Sale of Goods Act, 1930

Contract of Sale

Section 4-Contract of sale means “ a contract whereby the seller transfers or agrees to
transfer the property in the goods to the buyer for a price”

Contract sale may be either

(i) a sale
(ii) agreement to sell

Property means ownership.

Essential Elements of contract of Sale

1) Two parties- two parties are essential viz; buyer and seller- The same person
cannot be buyer and seller.

The sale of liquor by an unincorporated club to its members has been held as not sale
since the members are undivided joint owners. Each member consumes his own
property. The payment made by a member was only to restore what he had consumed to
enable the club to buy liquor and continue to supply the same ( Graff vs Evans (1882)
QBD

If a company an incorporated body transferred its buses to a firm consisting of partners

who were also members of the company ,it was held to be a sale since company was a
separate entity.( Chittoor Transport Co vs ITO AIR 1966 SC 570).

Division nof goods on dissolution of a partnership is not a sale.

2) Existence of an agreement to buy and sell goods brought about by mutual consent.
3) Goods- subject matter of contract of sale is goods-Existing goods or future goods-
Money ,actionable claims and immovable property do not fall with in the definition
of goods.
4) Transfer of property- In a contract of sale the seller must transfer or agrees to
transfer property in the goods to the buyer.-property means special property and
 not general property.-General property means ownership with or without physical
possession.In case of pledge the pledge gets special property but the special
property remains with the pledger.
5) Price- Transfer of general property must take place for some consideration known
as price.If goods are exchanged for money then there is sale but if for goods then it
is a barter and no sales.-Partly goods and partly money ,then it is a sale.

Sale and agreement to sell

1. Section 4(3) “ Where under acontract of sale ,the property in the goods is
immediately transferred from the seller to the buyer ,the contract is called a sale.
On 5th October,2009 A sells 10 bags of rice to B for a consideration of Rs 20,000.
It is a sale since the ownership of the goods passed on to B from A.

2 Agreement to sell.-Where undera contract of sale the property in the goods is

to be transferred to the buyer at a future date or subject to the fulfillment of
certain conditions ,then it is an agreement to sell.

On 15th March A agrees to sell B his horse for Rs 25,000 on 25th March .It is an
agreement to sell. The property in the goods will pass on to B on 25th of
March .

An agreement to sell becomes a sale on elapse of time or fulfillment of the

condition subject to which the agreement to sale is made.Agrrement to sell is a
conditional sale and an executory contract.
Goods

Section 2(7)- the term “goods” means

every kind of movable property other than actionable claims and money and includes stock
and shares ,growing crops and things attached to or forming part of the land which are
agreed to be severed before sale or under the contract of sale.

Every kind of movable property is good-Goodwill ,patents ,trademarks ,water, gas

,electricity are all treated as goods.-

Actionable claims and money are excluded from the definition of goods.
Classification of Goods

1. Existing Goods-Goods owned or possessed by the seller at the time of making of

the contract of sale are called existing goods. These may be

a) Specific Goods-Goods identified and agreed upon at the time of making the
contract of sale.
b) Ascertained Goods-These are the goods identified and agreed upon
subsequent to making the contract. Of sale.
c) Un ascertained goods or Generic Goods- Goods are either not identified or
are not agreed up on at the time of making the contract of sale.They are
defined by description only.

2 Future Goods—Goods to be manufactured or produced or acquired by the seller after

making the contract- With regard to future goods there can only an agreement to sell.-
Applicant for share is a purchaser for a future good.
3 Contingent Goods-Goods the acquisition of which by the seller depends upon the
happening of an uncertain contingency-A agrees to sell 100 units of an article
provided the ship which brings the goods reaches the port safely.

Perishing Goods (Section 7)

In the case of specific goods which perish before the contract of sale is entered into , the
contract is void due to mutual mistake of fact.. In case of damage to goods and they do no
longer fit the description of goods then also the contract is void.

In case the goods are partly damaged, the contract will depend on the nature of the contract.
If the contract is divisible then the buyer will have to accept those goods which are in good
condition. If the contract is indivisible then the contract is void.

In case of unascertained goods and therefore in case of destruction of unascertained goods,

the contract will not be void..

Goods perishing before sale but after agreement to sell.-Section 8

Contract for the sale of specific goods can be avoided on the ground of supervening
impossibility if the following conditions are satisfied.

1) There is only an agreement to sell

 2) The loss is caused to specific goods
3) The loss is not attributable to the fault of the party.
4) The goods have perished before the risk passes to the buyer.

Section 8 does not apply to unascertained goods. Destruction of such goods will not
discharge the seller from his obligation.

Pershing of Future Goods.

-Present sale of future goods is only an agreement to sell goods.

1. A agrees to sell to B 10 bales of Egyptian cotton out of 90 bales lying in the go

down . The go down has been destroyed by fire at that time. Can A avoid the
contract?
2. X hires a car from Travel Mart and sells the same to Y an unsuspecting buyer. Has
Y become the owner of the car?
3. A agrees to buy a horse belonging to B after a week’s trial. The horse died on the
third day after it is given to B. Who shall bear the loss?

Conditions and Warranties.

Meaning of Conditions and Warranties

Condition- Section 12(2)- a condition is a stipulation essential to the main purpose of the
contract, the breach of which gives a right to repudiate the contract.

Warranty-Section 12(3)- A warranty is a stipulation collateral to the main purpose of the

contract, the breach of which gives a right to claim for damages but not a right to reject
goods and treat the contract as repudiated.

Whether a stipulation in a contract of sale is a condition or a warranty depends ,in each

case ,on the construction of the contract. A stipulation may be condition even though called
w warranty in the contract.

Difference between condition and Warranty

 Condition Warranty

Nature Essential to the main purpose Only collateral to the main

of the contract purpose of the contract.
Effect of Breach Repudiate the contract or claim damages Claim damages only

Importance A condition can become a warranty A warranty cannot become a condition

Treatment Breach of condition may be treated A breach of warranty cannot be treated

As a breach of warranty as a breach of condition.

When a breach of condition be treated as a breach of warranty

1. Voluntary waiver- When the seller commits a breach of any condition ,the buyer, if he
chooses may (i) waive a condition
(ii) elect to treat the breach of condition as breach of warranty.

In such cases the buyer cannot repudiate the contract nor insist on the fulfillment of
the condition later on.
2. Compulsory treatment of condition as warranty.- Where the contract is not
severable and the buyer has accepted the goods or a part there of ,the breach of any
condition by the seller can be treated as breach of warranty unless there is a term of
the contract, express or implied ,to that effect.

B agrees to buy from A twenty bags of flour by sample. The flour is delivered to B who
pays the price. B upon examination does not find the it equal to sample but uses two
sacks and sells one. He cannot now rescind the contract and recover the price. But he is
entitled to get compensation from A for any loss caused by the breach of the contract.

Express and Implied Conditions and Warranties

Conditions and Warranties may be either express or implied.

Express conditions and warranties are those which the parties themselves have
incorporated in the contract.

Implied conditions and warranties are those which those which are presumed to have
been incorporated in the contract.
Implied Conditions

1. Condition as to title- In every contract of sale it is presumed that the seller has the title
at the time of the contract in case of sale and will have the title at the time sale in the
case of an agreement to sell.
2. Sale by description- that the goods shall correspond with the description.-Description
means words, symbols, number ,grade ,brand etc.
3. Sale by sample-In the case of contract for the sale of goods by sample ,there is an
implied condition that

a) that the bulk shall correspond with the sample in quality.

b) That the buyer shall have a reasonable opportunity of comparing the bulk with the
sample and
c) That the goods shall be free from any defect rendering them un merchantable and
which would be apparent on reasonable examination of the sample.
4. Sale by description and sample- When goods are sold on the basis of sample as well
as description, the implied condition is that goods shall correspond not only with the
sample but also with the description
5. Condition as to quality or fitness-Section 16-Usually there is no implied condition that
the article is for a particular purpose.-The rule is cavet emptor- Section 16 is an
exception to the rule of cazet emptor
1) the buyer makes the seller know whether expressly or by implication the
purpsose for which the goods are required.
2) The buyer relies on the skill and judgement of the seller.
3) It is the business of the seller to supply goods of that kind in the ordinary
course of business.

6. Condition as to Merchantability—Merchantability means commercially saleable

7. Condition a sto Wholesomness-Foodstuffs not only merchantable but also suitable for
consumption.
8. Implied Warranties

Section 14 recognises the following implied warranties in a contract of sale

a) Warranty of quiet possession

b) Warranty of freedom from encumberances
c) Warranty implied by usuage of trade
 d) Warranty of disclosing dangerous nature of goods.

Doctrine of Cavet Emptor

Buyer beware.
-It is the duty of the buyer to examine the goods and satisfy himself it has no defect-If he
fails he cannot blame the seller. Exceptions to the rule

a) Where buyer let the seller know the purpose for which the goods are needed and
depends on his skill and judgement .
b) Where goods are sold by description, the seller deals in those goods or the buyer
has no opportunity examine such goods.
c) Goods sold by sample as well as by description.
d) Goods sold by sample.
e) Condition as to quality or fitness annexed by usuage or custom of trade.
f) Where consent of the buyer is obtained by fraud or concealment of defects which
could not be found out by ordinary examination.
g) Misrepresentation by seller.

Transfer of property

Means the transfer of ownership of goods from seller to buyer. The time at which ownership
passes from seller to buyer is important because of following reasons

i) Risk prima facie passes with ownership.

ii) Action against third parties
iii) Right of resale
iv) Suit for price
v) Right of official receiver
Rules regarding transfer of Property

Sections 18-24

1. Transfer of property in the case of specific or ascertained goods

 a) When goods are in a deliverable state- Section 20.-Where there is an
unconditional contract for the sale of specific or ascertained goods in a
deliverable state, property in the goods passes from the seller to the buyer as
soon as the contract is made. It is immaterial whether the time of payment of
price or the delivery of goods ,or both is postponed.
b) When goods are to be put in a deliverable state-Sec 21.-When there is a
contract for the sale of specific goods and the seller is bound to do
something for putting the goods in a deliverable state ,the property does not
pass until such thing is done and the buyer has notice thereof.
c) When goods have to be weighed measured etc. to ascertain price.-Sec 22.-
Where there is contract for the sale of specific goods in a deliverable state
but something has to be done by the seller to ascertain price such as
weighing ,measuring ,testing etc.the property in the goods does not pass
until such thing is done and the buyer has notice there of.

Transfer of property in the case of unascertained goods

1) Goods must be ascertained-Sec 18

2) Goods must be in a deliverable state and unconditionally appropriated
3) Delivering the contracted goods to the common carrier for transmission to the
buyer without reserving the right of disposal.

When goods are sold on approval basis or on sale or return basis.

Property in the goods wills on the satisfaction of the following conditions

a) the buyer signifies his approval

b) the buyer does anything adopting the transaction like reseling the goods or
pledging the same
c) the buyer retains the goods beyond the time for return without giving notice of
rejection or keeps it beyond reasonable time.
Case

1. Certain goods are delivered by A to B on sale or return basis. B delivers the goods
to C on the same basis. The goods were stolen from C’s custody. Who will bear the
loss.
2. A agrees to buy 20 bales of cotton from B from his large stock and deputes his
agent to take delivery.10 bales of cotton are packed and A’s agent take delivery of
the same. Then an accidental fire destroys the entire stock. Determine liability of A
and B.

Rights of Unpaid seller.

Section 45

The seller of goods is deemed to be an unpaid seller

a) when the whole of the price has not been paid or tendered.
b) When a bill of exchange or other negotiable instrument has been received as
conditional payment and the condition on which it was received has not been
fulfilled by reason of dishonour of such instrument.

Rights of an unpaid seller

A) Right against the goods

B) Rights against the buyer personally.

Right against the goods

a) Right of lien- Right to retain possession of the goods until he is paid or tendered the
price of those goods. This right can be exercised when the property in the goods have
passed on to the buyer. Right of lien depends on possession It is lost in the following
cases

i) Delivery of goods to the carrier

ii) Delivery to buyer
 iii) Waiver of lien
iv) Tender of price by buyer to seller

b) Right of stoppage of Goods in transit-Section 50 52- Enable the seller to stop the
transit of goods while they are with the carrier.-To retake possession and retain until
payment is made by the seller.
c) Right of Resale-Ann unpaid seller who has exercised his right of lien or stoppage –in
–transit can effect resale of the goods. Right of resale can be exercised in the
following cases

a) Where goods are of a perishable nature-no need to give notice.

b) When the seller gives notice of his intention to resell.
c) Where the right of resale is expressly reserved-notice is not required.

d) Right of withholding delivery-The right of withholding delivery can

be excercised where ownership of goods has not been transferred to
the buyer.

Personal Rights against the buyer.

a) Suit for price-Sec 55

b) Suit for damages for non-acceptance –Sec 56
c) Suit for damages for repudiation of contract by the buyer before due date of
delivery –Sec 60
d) Suit for interest and special damages

Buyer’s Remedy against the seller in case of Breach

1. Suit for damages for non-delivery-Sec 57

2. Suit for specific performance-Sec 58
3. Suit for rescission and for damages for breach of condition by the seller
4. Remedy for breach of warranty
5. Suit for repudiation of contract before the due date.
6. Suit for recovery of price together with interest by way of damages -
1. X an unpaid seller ,sends some goods on rail for delivery to Y .Y becomes
insolvent .On coming to know of this fact ,X sends a telegram to railways asking them
not to deliver goods to Y.Yobtains delivery of the goods before railways could
react.Discuss the rights of X and Y.
2.