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[Audio] CHAPTER 3 THE SALE OF GOODS ACT, 1930 UNIT -1: FORMATION OF THE CONTRACT OF SALE LEARNING OUTCOMES After studying this unit, you would be able to understand- ♦ Scope of the Act ♦ Definitions of certain terms. ♦ Meaning of contract of sale. ♦ Distinctions of sale from other similar contracts. ♦ Formalities of contract of sale. ♦ Subject matter of contract of sale. ♦ Ascertainment of price for the contract of sale. © The Institute of Chartered Accountants of India.

[Audio] BUSINESS LAWS 3.2 UNIT OVERVIEW Contract of Sale Price Goods Agreement Transfer of Property Essentials of valid contract Buyer Seller Money consideration Existing Goods Future Goods Contingent Goods Immediate Transfer (Sale) Yet to be transferred (Agreement to sell) Specific Ascertained Unascertained Sale of Goods before Sale of Goods Act, 1930 The Sale of Goods Act, 1930 deals with the laws relating to sale of goods in India. This Act is mainly based on English Sale of Goods Act, 1893. Before the Sale of Goods Act, 1930, all the provisions relating to sale of goods was covered under the Chapter VII of Indian Contract Act, 1872. A strong need was felt to have an independent Sale of Goods Act and consequently a new act called the Sale of Goods Act, 1930 was passed. The Act came into force from 1st July 1930 and extends to whole of India. INTRODUCTION Sale of goods is one of the specific forms of contracts recognized and regulated by law in India. Sale is a typical bargain between the buyer and the seller. The Sale of Goods Act, 1930 allows the parties to modify the provisions of the law by express stipulations. However, in some cases, this freedom is severely restricted. Sale of Goods Act, 1930 is an Act to define and amend the law relating to the sale of goods. 1.1 SCOPE OF THE ACT The provisions of the Act are applicable to the contracts related to the sale of goods which means movable properties. The Act is not applicable for the sale of immovable properties like land, fields, shop or house etc. For immovable property, Transfer of Property Act, 1882 is applicable. Sale of Goods Act, 1930 deals only with movable property. The general provisions of the Indian Contract Act, 1872 apply to a Contract of Sale of Goods as far as they are not inconsistent with the express provisions of the Sale of Goods Act. © The Institute of Chartered Accountants of India.

[Audio] 3.3 THE SALE OF GOODS ACT, 1930 The expressions used but not defined in the Sales of Goods Act, 1930 and defined in the Indian Contract Act, 1872 have the meanings assigned to them in that Act. The customs and usages will bind both the parties if these are reasonable and are known to the parties at the time of entering the contract of sale. 1.2 DEFINITIONS The Sale of Goods Act, 1930 defines the terms which have been frequently used in the Act, which are as follows – (A) Buyer and Seller: '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)]. The two terms, 'buyer' and 'seller' are complementary and represent the two parties to a contract of sale of goods. Both the terms are, however, used in a sense wider than their common meaning. Not only the person who buys but also the one who agrees to buy is a buyer. Similarly, a 'seller' means not only a person who sells but also a person who agrees to sell. (B) Goods and other related terms: "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/ separated from the land before sale or under the contract of sale. [Section 2(7)] 'Actionable claims' are claims, which can be enforced only by an action or suit, e.g., debt. A debt is not a movable property or goods. Even the Fixed Deposit Receipts (FDR) are considered as goods under Section 176 of the Indian Contract Act read with Section 2(7) of the Sales of Goods Act. "Goods" include both tangible goods and intangible goods like goodwill, copyrights, patents, trademarks etc. Stock and shares, gas, steam, water, electricity and decree of the court are also considered to be goods. © The Institute of Chartered Accountants of India.

[Audio] BUSINESS LAWS 3.4 Also includes Other than Stock & Shares Goods Actionable claims Growing crops Means every kind of movable property Money in circulation Grass, and Things attached to or forming part of land which agreed to be severed Classification of Goods Goods Existing Goods Future Goods Contingent Goods Specific Ascertained Unascertained (i) EXISTING GOODS are such goods which are in existence at the time of the contract of sale, i.e., those owned or possessed or acquired by the seller at the time of contract of sale (Section 6). The existing goods may be of following kinds: (a) Specific goods mean goods identified and agreed upon at the time a contract of sale is made [Section 2(14)]. Example 1: Any specified and finally decided goods like a Samsung Galaxy S7 Edge, Whirlpool washing machine of 7 kg etc. Example 2: 'A' had five cars of different models. He agreed to sell his 'Santro' car to 'B' and 'B' agreed to purchase the same 'Santro' car. In this case, the sale is for specific goods as the car has been identified and agreed at the time of the contract of sale. © The Institute of Chartered Accountants of India.

[Audio] 3.5 THE SALE OF GOODS ACT, 1930 (b) Ascertained Goods are those goods which are identified in accordance with the agreement after the contract of sale is made. This term is not defined in the Act but has been judicially interpreted. In actual practice, the term 'ascertained goods' is used in the same sense as 'specific goods.' When out of a lot or out of large quantity of unascertained goods, the number or quantity contracted for is identified, such identified goods are called ascertained goods. Example 3: A wholesaler of cotton has 100 bales in his godown. He agrees to sell 50 bales and these bales were selected and set aside. On selection, the goods become ascertained. In this case, the contract is for the sale of ascertained goods, as the cotton bales to be sold are identified and agreed after the formation of the contract. It may be noted that before the ascertainment of the goods, the contract was for the sale of unascertained goods. (c) Unascertained goods are the goods which are not specifically identified or ascertained at the time of making of the contract. They are indicated or defined only by description or sample. Example 4: If A agrees to sell to B one packet of salt out of the lot of one hundred packets lying in his shop, it is a sale of unascertained goods because it is not known which packet is to be delivered. As soon as a particular packet is separated from the lot, it becomes ascertained or specific goods. Example 5: X has ten horses. He promises to sell one of them but does not specify which horse he will sell. It is a contract of sale of unascertained goods. (ii) FUTURE GOODS means goods to be manufactured or produced or acquired by the seller after making the contract of sale [Section 2(6)]. A contract for the sale of future goods is always an agreement to sell. It is never actual sale because a person cannot transfer what is not in existence. Example 6: 1,000 quintals of potatoes to be grown on A's field is an example of agreement to sell. Example 7: P agrees to sell to Q all the milk that his cow may yield during the coming year. This is a contract for the sale of future goods. © The Institute of Chartered Accountants of India.

[Audio] BUSINESS LAWS 3.6 Example 8: T agrees to sell to S all the oranges which will be produced in his garden this year. It is contract of sale of future goods, amounting to 'an agreement to sell.' (iii) CONTINGENT GOODS: The acquisition of goods which depends upon an uncertain contingency (uncertain event) are called 'contingent goods' [Section 6(2)]. Contingent goods also operate as 'an agreement to sell' and not a 'sale' so far as the question of passing of property to the buyer is concerned. In other words, like the future goods, in the case of contingent goods also, the property does not pass to the buyer at the time of making the contract. Example 9: A agrees to sell to B a Picasso painting provided he is able to purchase it from its present owner. This is a contract for the sale of contingent goods. Example 10: P contracts to sell 50 pieces of particular article provided the ship which is bringing them reaches the port safely. This is an agreement for the sale of contingent goods. (C) Delivery - its forms and derivatives: Delivery means voluntary transfer of possession from one person to another [Section 2(2)]. As a general rule, delivery of goods may be made by doing anything, which has the effect of putting the goods in the possession of the buyer, or any person authorized to hold them on his behalf. Forms of delivery: Following are the kinds of delivery for transfer of possession: Delivery of Goods Voluntary transfer of possession by one person to another Actual delivery Constructive delivery Symbolic delivery (i) Actual delivery: When the goods are physically delivered to the buyer. Actual delivery takes place when the seller transfers the physical possession of the goods to the buyer or to a third person authorised to hold goods on behalf of the buyer. This is the most common method of delivery. (ii) Constructive delivery: When transfer of goods is effected without any change in the custody or actual possession of the thing as in the case of delivery by attornment (acknowledgement) Example 11: Where a warehouseman holding the goods of A agrees to hold them on behalf of B, at A's request. © The Institute of Chartered Accountants of India.

[Audio] 3.7 THE SALE OF GOODS ACT, 1930 Constructive delivery takes place when a person in possession of the goods belonging to the seller acknowledges to the buyer that he holds the goods on buyer's behalf. (iii) Symbolic delivery: When there is a delivery of a thing in token of a transfer of something else, i.e., delivery of goods in the course of transit may be made by handing over documents of title to goods, like bill of lading or railway receipt or delivery orders or the key of a warehouse containing the goods is handed over to buyer. Where actual delivery is not possible, there may be delivery of the means of getting possession of the goods. Goods are said to be in a deliverable state when they are in such a condition that the buyer would, under the contract, be bound to take delivery of them [Section 2(3)]. Example 12: When A contracts to sell timber and make bundles thereof, the goods will be in a deliverable state after A has put the goods in such a condition. (D) "Document of title to goods" includes bill of lading, dock-warrant, warehouse keeper's certificate, wharfingers' certificate, railway receipt, multimodal transport document, warrant or order for the delivery of goods and any other document used in the ordinary course of business as proof of the possession or control of goods or is for authorizing or purporting to authorize, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented. [Section 2(4)] Example 13: Bill of lading, dock warrant, warehouse keeper's certificate, wharfinger's certificate, railway receipt, warrant, an order of delivery of goods. The list is only illustrative and not exhaustive. Any other document which has the above characteristics also will fall under the same category. Though a bill of lading is a document of title, a mate's receipt is not; it is regarded at law as merely an acknowledgement for the receipt of goods. A document amounts to a document of title only where it shows an unconditional undertaking to deliver the goods to the holder of the document. However, there is a difference between a 'document showing title' and 'document of title'. A share certificate is a 'document' showing title but not a document of title. It merely shows that the person named in the share certificate is entitled to the share represented by it, but it does not allow that person to transfer the share mentioned therein by mere endorsement on the back of the certificate and the delivery of the certificate. © The Institute of Chartered Accountants of India.

[Audio] BUSINESS LAWS 3.8 (E) Mercantile Agent [Section 2(9)]: It means an agent who in the customary course of business has, as such agent, authority either to sell goods or to consign goods for the purpose of sale or to buy goods or to raise money on the security of the goods. Mercantile agent can borrow money by pledging the goods. Example 14: Such kind of agents are auctioneers or brokers, etc. (F) Property [Section 2(11)]: 'Property' here means 'ownership' or general property. In every contract of sale, the ownership of goods must be transferred by the seller to the buyer, or there should be an agreement by the seller to transfer the ownership to the buyer. It means the general property (right of ownership-in-goods) and not merely a special property. The property in the goods means the general property i.e., all ownership right of the goods. Note that the 'general property' in goods is to be distinguished from a 'special property'. It is quite possible that the general property in a thing may be in one person and a special property in the same thing may be in another e.g., when an article is pledged, the special property gets transferred and not the general property. The general property in a thing may be transferred, subject to the special property continuing to remain with another person i.e., the pledgee who has a right to retain the goods pledged till payment of the stipulated dues. Example 15: If A who owns certain goods pledges them to B, A has general property in the goods, whereas B has special property or interest in the goods to the extent of the amount of advance he has made. In case A fails to repay the amount borrowed on pledging the goods, then B may sell his goods but not otherwise. (G) Insolvent [Section 2(8)]: A person is said to be insolvent when he ceases 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. (H) Price [Section 2(10)]: Price means the money consideration for a sale of goods. It is the value of goods expressed in monetary terms. It is the essential requirement to make a contract of sale of goods. (I) Quality of goods includes their state or condition. [Section 2(12)] 1.3 SALE AND AGREEMENT TO SELL (SECTION 4) According to section 4(1), "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". There may be a contract of sale between one part-owner and another. A contract of sale may be absolute or conditional. [Section 4(2)] © The Institute of Chartered Accountants of India.

[Audio] 3.9 THE SALE OF GOODS ACT, 1930 Where under a contract of sale, the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, it is called an agreement to sell. [Section 4(3)] 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. [Section 4(4)] Contract of sale Sale Agreement to sell Sale: In Sale, the property in goods is transferred from seller to the buyer immediately. The term sale is defined in the Section 4(3) of the Sale of Goods Act, 1930 as – "where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale." Agreement to Sell: In an agreement to sell, the ownership of the goods is not transferred immediately. It is intending to transfer at a future date upon the completion of certain conditions thereon. The term is defined in Section 4(3) of the Sale of Goods Act, 1930, as – "where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, it is called an agreement to sell." Thus, whether a contract of sale of goods is an absolute sale or an agreement to sell, depends on the fact whether it contemplates immediate transfer from the seller to the buyer or the transfer is to take place at a future date. Example 16: X agrees with Y on 10th October, 2022 that he will sell his car to Y on 10th November, 2022 for a sum of ` 7 lakhs. It is an agreement to sell. When agreement to sell becomes sale: 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. The following elements must co-exist so as to constitute a contract of sale of goods under the Sale of Goods Act, 1930: © The Institute of Chartered Accountants of India.

[Audio] BUSINESS LAWS 3.10 (i) There must be at least two parties, the seller and the buyer and the two must be different persons. A person cannot be both the seller and the buyer and sell his goods to himself. (ii) The subject matter of the contract must necessarily be goods covering only movable property. It may be either existing goods, owned or possessed by the seller or future goods. (iii) A price in money (not in kind) should be paid or promised. But there is nothing to prevent the consideration from being partly in money and partly in kind. (iv) A transfer of property in goods from seller to the buyer must take place. The contract of sale is made by an offer to buy or sell goods for a price by one party and the acceptance of such offer by other. (v) A contract of sale may be absolute or conditional. (vi) All other essential elements of a valid contract must be present in the contract of sale, e.g. free consent of parties, competency of parties, legality of object and consideration etc. 1.4 DISTINCTION BETWEEN SALE AND AN AGREEMENT TO SELL The differences between the two are as follows: Basis of difference Sale Agreement to sell Property in the goods Transfer of property The property in the goods passes to the buyer immediately. passes to the buyer on future date or on fulfilment of some condition. Nature of contract It is an executed contract i.e. contract for which It is an executory contract i.e. contract for which consideration has been paid. consideration is to be paid at a future date. The aggrieved party can sue for damages only and not for the price, unless the price was payable at a stated date. Remedies for breach The seller can sue the buyer for the price of the goods because of the passing of the property therein to the buyer. © The Institute of Chartered Accountants of India.

[Audio] 3.11 THE SALE OF GOODS ACT, 1930 Liability of parties A subsequent loss or Such loss or destruction is the liability of the seller. destruction of the goods is the liability of the buyer. Risk of loss is that of seller. Burden of risk Risk of loss is that of buyer since risk follows ownership. Nature of rights Creates Jus in rem means right against the whole Creates Jus in personam means rights against a world. particular party to the contract Right of resale The seller cannot resell the goods. The seller may sell the goods since ownership is with the seller. In case of insolvency of seller The official assignee will not be able to take over the goods but will recover the price from the buyer. The official assignee will acquire control over the goods but the price will not be recoverable. In case of insolvency of buyer The official assignee will have control over the goods. The official assignee will not have any control over the goods. 1.5 SALE DISTINGUISHED FROM OTHER SIMILAR CONTRACTS (i) Sale and Hire Purchase: Contract of sale resembles with contracts of hire purchase very closely, and indeed the real object of a contract of hire purchase is the sale of the goods ultimately. Hire purchase agreements are governed by the Hire-purchase Act, 1972. Term "hirepurchase agreement" means an agreement under which goods are let on hire and under which the hirer has an option to purchase them in accordance with the terms of the agreement and includes an agreement under which— (a) Possession of goods is delivered by the owner thereof to a person on condition that such person pays the agreed amount in periodical instalments, and (b) The property in the goods is to pass to such person on the payment of the last of such instalments, and (c) Such person has a right to terminate the agreement at any time before the property so passes; © The Institute of Chartered Accountants of India.

[Audio] BUSINESS LAWS 3.12 Nonetheless, a sale has to be distinguished from a hire purchase as their legal incidents are quite different. The main points of distinction between the 'sale' and 'hire-purchase' are as follows: Basis of difference Sale Hire- Purchase Time of passing Property in the goods is The property in goods passes property transferred to the buyer to the hirer upon payment of immediately at the time of the last instalment. contract. Position of the The position of the buyer is The position of the hirer is party that of the owner of the that of a bailee till he pays the goods. last instalment. Termination of The buyer cannot terminate The hirer may, if he so likes, contract the contract and is bound to terminate the contract by pay the price of the goods. returning the goods to its owner without any liability to pay the remaining instalments. Burden of Risk of The seller takes the risk of The owner takes no such risk, insolvency of the any loss resulting from the for if the hirer fails to pay an buyer insolvency of the buyer. instalment, the owner has right to take back the goods. Transfer of title The buyer can pass a good The hirer cannot pass any title title to a bona fide even to a bona fide purchaser purchaser from him. untill he pays the last instalment. Resale The buyer in sale can resell The hire purchaser cannot the goods. resell unless he has paid all the instalments. (ii) Sale and Bailment: A 'bailment' is the delivery of goods for some specific purpose under a contract on the condition that the same goods are to be returned when the purpose is accomplished to the bailor or are to be disposed of according to the © The Institute of Chartered Accountants of India.

[Audio] 3.13 THE SALE OF GOODS ACT, 1930 directions of the bailor. Provisions related to bailment are regulated by the Indian Contract Act, 1872. The difference between bailment and sale may be clearly understood by studying the following: Basis of Sale Bailment difference Transfer of property The property in goods is transferred from the seller to the buyer. So, it is transfer of general property. There is only transfer of possession of goods from the bailor to the bailee for any of the reasons like safe custody, carriage etc. So, it is transfer of special property. Return of goods The return of goods in contract of sale is not possible. The bailee must return the goods to the bailor on the accomplishment of the purpose for which the bailment was made. Consideration The consideration is the price in terms of money. The consideration may be gratuitous or non-gratuitous. (iii) Sale and contract for work and labour: A contract of sale of goods is one in which some goods are sold or are to be sold for a price. But where no goods are sold, and there is only the doing or rendering of some work of labour, then the contract is only of work and labour and not of sale of goods. Example 17: Where gold is supplied to a goldsmith for preparing an ornament or when an artist is asked to paint a picture. Here, the basic substance of the contract is the exercise of skill and labour, therefore it is contract for work and labour. 1.6 CONTRACT OF SALE HOW MADE (SECTION 5) According to Section 5(1), A contract of sale may be made in any of the following modes: (i) Contract of sale is made by an offer to buy or sell goods for a price and acceptance of such offer. (ii) There may be immediate delivery of the goods; or (iii) There may be immediate payment of price, but it may be agreed that the delivery is to be made at some future date; or © The Institute of Chartered Accountants of India.

[Audio] BUSINESS LAWS 3.14 (iv) There may be immediate delivery of the goods and an immediate payment of price; or (v) It may be agreed that the delivery or payment or both are to be made in instalments; or (vi) It may be agreed that the delivery or payment or both are to be made at some future date. Example 18: R agrees to deliver his old motorcycle valued at ` 55,000 to S in exchange for a new motorcycle and agrees to pay the difference in cash, it is a Contract of Sale. 1.7 SUBJECT MATTER OF CONTRACT OF SALE Existing or future goods (section 6): (1) The goods which form the subject matter of a contract of sale may be either existing goods that are acquired, owned or possessed by the seller, or future goods. (2) There may be a contract for the sale of goods, the acquisition of which by the seller depends upon a contingency which may or may not happen. Example 19: A contract for sale of certain cloth to be manufactured by a certain mill is a valid contract. Such contacts are called contingent contracts. (3) There may be a contract of sale, where the seller purports to effect a present sale of future goods, such contract operates as an agreement to sell the goods. Goods perishing before making of contract (Section 7): Where there is a contract for the sale of specific goods, the contract is void if the goods without the knowledge of the seller have, at the time when the contract was made, perished or become so damaged that they no longer answer to their description given in the contract. Example 20: A agrees to sell B 50 bags of wheat stored in the A's godown. Due to water logging, all the goods stored in the godown were destroyed. At the time of agreement, neither parties were aware of the fact. The agreement is void. Goods perishing before sale but after agreement to sell (Section 8): Where there is an agreement to sell specific goods, and subsequently the goods without any fault on the part of the seller or buyer perish or become so damaged that they no longer answer to their description in the agreement before the risk passes to the buyer, the agreement is thereby avoided or becomes void. Perishing of future goods: If the future goods are specific, the destruction of such goods will amount to supervening impossibility and the contract shall become void. © The Institute of Chartered Accountants of India.

[Audio] 3.15 THE SALE OF GOODS ACT, 1930 Example 21: A agrees to sell B 100 tons of tomatoes grown on his land next year. But the crop failed due to some disease in plants and A could only deliver 80 tons of tomatoes to B. It was held A was not liable as the performance of contract became impossible due to supervening impossibility. 1.8 ASCERTAINMENT OF PRICE (SECTION 9 & 10) Ascertainment of price (Section 9): 'Price' means the monetary consideration for sale of goods [Section 2 (10)]. By virtue of Section 9, the price in the contract of sale may be- (1) fixed by the contract, or (2) agreed to be fixed in a manner provided by the contract, e.g., by a valuer, or (3) determined by the course of dealings between the parties. Agreement to sell at valuation (Section 10): Section 10 provides for the determination of price by a third party. 1. Where there is an agreement to sell goods on the terms that price has to be fixed by the third party and he either does not or cannot make such valuation, the agreement will be void. 2. In case the third party is prevented by the default of either party from fixing the price, the party at fault will be liable to the damages to the other party who is not at fault. 3. However, a buyer who has received and appropriated the goods must pay a reasonable price for them in any eventuality. Example 22: P is having two bikes. He agrees to sell both of the bikes to S at a price to be fixed by the Q. He gives delivery of one bike immediately. Q refuses to fix the price. As such P ask S to return the bike already delivered while S claims for the delivery of the second bike too. In the given instance, buyer S shall pay reasonable price to P for the bike already taken. As regards the Second bike, the contract can be avoided as the third party Q refuses to fix the price © The Institute of Chartered Accountants of India.

[Audio] BUSINESS LAWS 3.16 SUMMARY In nutshell, contract of sale of goods is a contract where the seller transfers or agrees to transfer the property in goods to the buyer for a price. Where, however, the transfer of property in goods is to take place at a future date or subject to some conditions to be fulfilled, the contract is called 'agreement to sell'. The subject matter of such contract must always be goods. Price for goods may be fixed by the contract or may be agreed to be fixed later on in a specific manner. FORMATION OF THE CONTRACT OF SALE Agreement to sell Essentials of Sale Documents of Ascertainment of Price Contract of Sale title (Sec.4 (3)) (Sec.4 (1)) Two Parties Price Transfer of general property fixed by contract, or agreed to be fixed in a manner provided by the contract, e.g., by a valuer, or Essential elements of a valid contract. Bill of lading, Dock warrant, Warehousekeeper's certificate, Railway receipt, Delivery order. determined by the course of dealings between the parties Transfer of property in the goods from the seller to the buyer. Transfer of property in the goods is to take place at a future time or subject to some conditions thereafter to be fulfilled. Goods Types Meaning Existing Future Contingent Every kind of movable property. Excludes Actionable Claims & Money. To be Includes manufactured or produced or acquired after Owned or possessed by seller at the time of sale. making of Acquisition of which by the seller depends upon a contingency. Stock & Shares, Growing Crops, Grass & things Attached to & forming part of land. contract of sale. Specific Ascertained Unascertained Defined only by description and may form part of a lot. Identified and agreed upon at the time a contract of sale. Good become ascertained subsequent to the formation of a contract of sale. © The Institute of Chartered Accountants of India.

[Audio] 3.17 THE SALE OF GOODS ACT, 1930 Delivery Meaning Types Actual Constructive Symbolic Delivery of a thing in token of a transfer of something else Goods are physically delivered to buyer When a person in possession of the goods belonging to the seller acknowledges to the buyer that he holds the goods on buyer's behalf TEST YOUR KNOWLEDGE Multiple Choice Questions 1. A contract for the sale of goods where property would pass to the buyer on payment of total price would be; (a) sale (b) agreement to sell (c) hire-purchase contract. (d) sale on approval. 2. The term "goods" under Sale of Goods Act, 1930 does not include (a) goodwill. (b) actionable claims. (c) stocks and shares. (d) harvested crops. 3. A contract for the sale of "future goods" is (a) sale (b) agreement to sell. © The Institute of Chartered Accountants of India.

[Audio] BUSINESS LAWS 3.18 (c) void. (d) hire-purchase contract. 4. The sale of Goods Act, 1930 deals with the (a) movable goods only. (b) immovable goods only. (c) both movable and immovable goods. (d) all goods except ornaments. 5. Under Sale of Goods Act, 1930 the terms "Goods" means every kind of movable property and it includes (a) stock and share. (b) growing crops, grass (c) both (a) and (b). (d) none of the above 6. The Sale of Goods Act, 1930 deals with (a) sale (b) mortgage. (c) pledge. (d) all of the above. 7. Which one of the following is true? (a) the provisions of Sale of Goods were originally with the Indian Contract Act, 1872. (b) the Sale of Goods Act, 1930 deals with mortgage. (c) the Sale of Goods Act restricts the parties to modify the provisions of law. (d) none of the above. 8. Goods which are in existence at the time of the Contract of Sale is known as (a) present Goods. (b) existing Goods. (c) specific Goods. (d) none of the above. © The Institute of Chartered Accountants of India.

[Audio] 3.19 THE SALE OF GOODS ACT, 1930 9. Which of the following is not a form of delivery? (a) constructive delivery. (b) structured delivery. (c) actual delivery. (d) symbolic delivery. 10. Which one of the following is/are document of title to goods? (a) railway receipt. (b) wharfinger's certificate. (c) warehouse keeper's certificate. (d) all of the above 11. Which one of the following is not true? (a) document showing title is different from document of title. (b) bill of lading is a document of title to goods. (c) specific goods can be identified and agreed upon at the time of the Contract of Sale. d) none of the above. 12. Mercantile Agent is having an authority to (a) sell or consign goods. (b) raise money on the security of goods. c) sell or buy goods. (d) any of the above. 13. Contract of Sale is (a) executory Contract. (b) executed Contract. (c) both of the above. (d) none of the above. © The Institute of Chartered Accountants of India.

[Audio] BUSINESS LAWS 3.20 14. In which form of the contract, the property in the goods passes to the buyer immediately: (a) agreement to sell. (b) hire purchase. (c) sale (d) instalment to sell. 15. In case of hire purchase the hirer can pass title to a bona fide purchaser. (a) true. (b) false. 16. In a contract of sale, the agreement may be expressed or implied from the conduct of the parties. (a) true. (b) false. 17. In a contract of sale, subject matter of contract must always be money. (a) true. (b) false. 18. If a seller handed over the keys of a warehouse containing the goods to the buyer results in (a) constructive delivery (b) actual delivery (c) symbolic delivery (d) none of the above 19. If A agrees to deliver 100 kg of sugar to B in exchange of 15 mts of cloth, then it is (a) Contract of sale. (b) Agreement to sell. (c) Sale on Approval. (d) Barter. © The Institute of Chartered Accountants of India.

[Audio] 3.21 THE SALE OF GOODS ACT, 1930 20. In a hire-purchase agreement, the hirer (a) has an option to buy the goods. (b) must buy the goods. (c) must return the goods. (d) is not given the possession of goods. 21. A agrees to deliver his old car valued at `1, 80,000 to B, a car dealer, in exchange for a new car, and agrees to pay the difference in cash it is (a) Contract of sale. (b) Agreement to sell. (c) Exchange. (d) Barter. 22. Legally, a contract of sale includes (a) sale. (b) agreement to Sell. (c) barter. (d) both (a) and (b) 23. The Sale of Goods Act, 1930 came into force on (a) 15th March, 1930. (b) 1st July, 1930. (c) 30th July, 1930. (d) 30th June, 1930. 24. The person who buys or agrees to buy goods is known as (a) consumer. (b) buyer. (c) both (a) and (b) (d) none of the above. © The Institute of Chartered Accountants of India.

[Audio] BUSINESS LAWS 3.22 25. Voluntary transfer of possession by one person to another is popularly known as (a) transfer. (b) possession. (c) delivery. (d) none of the above. 26. If X commissioned Y, an artist, to paint a portrait of A for 200 dollars & Y uses his own canvas & paint then it is (a) Contract of sale. (b) Contract of work & materials. (c) Sale on approval. (d) Hire-Purchase agreement. 27. The property in the goods means the (a) possession of goods. (b) custody of goods. (c) ownership of goods. (d) both (a) and (b) 28. The goods are at the risk of a party who has the (a) Ownership of goods. (b) Possession of goods. (c) Custody of goods. (d) both (b) and (c) 29. In case of sale of standing trees, the property passes to the buyer when trees are (a) felled and ascertained. (b) not felled but earmarked. (c) counted and ascertained. (d) both (b) and (c) © The Institute of Chartered Accountants of India.

[Audio] 3.23 THE SALE OF GOODS ACT, 1930 30. In case the delivery of goods is delayed due to the fault of party, the goods shall be at the risk of defaulting party even though the ownership is with the other party. (a) True, if there is a provision to this effect. (b) False, as it is against the general rule. 31. Which of the following modes of delivery of goods is considered effective for a valid contract of sale? (a) Actual delivery. (b) symbolic delivery. (c) Constructive delivery. (d) all of these. Descriptive questions 1. A agrees to buy a new TV from a shop keeper for ` 30,000 payable partly in cash of ` 20,000 and partly in exchange of old TV set. Is it a valid Contract of Sale of Goods? Give reasons for your answer. 2. A agrees to sell to B 100 bags of sugar arriving on a ship from Australia to India within next two months. Unknown to the parties, the ship has already sunk. Does B have any right against A under the Sale of Goods Act, 1930? 3. X contracted to sell his car to Y. They did not discuss the price of the car at all. X later refused to sell his car to Y on the ground that the agreement was void being uncertain about price. Can Y demand the car under the Sale of Goods Act, 1930? 4. Classify the following transactions according to the types of goods they are: (i) A wholesaler of cotton has 100 bales in his godown. He agrees to sell 50 bales and these bales were selected and set aside. (ii) A agrees to sell to B one packet of sugar out of the lot of one hundred packets lying in his shop. (iii) T agrees to sell to S all the apples which will be produced in his garden this year. © The Institute of Chartered Accountants of India.

[Audio] BUSINESS LAWS 3.24 ANSWERS/HINTS Answers to MCQs 1. (b) 2. (b) 3. (b) 4. (a) 5. (c) 6. (a) 7. (a) 8. (b) 9. (b) 10. (d) 11. (d) 12. (d) 13. (b) 14. (c) 15. (b) 16. (a) 17. (b) 18. (c) 19. (d) 20. (a) 21. (a) 22. (d) 23. (b) 24. (b) 25. (c) 26. (b) 27. (c) 28. (a) 29. (a) 30. (a) 31. (d) Answers to Descriptive Questions 1. It is necessary under the Sales of Goods Act, 1930 that the goods should be exchanged for money. If the goods are exchanged for goods, it will not be called a sale. It will be considered as barter. However, a contract for transfer of movable property for a definite price payable partly in goods and partly in cash is held to be a contract of Sale of Goods. In the given case, the new TV set is agreed to be sold for ` 30,000 and the price is payable partly in exchange of old TV set and partly in cash of ` 20,000. So, in this case, it is a valid contract of sale under the Sales of Goods Act, 1930. 2. In this case, B, the buyer has no right against A the seller. Section 8 of the Sales of Goods Act, 1930 provides that where there is an agreement to sell specific goods and the goods without any fault of either party perish, damaged or lost, the agreement is thereby avoided. This provision is based on the ground of supervening impossibility of performance which makes a contract void. So, all the following conditions required to treat it as a void contract are fulfilled in the above case: (i) There is an agreement to sell between A and B (ii) It is related to specific goods (iii) The goods are lost because of the sinking of ship before the property or risk passes to the buyer. (iv) The loss of goods is not due to the fault of either party. © The Institute of Chartered Accountants of India.

[Audio] 3.25 THE SALE OF GOODS ACT, 1930 3. Payment of the price by the buyer is an important ingredient of a contract of sale. If the parties totally ignore the question of price while making the contract, it would not become an uncertain and invalid agreement. It will rather be a valid contract and the buyer shall pay a reasonable price. In the give case, X and Y have entered into a contract for sale of car but they did not fix the price of the car. X refused to sell the car to Y on this ground. Y can legally demand the car from X and X can recover a reasonable price of the car from Y. 4. (i) A wholesaler of cotton has 100 bales in his godown. So, the goods are existing goods. He agrees to sell 50 bales and these bales were selected and set aside. On selection, the goods becomes ascertained. In this case, the contract is for the sale of ascertained goods, as the cotton bales to be sold are identified and agreed after the formation of the contract. (ii) If A agrees to sell to B one packet of sugar out of the lot of one hundred packets lying in his shop, it is a sale of existing but unascertained goods because it is not known which packet is to be delivered. (iii) T agrees to sell to S all the apples which will be produced in his garden this year. It is contract of sale of future goods, amounting to 'an agreement to sell.' © The Institute of Chartered Accountants of India.