Formalities of a Contract
Section 2. Definitions.
Unless the context clearly means otherwise, in this Act the following terms have these meanings:
(1).
Buyer
It refers to a person who buys goods.
It also includes a person who agrees to buy goods, even if the purchase is not yet completed.
(2).
Delivery
Delivery refers to a voluntary act.
It involves the transfer of possession of goods.
The transfer is from one person to another.
(3).
Deliverable State
Goods are considered to be in a deliverable state when they are in the proper condition for delivery.
This means the goods are in such a state that the buyer is obligated, under the terms of the contract, to take delivery of them.
So deliverable state is when the goods are ready for the buyer to accept and take possession.
(4).
Document of Title to Goods
A document of title to goods refers to certain documents that act as proof of possession or control over goods.
These documents may also authorize the holder to transfer or receive the goods mentioned in them.
It includes the following examples:
Bill of lading.
Dock warrant.
Warehouse keeper’s certificate.
Wharfinger’s certificate.
Railway receipt.
Multimodal transport document.
Warrant or order for delivery of goods.
It also includes any other document commonly used in business to:
Show that a person has possession or control of the goods.
Allow the holder, through endorsement or delivery, to transfer or receive the goods described.
(5).
Fault
Fault refers to a wrongful act.
It also includes a default or a failure to do something one is required to do.
(6).
Future Goods
Future goods are goods that do not yet exist at the time the contract is made.
These goods will be manufactured, produced, or acquired by the seller after the contract of sale is entered into.
(7).
Goods
Goods refers to all types of movable property.
It does not include:
Actionable claims (claims enforceable by legal action).
Money.
The term includes the following as goods:
Stock and shares.
Growing crops.
Grass.
Things attached to land or forming part of the land, if they are agreed to be severed (detached) before the sale or under the contract of sale.
(8).
Insolvent
A person is considered insolvent when they have stopped paying their debts in the normal course of business.
A person is also insolvent if they are unable to pay their debts when the payments become due.
This definition applies even if the person has not committed a formal act of insolvency.
(9).
Mercantile Agent
A mercantile agent is an agent who works in the ordinary course of business as a commercial or trading agent.
Such an agent has the authority to do any of the following in the usual business practice:
Sell goods on behalf of the owner.
Consign goods (send goods to another party) for the purpose of sale.
Buy goods on behalf of someone else.
Raise money using goods as security
(10).
Price
Price refers to the money paid in exchange for goods.
It is the monetary consideration agreed upon for the sale of goods.
(11).
Property
Property refers to the general ownership of goods.
It doesn’t mean a special or limited interest in the goods.
(12).
Quality of Goods
Quality of goods refers to the nature or characteristics of the goods.
It also includes the state or condition the goods are in.
(13).
Seller
A seller is a person who sells goods.
The term also includes a person who agrees to sell goods, even if the sale has not yet been completed.
(14).
Specific Goods
Specific goods are goods that are clearly identified at the time the contract of sale is made.
These goods are also agreed upon by both parties when entering into the contract.
(15).
Expressions
Some expressions appear in this Act but are not defined within it.
If any such expression is defined in the Indian Contract Act, 1872, then that meaning will apply here.
Section 3. Application of provisions of Act 9 of 1872.
Some parts of the Indian Contract Act, 1872 are still in force.
These provisions will continue to apply to contracts for the sale of goods.
However, they apply only to the extent that they are not inconsistent with the specific provisions of the Sale of Goods Act.
Essentially
If both Acts say the same thing, the Contract Act also applies.
If there is a conflict, the Sale of Goods Act overrides the Contract Act.
Section 4. Sale and agreement to sell.
4(1).
A contract of sale of goods is an agreement in which the seller transfers or agrees to transfer ownership in the goods to the buyer.
The transfer is made in exchange for a price, which is the money consideration.
A contract of sale can also exist between two part-owners of the same goods.
So , even co-owners can enter into a sale contract where one transfers his share to the other.
4(2).
A contract of sale can take different forms.
It may be absolute, meaning it is complete and not dependent on any condition.
It may also be conditional, meaning the transfer of ownership depends on certain conditions being fulfilled.
4(3).
When ownership of the goods is transferred immediately from the seller to the buyer, the contract is called a sale.
When ownership will be transferred in the future, the contract is called an agreement to sell.
An agreement to sell also exists when the transfer will take place only after certain conditions are fulfilled.
4(4).
An agreement to sell is initially a contract where ownership is to be transferred later or upon certain conditions.
It becomes a sale when the time fixed in the contract passes or the required conditions are fulfilled.
Once that happens, the property /ownership in the goods transfers from the seller to the buyer.
Section 5. Contract of sale how made.
5(1).
A contract of sale is created when someone offers to buy or sell goods for a price, and the other party accepts that offer.
The contract may provide for immediate delivery of the goods.
It may provide for immediate payment of the price.
It may require both delivery and payment to happen immediately.
The contract may also allow delivery or payment in instalments.
Delivery and payment may also be postponed to a future date, depending on what the parties agree.
5(2).
A contract of sale can be created in different ways.
It may be made in writing.
It may be made by word of mouth (verbally).
It may be made partly in writing and partly verbally.
A contract of sale may also be implied from the conduct of the parties (their actions showing agreement).
All of this is subject to any law in force, meaning if a specific law requires writing, then that law must be followed.
Section 6. Existing or future goods.
6(1).
Goods involved in a contract of sale can be of two types.
They may be existing goods, which the seller already owns or possesses at the time of the contract.
They may also be future goods, which the seller will manufacture, produce, or acquire after the contract is made.
6(2).
A contract of sale can be made for goods that the seller does not yet have.
In such cases, the seller’s ability to acquire those goods depends on a contingency.
A contingency is an event that may or may not happen.
If the contingency occurs, the seller will be able to obtain the goods.
If it does not occur, the seller may not be able to acquire them.
6(3).
A seller may sometimes claim to make a present sale of goods that are actually future goods.
Since future goods do not yet exist, a present transfer of ownership is not possible.
In such cases, the contract automatically becomes an agreement to sell, not an immediate sale.
So , the ownership will pass only when the goods come into existence and the contract terms are fulfilled.
Section 7. Goods perishing before making of contract.
This rule applies to a contract for the sale of specific goods
Specific goods are already identified at the time of the contract.
If those goods had already perished or were damaged beyond recognition at the time the contract was made, the contract becomes void.
This applies only when the seller did not know that the goods were already destroyed or damaged.
Section 8. Goods perishing before sale but after agreement to sell.
This applies to an agreement to sell specific goods and the ownership will pass later.
After the agreement is made, the goods may perish or become seriously damaged.
This must happen without any fault of either the seller or the buyer.
The goods must be damaged or destroyed before the risk passes to the buyer.
If this happens, the agreement becomes void.
Section 9. Ascertainment of price.
9(1).
The price in a contract of sale can be fixed in different ways.
It may be directly fixed in the contract itself.
It may be left to be fixed later in a manner agreed upon in the contract.
It may be determined by the course of dealing between the parties, meaning the way they have previously set prices in past transactions.
9(2).
If the price is not fixed by the contract, not fixed by an agreed method, and not determined by past dealings, then the law steps in.
In such cases, the buyer must pay a reasonable price for the goods.
What counts as a reasonable price depends on the facts and circumstances of each individual case.
Section 10. Agreement to sell at valuation.
10(1).
Sometimes an agreement to sell goods states that the price will be fixed by a third party (a valuer).
If that third party cannot or does not make the valuation, the agreement becomes void (is avoided).
Exception:
If the goods, or any part of them, have already been delivered to the buyer and appropriated by him (accepted as his own), then:
The buyer must pay a reasonable price for those goods.
10(2).
The valuation of the price is to be made by a third party as agreed in the contract.
If that third party is prevented from making the valuation because of the fault of either the seller or the buyer, consequences follow.
The party who is not at fault has the right to file a suit for damages against the party who caused the obstruction.
Section 11. Stipulations as to time.
In a contract of sale, time of payment is generally not considered essential, unless the contract clearly shows a different intention.
So , a delay in payment does not automatically amount to a breach that ends the contract, unless the contract says otherwise.
Whether any other time-related condition (such as time of delivery) is essential depends on the specific terms of the contract.
Section 12. Condition and warranty.
12(1).
A contract of sale may contain different types of stipulations (terms) relating to the goods being sold.
Such a stipulation can be either a condition or a warranty.
12(2).
A condition is a term that is essential to the main purpose of the contract.
It is a fundamental requirement without which the contract would lose its meaning.
If a condition is breached, the buyer gets the right to treat the entire contract as repudiated (ended).
12(3).
A warranty is a term that is not essential to the main purpose of the contract.
It is a secondary or collateral stipulation.
If a warranty is breached, the buyer can claim damages for the loss caused.
However, the buyer cannot reject the goods because of this breach.
The buyer also cannot treat the contract as repudiated (Cannot cancel the whole contract).
12(4).
Whether a term in a contract of sale is a condition or a warranty depends on how the contract is interpreted in each specific case.
The true nature of the stipulation is determined by its importance and purpose, not just by the label used.
A term may still be treated as a condition even if the contract describes it as a warranty.
Section 13. When condition to be treated as warranty.
13(1).
Sometimes a contract of sale has a condition that the seller must fulfil.
If the seller fails to fulfil that condition, the buyer has options.
The buyer may waive the condition so he chooses to proceed with the contract despite the breach.
The buyer may also treat the breach of condition as a breach of warranty instead.
This means the buyer accepts the goods but may claim damages, rather than repudiating (ending) the entire contract.
13(2).
This rule applies when a contract of sale is not severable and it is treated as one whole and not divided into parts.
If the buyer has accepted the goods, or even a part of them, certain limits apply.
After such acceptance, a breach of a condition by the seller can only be treated as a breach of warranty.
So, the buyer may claim damages, but cannot reject the goods or treat the contract as repudiated.
Exception:
If the contract contains a specific term, either express or implied, allowing the buyer to reject the goods even after acceptance, then the buyer may still do so.
13(3).
This provision creates an exception to the earlier rules about conditions and warranties.
Some conditions or warranties may be excused by law, meaning the law does not require them to be fulfilled.
This may happen due to impossibility or other legal reasons.
In such cases, the rules in this section do not apply.
Section 14. Implied undertaking as to title, etc.
In a contract of sale, unless the contract shows a different intention, the following implied terms automatically apply:
(a).
There is an implied condition that:
In the case of a sale, the seller has the right to sell the goods.
In the case of an agreement to sell, the seller will have the right to sell the goods at the time when ownership is supposed to pass to the buyer.
(b).
There is an implied warranty that the buyer shall have and enjoy quiet possession of the goods.
So , no one should disturb the buyer’s possession based on a better title.
(c).
There is an implied warranty that the goods will be free from any charge or encumbrance in favour of a third party.
This applies unless such encumbrance was disclosed or known to the buyer before or at the time the contract was made.
So , the buyer should not face unexpected claims on the goods.
Section 15. Sale by description.
When goods are sold by description, there is an implied condition that the goods must match the description given.
If the sale is both by sample and by description, the goods must satisfy both requirements.
It is not enough for the bulk of the goods to match the sample.
The goods must also match the description stated in the contract.
So,
Description must match.
Sample must match (if provided).
Matching the sample alone is not sufficient if the goods fail to match the contractual description.
Section 16. Implied conditions as to quality or fitness.
Generally, in a contract of sale, there is no implied condition or warranty about the quality of the goods or their fitness for a specific purpose.
This rule applies subject to the provisions of this Act and any other applicable law.
In other words, unless the law or the contract expressly provides otherwise, the seller is not automatically responsible for quality or fitness.
There are situations where these implied warranties or conditions apply:
16(1).
When the buyer tells the seller, either expressly or impliedly, the specific purpose for which the goods are required, a legal implication arises.
This communication must show that the buyer is relying on the seller’s skill or judgment.
The goods must be of a type that the seller normally supplies in the course of his business, whether or not he is the manufacturer.
In such a case, there is an implied condition that the goods will be reasonably fit for the purpose the buyer has indicated.
When a contract involves the sale of a specific item identified by its patent or trade name, there is no implied condition that the item will be fit for any particular purpose.
In such cases, the buyer is considered to have selected the product by name, based on his own judgment.
Because the buyer chooses the branded or patented item himself, the seller is not responsible for ensuring that it fits the buyer’s specific purpose.
16(2).
When goods are purchased by description from a seller who deals in goods of that kind, an implied condition arises.
This implied condition requires that the goods be of merchantable quality.
Merchantable Quality means that they must be fit for sale and reasonably suitable for their ordinary use.
This rule applies even if the seller is not the manufacturer or producer of the goods.
However, if the buyer has examined the goods, the implied condition does not extend to defects that a proper examination should have revealed.
16(3).
An implied warranty or condition about the quality or fitness of goods can arise from trade usage.
This happens when a custom or practice is widely recognized and consistently followed in a particular trade.
The law may treat such a custom as part of the contract, even if the parties did not expressly mention it.
In effect, trade customs create implied promises about the quality or suitability of the goods.
So , if something is normally expected in that line of business, it may automatically become a contractual obligation.
16(4).
An express warranty or condition is one that is clearly stated in the contract.
Such an express term does not cancel or remove an implied warranty or condition provided by the Act.
The only exception is when the express term is inconsistent with the implied one.
So ,
Both express and implied terms apply together.
Unless the express term conflicts with the implied term, in which case the express term prevails.
Section 17. Sale by sample.
17(1).
A contract of sale is considered a sale by sample when the contract contains a term stating this.
This term may be express (clearly written or spoken) or implied (understood from the circumstances).
17(2).
In a sale by sample, the following implied conditions apply:
(a).
The bulk of the goods must match the sample in quality.
What the buyer receives must be of the same quality as the sample shown.
(b).
The buyer must be given a reasonable opportunity to compare the bulk with the sample.
The buyer should be able to check whether the goods correspond to the sample.
(c).
The goods must be free from any hidden defects that would make them unmerchantable.
These defects must be of a kind that would not be noticed during a reasonable examination of the sample.
