Sale of Goods

The term Sale of Goods describes a transaction in which a seller gives a buyer ownership of goods in return for payment or other consideration. The Sale of Goods Act, 1930, which specifies the rights and responsibilities of buyers and sellers to guarantee equitable and open transactions, governs this transaction.

Meaning of Sale of Goods

• A sale of goods is transfer of ownership of goods for a price from a seller to a buyer.
• It is a transaction between the parties on the basis of contract of sale of goods.
• Ownership is a legal right of a person over the goods.
• Sale and an agreement to sale both are included in the contract of sale that may be performed in the present or future.
• Contract of sale of goods is also a contract, so, it needs to be satisfied all the essential elements of valid contract, like capacity of parties, free consent, lawful objective, lawful consideration, intention to create a legal relationship etc.
• A contract of sale of goods is a special contract.
• Goods are the fundamental factors in a Contract of Sale of goods.
• Goods include every king of movable goods or property, except money and actionable claim of goods.
• Goods that are movable include shares, patents, designs, copyright, car, crops etc.
• Immovable property means which are not separated from the earth.

Definition of Sale of Goods

According to Section 545 of General Civil Code 2074; ‘Where a seller agrees to transfer any goods immediately or in future against the price of that goods, there is a contract of sale of goods.’
A contract of sale of goods is a contract whereby the seller transfer or agree to transfer the property in goods to the buyer for a price.

Features of Contract of Sale of Goods

• Two parties Buyer and Seller
• Goods are most essentials
• Transfer of Ownership of Goods
• Transfer of Ownership of goods for Price
• Goods may be present, future and Contingent

Essentials of Contract of Sale of Goods

• Two Parties: There must be two parties to form a contract of sale of goods as the seller and buyer. The party, who agrees to sell goods, is called seller and the party who buys such goods is called buyer. Under this contract, the good has to pass from seller to buyer under their free consent.
• Transfer of Ownership: Ownership of goods must be transferred from seller to buyer according to the contact of sale of goods. Only transfer of possession is not a transfer of ownership.
• Goods: Goods means every kind of movable property except money, debenture and actionable claim. Like; furniture, vehicles, clothes etc. The goods are the subject matter of the contract of sale of goods, so it is an important essential for contract of sale of goods.
• Price of goods: The price plays significant role for determination of consideration in the contract of sale of goods. It is determined by money or money is a consideration for a sale of goods that is why the price is another important essential features.
• Sale and agreement to sell: The terms of sale and agreement to sell are different matter. When the goods are transferred from the seller to buyer immediately such contract is called the sale. But where the transfer of goods is to take place at future is called the agreement to sell.
• Express and implied: The contract of sale of goods can be formed in expressed or implied both mode.

Terms of Contract of sale:

The contract for sale of goods may be absolute or conditional. The terms or conditions under the contract of sale of goods are follows;

• Place of delivery,
• Place of payment,
• Mode of payment or delivery of goods,
• Time of payment or delivery etc.

Essential elements of Valid Contract:

Contract of sale is the special contract, so there must be the essential elements of valid contract.

Kinds of Goods

• Existing / Present Goods: Physically present at time of sale of goods or possessed by a seller at the time of making of contract of sale.
  Specific Goods: Selected goods One Cycle among 10 cycle
  Ascertained Goods: Identified goods like Nokia Mobile.
  Unascertained or Generic Goods: For an example Table.
• Future Goods: Goods to be produced of Manufactured after contract of sale of goods
• Contingent Goods: This is also future goods. It depends on the future event which may or may not happen.

Transfer of Ownership

• The general rule is that only the true owner is entitled to sell the goods. But can not sell the goods belonging to others or the goods possessed or owned by other.
• If the sellers’ title to the goods is defective, the buyer’s title will also be defective, though the buyer has acted bonafide and has paid for the goods.
• This rule is based on Latin maxim “Namo dat quod non habet” The English version of this phrase is “no one can give what he does not have had himself.”
• Section 550 of General Civil Code 2074 has recognized this rule. Similarly the Supreme court of Nepal has recognized this rule under its’ judicial decision that no one can pass the better title than he has not acquired.
• The general aim of this doctrine is to protect the interest of society and to secure the right of the true owner of goods. Main intention of this rule is only the true owner can pass a better title of the goods

Transfer of Title by Non Owner:

• Sale by mercantile agent.
• Transfer of title by a co-owner.
• Sale of goods in possession under a voidable contract.
• Sale of goods in possession of seller after an agreement to sell.
• Sale by an unpaid seller.
• Sale under other laws like; pledge, finder of lost goods, official receiver.
• Purchase in free market.

Meaning of Conditions

• Those terms which are essential or basic element of contract of sale are regarded as conditions and other secondary or assisting terms of sale are regarded as warranty.
• Both the condition and warranty play an important role in the contract of sale of goods.
• It is necessary to fulfill both the conditions and warranties before the performance of contract, otherwise performance of contract becomes impossible and contract can be terminated.
• Condition are the major term of contract of sale of goods. It relates with the main purpose of the contract of sale of goods. Like; Quantity, Quality, Price, purpose, mode of payment and delivery of goods, and others descriptions of goods.
• Term ‘condition’ has not been directly defined under particular section of GCC 2074 but made various provisions under different section in this respect,
• Indian sale of goods Act, 1930 Section 12(2) has made clear definition of condition; “A condition is a stipulation (agree to the term in the contract) essential to the main purpose of the contract; the breach of which gives the aggrieved party a right to repudiate (to refuse or to reject) the contract itself.”
• On the basis of above definition, we can conclude some of major terms of contract of sale of goods are called conditions. By virtue of violation of those conditions contract can be repudiated.

Types of Conditions

Express Condition: A condition may be either express or implied. Conditions, which are inserted in clear words in the contract, are called express conditions.
Implied Condition: Implied conditions are those, which are not expressly incorporated in clear words in the contract by the parties at the time of forming. which are stated as below:

• If sale by description.
• Condition as title of goods.
• Sale by sample.
• Satisfactory and Merchantable quality of goods.
• Condition as usage of trade etc.

Meaning of Warranty

• Warranty is secondary terms of contract for sale of goods. It is secondary stipulation to the main purpose and to support the main purpose of the contract.
• The GCC 2074 has not expressed provisions about “warranty” of contract of sale of goods.
• But Section 12(3) of Indian Sale of goods Act,1930 has stated; “A warranty is stipulation collateral to the main purpose of the contract; the breach of which gives the aggrieved party right to sue for damage only, and not to avoid the contract itself.
• In another word; some are minor terms and conditions, which may insert under the contract of sale of goods, are called warranties.

Types of Warranty

• Express warranty: Express warranties are those which clearly mentioned in such contract and parties are agreed upon those at the time of formation of contract.
• Implied warranty: Implied warranties are those which the law presumes to have been incorporated in the agreement of contract of sale. They are as follow:
• Warranty of quite possession of buyer: The buyer have enjoy quite possession of the goods. In case of breach of warranty buyer is entitled to claim damages from seller. Warranty of freedom from any encumbrances or charges, Warranty of use of trade, Fitness of goods those are required for a purpose.
• Disclosing the dangerous nature of goods to the uninformed buyer: In case the goods sold are dangerous nature he must warn the buyer of the probable danger.
• If there is breach of warranty the buyer is entitled to claim compensation for the injury caused to him

Performance of Contract of Sale of Goods

• ‘Performance’ means fulfillment of respective promise.
• It means fulfillment of respective obligations of seller and buyer as per terms and conditions of contract of sale of goods.
• The performance of contract of sale implies delivery of goods by the seller and acceptance of delivery of goods and payment for them by the buyer in accordance with terms of agreement.
• The parties are free to provide any terms in their contract about time, place and manner of delivery of goods, or acceptance of goods and as well as time and mode of payment for price.
• Delivery of goods from by seller and payment of price for them by buyer is the performance of contract of sale of goods.
• These are reciprocal promises of contract for sale of goods.
• There are three main processes of performance of contract of sale of goods. Transfer or delivery of goods. Acceptance of the goods by the buyer. To pay a price for the goods.

Unpaid Seller

• A seller becomes unpaid seller when he fails to get the whole payment from buyer at said time or when the bank dishonors negotiable instrument received by him for payment.
• The General Civil Code, 2074 has not defined the term unpaid seller. Section 45(2) of Indian Sale of goods Act, 1930 has defined the term as “the seller is deemed to be unpaid seller;
  a. when the whole of the price has not been paid or tendered, or
  b. when a conditional payment was made by a bill of exchange or other negotiable instrument, and the instrument has been dishonored”.
• Thus the seller becomes unpaid seller as soon as he does not get whole payment for his goods from the buyer within the prescribed time in the contract.

Characteristics of Unpaid Seller

• The seller must not have yet received the price of goods as prescribed in the contract.
• The seller must not have got price either the wholly or partly.
• The seller must not have received the payment due to dishonor of negotiable instrument. e.g Cheque, Bill of Exchange, Promissory note etc. from bank or other related party.
• When the whole or partial price is not paid on the due date or in time.

Rights of Unpaid Seller

Right against the Goods

• Rights of lien: The unpaid seller has right to hold the goods and keep them until the price paid.
• Rights of stoppage of goods in transit: When buyer becomes insolvent or unable to pay, unpaid seller can stop the goods on the way or transit.
• Right of resale: On the situation of insolvent or unable to payment; unpaid seller can resale the goods.
• Rights against the buyer: An unpaid seller has following rights against the buyer.
• Right to suit for price: When goods are passed to the buyer but latter buyer does not pay the price at prescribed time, unpaid seller can sue against buyer for the price.
• Right to suit for damages or non performance of contract: When buyer wrongfully neglects to receive or refuses to accept the agreed goods, seller may demand the damage by filing suit.
• Right to suit for special damages and interest: The unpaid seller can demand special damage or interest on the price of the goods from buyer by filing suit.

Doctrine of Caveat Emptor

• Doctrine of ‘Caveat Emptor’ is a Latin expression. It means ‘Let the Buyer beware’.
• Buyer must take the precaution before buying goods.
• Quality, Quantity, Size, Purpose of goods must be determined by buyer.
• Buyer must inspect all facts about the goods before buying the goods. ( Ward vs. Hobbs (1878) 4 A. C. 13)
• Exceptions of Doctrine of Caveat Emptor
• Disclosure of Particular Purpose
• Misrepresentation by seller
• In case of Concealment of Defect
• In case of sale by description
• In case of sale by Sample

Frequently Asked Questions (FAQ)

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