kind of movable property other than actionable claims and money; and includes stocks and shares, growing crops, grass and things attached to or forming part of the land, which are agreed to be served from land before sale, or under for contract of sale.

Sale

A ‘sale’ must be distinguished from an ‘agreement to sell’ since the legal implications of the two terms are vastly different. A contract wherein, the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of property in the goods is to take place at a future time, or subject to some conditions, thereafter to be fulfilled, it is called an agreement to sell. 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.

There are various kinds of goods and the parties have various options to agree about the delivery of the goods. What shall be the fate of a contract if the goods are perished or destroyed?

Destruction before making of contract:

• Destruction before making of contract — Where in a contract for sale of specific goods, at the time of making the contract, the goods, without knowledge of the seller, have perished or become so damaged as no longer to answer to their description in the contract, the contract shall become null and void. This is based on the rule of impossibility of performance. Since the subject matter of the contract, which is one of its essential ingredients, itself is destroyed, the contract cannot be carried out.

‘Perishing of goods’ includes not only complete destruction of the goods when the seller has been irretrievably deprived by the goods or when the goods have been stolen or have in some other way been lost and are untraceable, but also when the goods become un merchantable i.e. when the goods has lost their commercial value.

Destruction After the Agreement to Sell but before Sale:

• Destruction After the Agreement to Sell but before Sale — Where in an agreement to sell specific goods, if subsequently the goods, without any fault on the part of the seller of buyer, perish or become so damaged as no longer answer to their description in the agreement, the agreement shall become void, provided the goods are perished before the ownership and risk passes to the buyer. This rule is based on the ground of impossibility of performance.

If the title to be goods has already passed to the buyer, he must pay for the goods though the same cannot be delivered.

Document of title to goods:

• A document of title to goods is one, which entitles and enables its rightful holder to deal with the goods represented by it, as if he were the owner. It is used in the ordinary course of business as proof of the ownership, possession or control of goods. It authorizes the possessor to receive the goods. It also confers a right on the possessor to transfer the goods to another person, by mere delivery or by proper endorsement the delivery.

  Cash memo, bill of lading, dock warrant, warehouse keeper’s or wharfinger’s certificate, lorry receipt (L/R), railway receipt (R/R) and delivery order are some of the instances of document of title to goods.

Transfer of property

The property in the goods is said, to be transferred from the seller to the buyer when the latter acquires the proprietary rights over the goods and the obligations linked thereto. ‘Property in Goods’ which means the ownership of goods, is different from ‘ possession of goods’ which means the physical custody or control of the goods.

The transfer of property in the goods from the seller to the buyer is the essence of a contract of sale. Therefore the moment when the property in goods passes from the seller to the buyer is significant for following reasons:

Ownership

• Ownership — The moment the property in goods passes, the seller ceases to be their owner and the buyer acquires the ownership. The buyer can exercise the proprietary rights over the goods. For example, the buyer may sue the seller for non-delivery of the goods or when the seller has resold the goods, etc.

Risk follows ownership

• Risk follows ownership — The general rule is that the risk follows the ownership, irrespective of whether the delivery has been made or not. If the goods are damaged or destroyed, the loss shall be borne by the person who was the owner of the goods at the time of damage or destruction. Thus the risk of loss prima facie is in the person in whom the property is.

Action Against Third parties

• Action Against Third parties — When the goods are in any way damaged or destroyed by the action of third parties, it is only the owner of the goods who can take action against them.

Suit for Price

• Suit for Price – The seller can sue the buyer for the price, unless otherwise agreed, only after the gods have become the property of the buyer.

Insolvency

• Insolvency – In the event of insolvency of either the seller or the buyer, the question whether the goods can be taken over by the Official Receiver or Assignee, will depend on whether the property in goods is with the party who has become insolvent.

The two essentials requirements for transfer of property in the goods are:

• Goods must be ascertained: Unless the goods are ascertained, they (or the property therein) cannot pass from the seller to the buyer. Thus, where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained
• Intention to PASS Property in Goods must be there: In a sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case.

Conveyance

“Conveyance” includes a conveyance on sale and every instrument by which property, whether movable or immovable, is transferred inter vivos and which is not otherwise specifically provided for by Schedule I.

“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 will be considered goods”

It is a contract, whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There can be contract of sale between one part owner and another.

As per section 61 of the sale of goods act the term goods includes all personal property but does not include any services money or intangible property right such as the right to sue. Products of the soil are usually considered goods because they are sold with a view to severance.

A contract of sale is an example of executed contract. Where the agreement to sale is an example of executoree contract. In case of the sale, the right to sale the goods is in the hands of buyer conversely in agreement to sale the seller has the right to sale the goods.