Sales of Goods Act 1930 | Business Law

Sale of Goods Act, 1930

In trade and commerce, sales and purchase of goods are very common transactions. Originally, the transactions related to sale and purchase of goods was regulated by Chapter VII (Sections 76 to 123) of the Indian Contract Act 1872 – which was broadly based on English common law.

A separate act, the Sales of Goods Act 1930 came into force on 1st July 1930. It extends to the whole of India. It does not affect rights, interests, obligations and titles acquired before the commencement of the Act. The Act deals with the sale but not with mortgage or pledge of the goods.

Contract of Sale

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 [Sec.4]. A contract of sale may be absolute or conditional.

Definitions

Buyer – Sec 2 (1)

Buyer means a person who buys or agrees to buy goods.

Delivery- Sec 2 (2)

Delivery means voluntary transfer of the possession from one person to another.

Deliverable state- Sec 2 (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.

Document of Title- Sec 2 (4)

A document of the title to goods may be described as any document used as proof of the possession or control of goods, authorizing or purporting to authorize, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented.

Fault – Sec 2 (5)

Fault means wrongful act or default.

Future goods- Sec 2 (6)

Future goods mean goods to be manufactured or produced or acquired by the seller after the making of the contract of sale.

Goods- Sec 2 (7)

Goods mean 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.

Insolvent- Section 2 (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.

Mercantile agent- Section 2 (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.

Price – Section 2(10)

Price means the money consideration for a sale of goods.

Property- Section 2(11)

Property means the general property in goods and not merely a special property.

Seller- Section 2 (13)

Seller means a person who sells or agrees to sell goods.

Specific goods- Section 2(14)

Specific goods mean goods identified and agreed upon at the time a contract of sale is made.

Elements of Contract of Sale

The five essentials of valid sales act of sale are as discussed below:

1. Two parties
2. Goods
3. Price
4. Transfer of General Property
5. Valid Contract

You may form a mental model of the formation of contract. In other words, you will deal with four main concepts of the formation of a contract.

Two parties

There must be a seller as well as a buyer. ‘Buyer’ means a person who buys or agrees to buy goods [Section 2 (1)]. ‘Seller’ means a person who sells or agrees to sell goods [Section 2(13)]. A person cannot be a seller as well as a buyer as a person cannot buy his own goods.

Goods

There must be some 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 [Sale 2(7)]. Contracts relating to actionable claims, immovable property and services are not covered by this Act.

• The ‘actionable claims’ mean a claim which can be enforced through the courts of law. Eg., a due from one person to another is an actionable claim.
• The ‘money’ here means the legal tender (i.e., currency of the country) and not old coins.

Transfer of Property

Property means the general property in goods, and not merely a special property [Section 2(11)]. General property in goods means ownership of the goods. Special property in goods means possession of goods.

Thus, there must be either a transfer of ownership of goods or an agreement to transfer the ownership of goods. The ownership may transfer either immediately on completion of sale or sometime in future in agreement to sell.

Price

There must be a price. Price here means the money consideration for a sale of goods. When the consideration is only goods, it amounts to a ‘barter’ and not sale.

When there is no consideration, it amounts to gift and not sale. However, the consideration may be partly in money and partly in goods because the law does not prohibit as such.

How the Contract of Sale Comes About

As you have learnt in the Contract Act, no particular form is necessary to constitute a contract of sale.

There are offer and acceptance, the communication may be formal, informal, or implied. The sale and transfer may occur immediately before, after simultaneous, or payment in instalments.

In order to understand exactly how the contract of sale comes about, you must learn some fundamental distinctions. Table: distinguishes between each of the following:

1. Sale and agreement to sell
2. Sale and hire-purchase
3. Agreement to sell and hire-purchase
4. Sale and bailment
5. Sale and contract for work and materials

The table is a logical consequence of the principles of contract that you studied in Contract Act Chapter which covered the Contract Act, 1872.

It goes to prove that both the Contract Act and Sale of Goods Act are complementary and both are based fundamentally on the same principles.

Difference Between Sale And Agreement To Sell

A contract of sale is a generic term and includes both an actual sale and an agreement to sell. Section 4 provides that if the property in goods is transferred from the seller to the buyer under a contract, the contract is called a sale.

Where the transfer of the property in the goods will take place at a future time or is subject to some condition which has to be fulfilled, the contract is called an agreement to sell.

Such an agreement to sell becomes a sale when the prescribed time lapses or the conditions are fulfilled.

Difference Between Sale and a Hire Purchase

A Hire purchase agreement is an agreement for hire of goods where the person who hires the goods has an option to purchase the goods at the end. The possession of the goods is delivered to such a hirer and he has to pay via instalments. The property in the goods passes to the hirer on the payment of the last instalments.

Difference Between Sale and a Bailment

Sale and Bailment are two different types of contracts. A contract of sale is a straight forward contract where a person may buy goods, services or property from a seller in exchange for remuneration, usually in the form of money. Essentially, in a bailment contract, the bailor gives the goods, assets or property to the bailee for a specific amount of time. However, the goods, assets or property still belongs to the bailor.

Business Law Notes

(Click on Topic to Read)

Business Law Book References

1. Goel, P. K. (2006). “Business Law for Managers” Wiley
2. Sheth, T. (2017). “Business Law” (2ed.) Pearson.
3. Kuchhal. M.C. & Prakash. “Business Legislation for Management” (2ed.) Vikas Publishing.

Go On, Share article with Friends

Did we miss something in Business Law Note? Come on! Tell us what you think about our article on Sales of Goods Act 1930 | Business Law in the comments section.