Performance of Contract of Sale – Definition and Rules
You must have come across the word ‘Contract’, might have heard it from a movie, a series, or from your parents or teachers. So, what do I understand by the word Contract? Think of the answer by yourself before scrolling any further.
The Contract is the written agreement between two or more parties the breach of which may have consequences in the forms of penalties decided into a Contractual document. It is a legal agreement and has the effect of Law for its application. So while selling a product to the consumer there is either some form of written or verbal Contractual agreement. Business Law deals in detail with the meaning, scope, and uses of Contractual Law. In this particular article, we shall learn about the following concept of the Contract of Sales.
Table of Content
Introduction
What is the Performance of a Contract of Sale?
Definition of Delivery
Duty of the Buyer and the Seller
Payment and Delivery
Rules Regarding the Delivery of Goods
Solved examples
Key learnings from the topic
Frequently asked questions
What is the Performance of Contract of Sale?
The Sale of Goods Act 1930 states under Sec 31 that, “It is the duty of the seller to deliver the goods and the buyer to accept and pay for them, in accordance with the terms of the Contract of Sale.”
The performance of a Contract of Sale defines a simple transaction where the seller delivers the goods in exchange for a payment made by the buyer. Sections 31 to 40 of the Sale of Goods Act, 1930 state the rules and regulations that govern the Sale of goods and their delivery.
Let’s define delivery, buyer, seller and their duties.
Definition of Delivery
Under Section 2 (2) of the Sale of Goods Act, 1930, the delivery meaning has been stated as,
“voluntary transfer of possession of goods from one person to another.” The transfer of goods from one person to another will be considered a delivery under a Sale of goods act only when:
The transfer of goods is voluntary
The transfer is not done using theft, fraud or force
Mere possession of good does not constitute a valid delivery of goods
Duty of the Buyer and the Seller
The seller must deliver the goods as per the Contract of Sale. The buyer must accept the goods and make a payment as per the Contract of Sale.
Payment and Delivery are Concurrent
The payment and delivery of goods are concurrent conditions. The seller of the goods should be ready to make the delivery of goods in exchange for a payment and the buyer must be ready to make the payment for the delivery of goods unless agreed otherwise.
Rules Regarding the Delivery of Goods
Delivery
The delivery of goods can be done by putting the goods in the possession of the buyer or any other person authorized by the buyer to hold the goods on his behalf.
Partial Delivery of Goods
Partial delivery of goods made as progress towards full delivery has the same effect as full delivery, to pass the property in the goods. Partial delivery done with the intent of severing it from the whole does not constitute the delivery of the remaining goods.
Buyer Must Apply for Delivery
The buyer of the goods must apply to the seller for the delivery of goods unless otherwise stated in the terms, where terms of delivery meaning are the conditions mentioned in the Contract.
Place of Delivery
Both the buyer and the seller must agree to terms of delivery, express or implied, at the time of drawing up the Contract of Sale. If no such terms and conditions have been specified in the Contract:
Delivery of goods to be sold is done at the place where they are at the time of Sale
Delivery of goods to be sold is made at the place at which they are at the time of the agreement to sell. If the goods are not in existence at that time, they are delivered to the place of manufacture.
Time of Delivery
If the time of delivery of goods has not been specified in the Contract, it must be made within a reasonable time.
Goods in Possession of Third Party
If the goods have a third party at the time of Sale, then the third party must acknowledge to the buyer that the goods are being held on his behalf.
Time for Tender of Delivery
The demand for delivery must be made at a reasonable hour unless otherwise specified in the Contract.
Delivery Expenses
The expenses incurred for putting the goods in a deliverable state must be borne by the seller unless otherwise stated in the Contract.
Delivery of Wrong Quantity of Good
Goods for delivery means the goods sent by the seller at the time of delivery. If the seller sends a lesser or a larger quantity of the goods for delivery than what is specified in the Contract, the buyer has a right to reject the delivery of goods. If the buyer delivers a mix of goods where some parts are not as per the Contract, the buyer has the right to reject the goods that are not by the Contract.
Solved Example
1. John Agrees to Sell 100 kgs of Potatoes to Smith. At the Time of Delivery:
John Sends 60 kgs of Potatoes and 60 kgs of Tomatoes to Smith
John Sends 120 kg of Potatoes to Smith
2. Can Smith Refuse to Take the Delivery of the Goods?
Ans: In the above scenarios, since the delivery of goods is not according to the Contract, Smith can exercise the following options:
When the seller has sent a mix of goods:
The buyer can reject the complete order since it is not as per the Contract
The buyer can accept the delivery of 60 kgs of potatoes
When the seller has sent a larger quantity than specified in the Contract:
The buyer can reject the complete order since it is not as per the Contract
The buyer can accept the delivery of 60 kgs of potatoes
The buyer can accept the entire 120 kgs at the rate specified in the Contract
Key Learnings from the Chapter
Contract for the Sale of a good is the rule and regulations based on which the seller delivers a good in exchange for services
Delivery is the transfer of goods from one person to the other or from one place to another place
The seller must sell authentic, timely, and accurate delivery goods
The buyer must make the payment timely and not perform any act of fraud
Both the buyers and the sellers need to know their duties and rights.
FAQs on Performance of Contract of Sale: Legal Implications
1. What does 'performance of a contract of sale' mean under the Sale of Goods Act, 1930?
According to Section 31 of the Sale of Goods Act, 1930, the performance of a contract of sale involves two fundamental duties. It is the duty of the seller to deliver the goods, and it is the duty of the buyer to accept the goods and pay for them, in accordance with the agreed-upon terms of the contract. These duties are concurrent, meaning the seller must be ready to give possession of the goods in exchange for the price, and the buyer must be ready to pay the price in exchange for the goods, unless otherwise agreed.
2. What are the key rules regarding the delivery of goods in a contract of sale?
The Sale of Goods Act specifies several rules for the delivery of goods to ensure clarity in performance. The key rules are:
- Place of Delivery: If not specified, goods are delivered at the place where they are at the time of the sale. For future goods, they are delivered at the place of manufacture or production.
- Time of Delivery: If no time is fixed, the seller must deliver the goods within a reasonable time.
- Goods with a Third Party: If goods are in the possession of a third party, delivery is only complete when that party acknowledges to the buyer that they hold the goods on the buyer's behalf.
- Delivery Expenses: The seller bears the cost of putting the goods into a deliverable state, unless the contract states otherwise.
3. How is a 'contract of sale' legally different from an 'agreement to sell' regarding performance?
A 'contract of sale' and an 'agreement to sell' have different legal implications for performance. In a contract of sale, the ownership (property) of the goods transfers immediately from the seller to the buyer. It is an executed contract. In contrast, an agreement to sell is an executory contract where the transfer of ownership is set to happen at a future date or subject to certain conditions. This distinction is critical because the risk of loss or damage to the goods passes with ownership. In a sale, the risk is with the buyer, whereas in an agreement to sell, the risk remains with the seller until the ownership is transferred.
4. What options does a buyer have if the seller delivers the wrong quantity of goods?
When a seller delivers a quantity of goods different from what was contracted, the buyer has several options:
- Less Quantity Delivered: The buyer can reject the entire delivery or accept the lesser quantity and pay for it at the contract rate.
- More Quantity Delivered: The buyer can accept the contracted quantity and reject the rest, or reject the entire delivery. The buyer may also choose to accept the entire delivery and pay for the excess goods at the contract rate.
- Goods Mixed with Others: If the seller delivers the contracted goods mixed with goods of a different description, the buyer can accept the goods that are in accordance with the contract and reject the rest, or reject the entire delivery.
5. What are the primary legal implications if a buyer or seller fails to perform their duties in a contract of sale?
Failure to perform contractual duties results in a breach of contract, which has significant legal implications. If the seller breaches the contract (e.g., by failing to deliver the goods), the buyer can sue for damages for non-delivery. If the buyer breaches the contract (e.g., by wrongfully refusing to accept and pay for the goods), the seller can sue the buyer for the price of the goods and/or for damages for non-acceptance. The goal of these legal remedies is to compensate the aggrieved party for the loss suffered due to the breach.
6. Why does the Sale of Goods Act grant special rights to an 'unpaid seller', and what are they?
The law grants special rights to an unpaid seller to protect their interests when they have transferred ownership of the goods but have not received the full payment. These rights are crucial because the seller has already fulfilled their primary duty. The main rights of an unpaid seller are:
- Against the Goods: These include the right of lien (to retain possession of the goods until the price is paid), the right of stoppage in transit (to stop the goods while they are with a carrier if the buyer becomes insolvent), and the right of resale under certain conditions.
- Against the Buyer Personally: The seller can sue the buyer for the price and for any interest on the delayed payment.
7. Under what circumstances is a buyer considered to have legally accepted the goods?
As per Section 42 of the Sale of Goods Act, a buyer is deemed to have accepted the delivery of goods in three main situations, even without explicitly stating so:
- When the buyer informs the seller that they have accepted the goods.
- When the buyer performs any act in relation to the goods which is inconsistent with the ownership of the seller (e.g., reselling them or using them).
- When the buyer retains the goods beyond a reasonable time without informing the seller that they have rejected them.
