UNIT -2

SALES OF GOODS ACT 1930

Introduction
CONTRACT OF SALE
 The law relating to sale and purchase of goods were regulated by the
Indian contract act ,1872.
 In 1930, sections 76 to 123 of the Indian contract act, 1872 were repealed
and separate act called ‘The Indian sale of goods act, 1930 was passed. It
came into force on 1stJuly 1930 with effect from 22nd September 1963.
Contract of sale of goods
Meaning
A contract of Sale of goods include both (i) sale and (ii) an agreement to sell
Sale: Ownership in the goods is transferred by the seller to the buyer
immediately at the time of contract Whereas
Agreement to sell: The transfer of ownership in goods is to take place, at a
future time or subject to fulfillment of some condition.
Definition
According to section 4(1), of the Sale of goods act, 1930 ‘Contract of sale of
goods is a contract
“whereby the seller transfer or agrees to transfer the property in goods to
the buyer for a price”.
Essentials / features/characteristics /of a Contract of sale
Following are the essential elements of a valid contract of sale.
1. valid contract - A Contract for sale must fulfil all the requirements of a valid
Contract eg. free consent, consideration, competency to contract, lawful object
and consideration. If any of the essential elements of a valid contract is missing
the the contract for sale will not be valid.
2. Two Parties - There must be two parties, oneseller and the other buyer. The
reason for the same is that in a contract of sale, theownership of the goods has
to pass from seller to buyer and no person can be seller to himself.
3. There must be 'goods'-The subject matter of a contract of sale must
be goods and the goods must be movable. Sale and purchase of immovable
property is not covered by this Act, but is regulated by the Transfer of Property
Act. Similarly,contracts relating to services are not treated as contract of sale.
4. Transfer of ownership - The term ‘property’ in the goods means the
ownership of the goods. In every contract of sale, the ownership of the 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.
The term ‘property’ here means the general property, i.e., all ownership rights
of the goods, and not merely a special property, i.e., limited rights such as
right of a Pawnee.
5. price- In other words in a contract of sale the consideration is always money.
Where there is no consideration, the transaction amounts to gift and not a
contract of sale. Similarly where the consideration is delivery of some other
goods, the transaction is not a contract of sale but is a contract of exchange or
barter.
6. May be written or express: or partly in writing, and partly by word of
mouth or may be implied from the conduct of the parties. But this is a subject to
the provisions of any law for the time being in force (Section 5).
7. Includes both a Sale and a Agreement to sell : the contract of sale includes
both sale and an agreement to sell. The “sale” is an executed contract, whereas
an “agreement to sell” is an executory contract and implies a conditional sale.
8. A contract of sale may be absolute or conditional (Section 4(2)).

DIFFERENCE BETWEEN SALE AND AGREEMENT TO SALE

Sale
•Ownership passes to the buyer immediately.
•It is an executed contract.
•Risk of loss falls on the buyer.
•Seller cannot resell the goods.
•Only the existing and specific goods can be the subject matter of sale.
 •In case of breach of a contract, seller can sue for the price of the goods even
through the goods is in his possession.
•The seller is only entitled to the rate able dividend for the price due if the buyer
becomes insolvent.
Agreement to sell
•Ownership remains with the seller.
•It is an executory contract.
•Risk of loss falls on the seller even though the goods are in possession of the
buyer.
•Seller can sell goods if the buyer commits a breach of his contract.
•It can be in case of future and unascertained goods.
•In case of breach of a contract by seller buyer can sue him for damages.
•The seller may refuse to sell the goods to the buyer w/o payments if the buyer
becomes insolvent.

Difference between sale and agreement to sell

BASIS FOR
SALE AGREEMENT TO SELL
COMPARISON
Meaning When in a contract of sale, When in a contract of sale the
the exchange of goods for parties to contract agree to
money consideration takes exchange the goods for a price at
place immediately, it is a future specified date is known
known as Sale. as an Agreement to Sell.
Nature Absolute Conditional
Type of Contract Executed Contract Executory Contract
Transfer of risk Yes No
Title In sale, the title of goods In an agreement to sell, the title
transfers to the buyer with of goods remains with the seller
the transfer of goods. as there is no transfer of goods.
Right to sell Buyer Seller
Consequences of Responsibility of buyer Responsibility of seller
subsequent loss or
 BASIS FOR
SALE AGREEMENT TO SELL
COMPARISON
damage to the goods
Tax VAT is charged at the time No tax is levied.
of sale.
Suit for breach of The buyer can claim Here the buyer has the right to
contract by the seller damages from the seller and claim damages only.
proprietary remedy from the
party to whom the goods
are sold.
Right of unpaid seller Right to sue for the price. Right to sue for damages.

GOODS
•Defintion-Sec2 [7] The subject matter of a contract of a sale must be goods.
The term ‘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 served
before sale or under the contract of sale’.
Classification of goods [Sec 6]
1. Existing goods: Existing goods are those goods that are owned by or
possessed by the seller at the time of making the contract and the seller has the
right to sell the goods. Further
Classified Into Three Types-
 Specific goods: Goods identified and agreed upon at the time a contract
of sale is made.
 Ascertained goods: Existing goods that have been both specified and
identified by both the partied at the time of sale.
 Unascertained goods: These are the goods which are not identified and
agreed upon at the time when sale is made.
2. Future goods :The goods which are neither in existence nor in possession of
the seller at the time of contract of sale, but will be manufactured, produced or
acquired by him after making the contract.
3. Contingent goods: are the goods the acquisition of which depends upon
happening and non-happening of the contingency.
PRICE OF GOODS
Section 2(10) defines price “as a money consideration for a sale of goods”.
•It forms an essential part of the contract.
•It may be paid partly in term of cash and partly in terms of valued goods.
Modes of fixing price:
•It may be fixed by the contract
•Fixed in an agreed manner
•It may be determined by the course of dealing between the parties.
•In the absence of this, the buyer must pay to seller a reasonable price. What is
reasonable price is a question of fact dependent on the circumstances of each
particular case.
•Where there is an agreement to sell goods on the terms that the price is to be
fixed by the
valuation of a third party and such third party cannot or does not make such
valuation, the agreement is thereby becomes void except as to part of goods
delivered and accepted.
CONDITIONS AND WARRANTIES
Meaning of stipulation [Sec. 12(1)]- the fact which becomes a part of the
contract of sale is called stipulation.
The stipulation may be a condition or warranty depending upon its importance
in relation to the contract.
Meaning of condition [Sec.12 (2)]-
•The stipulation which is essential to the main purpose of a contract is known as
condition.
•The breach of condition gives the aggrieved party the right to terminate the
contract.
Definition :
According to sec 12 (2) of the sale of Goods Act, 1930,
“A condition is a stipulation essential to the main purpose of the contract, the
branch of which gives the aggrieved party are right to treat the contract as
repudiated”.
Types of Conditions
a) Express Conditions
These are conditions which are expressly incorporated/ mentioned by the parties
in the contract. It can be oral or written.
b) Implied Conditions
These are such conditions which are automatically incorporated/ applicable by
the law/conduct/ behaviour in the contract.
Various implied conditions are mentioned below:
1. Condition as to title/ ownership
Seller has the right to sell the goods when seller has the title/ownership of the
goods. If seller is selling the goods which are stolen then that means seller has
no
right/title/ownership of the goods. Hence, buyer can cancel the contract, return
the goods and can recover the price of the goods.
2. Condition as to sale by description
The implied condition is that if seller is selling the goods by giving/ stating the
description to the buyer then the goods must correspond with the description.
3. Condition as to sale by sample
The implied condition is that if seller is selling the goods by giving sample to
the buyer first then buyer must be supplied with goods corresponding with the
sample as well for all the orders placed later on.
4. Condition as to sale by sample as well as by description
5. Condition as to quality/ fitness
As a normal rule buyer is responsible to examine the goods and see whether it’s
suitable for him or not. But when buyer specifically informs the seller about the
purpose and relies on the skills and judgement of the seller so, in this case seller
is responsible to provide quality product to the buyer.
If seller cheats with buyer then there will be a breach of implied condition as to
quality/fitness.
6. Condition as to merchantability (means there should be no defects in the
goods supplied). It means that which is free from any defects. That means the
goods meant for sale are fit for use , transfer and ensures quality.
7. Condition as to wholesomeness :goods supplied should not be adulterated or
goods should be suitable for consumption.
warranty [Sec.12 (3)]-
Meaning- A warranty is a stipulation (stipulation means to demand
something):-
1. Which is not essential to the main purpose of the contract
2. The breach of warranty gives the aggrieved party a right to claim for damages
but not the right to reject the goods
3. Even if there is breach of warranty, the main contract can be completed
4. Breach of warranty can’t be treated as breach of condition
Types of Warranties
a) Express Warranties
Warranty which is expressly incorporated/ mentioned by the parties in the
contract. It can be oral or written.
b) Implied Warranties
These are such warranties which are automatically incorporated/ applicable by
the law/ conduct/ behaviour in the contract.
An implied warranty is a lot like an assumption. For example, when you buy a
new car from a car dealer, the implied warranty is that the car works. When you
order a burger at a restaurant, it comes with the implied warranty that it is
edible.
Various implied warranties are mentioned below:
1. Implied warranty of quiet (undisturbed) possession of goods
Once the goods are sold to buyer then there should be no disturbance by the
seller or any third party to the buyer.
2. Implied warranty to disclose the dangerous nature of the goods
In case of selling the goods of dangerous nature to the buyer, there is an implied
warranty that seller should disclose all the relevant information to the buyer. If
seller fails to do the same, then seller will be liable to pay for the damages to the
buyer.
Example of dangerous goods: Disinfectant, chemicals etc.
3. Implied warranty as to quality/ fitness
An implied warranty as to the quality or the fitness for a particular purpose
should be made know to the buyer in advance. Example: any damage to goods
which can happen should be made known to the buyer in advance, otherwise it
will be considered breach of warranty.
4. Implied warranty as to free from liability/ loan charges
Any goods which are being sold by the seller to buyer should be free from loan/
liability.
Example: A took loan from bank for Rs. 1,00,000 by pledging the bike with
bank. There was a loan going on and A sold the bike to C, here in this case there
is an implied warranty that A can’t sell the bike to C as the bike is not free from
liability/ loan. So, C has the right to recover the damages from A.
Difference between Condition and Warranty
The following are the major differences between condition and warranty in
contract law: –
BASIS FOR CONDITION WARRANTY
COMPARISON

1. Meaning A condition is an obligation A warranty is a surety

which requires being given by the
fulfilled before another seller regarding the state
proposition takes place. of the product.

2. Provision Section 12(2) of the Sale of Section 12(3) of the Sale

Goods Act, 1930 defines of Goods Act, 1930
 Condition. defines Condition.

3. Purpose Condition is basic for the It is a written guarantee

formulation of the contract. for assuring the party.

4. Result of Breach The whole contract may be Only damages can be

of Contract treated as repudiated. claimed in case of a
breach.

5. Remedies Repudiation, as well as Only damages can be

available to the damages, can be claimed. claimed.
aggrieved party

TRANSFER OF OWNERSHIP It means the transfer of all the rights of the

property in goods
from the seller to the buyer for the price. A contract of sale of goods involves
transfer of ownership from the seller to the buyer. Transfer of ownership or
property in goods is in fact the
object of making a contract of sale.
‘Ownership’ is the ‘soul’ and ‘possession’ is the ‘body’.
Significance of transfer of ownership :
The time of transfer of ownership of goods decides various rights and liabilities
of the seller and buyer. Thus it becomes very important to know the exact time
of transfer of ownership of goods from seller to the buyer for the following
reasons:
•Who shall bear the risk
•Who can take action against third party.
•Whether a seller can sue for price.
•In case of insolvency of a buyer whether the official receiver or assignee can
take possession of goods from seller.
•In case of insolvency of a seller whether the official receiver or assignee can
take the possession of goods from buyer.
TRANSFER OF TITLE BY NON - OWNERS
• General rule- NEMO DAT NON HABET
• -No one can give that which has not
• -To protect property rights Exceptions
• Transfer of title by Estoppel [Sec 27]
• Sale by mercantile agent [Sec 27]
• Sale by Joint owners.[ Sec 28]
• Sale by a person in possession under voidable contract.[Sec 29]
• Sale by a seller in possession after sale.[Sec 30 (1)]
• Sale by a buyer in possession before the transfer of ownership.[Sec 30 (2)]
• Sale by an unpaid seller [Sec 54]
DELIVERY
• Meaning of delivery-sec 2(2) Delivery means the voluntary transfer of
possession from one person to another.
Types of Delivery
1. Actual delivery
2. Symbolic delivery
3. Constructive delivery
Sale by Non Owners
Basically, Nemo Dat Quod Non-Habet means that seller should have the
ownership of goods in order to sell them to the buyer. But, there are few
exceptions to it (which means even non-owners can sell even if they don’t have
the ownership of goods).
Exceptions to Sale by Non Owner:
1. Sale by estoppel
A statement or conduct leads the buyer to believe that the personselling the
goods has the authority to sell them. And the actual owner don’t show any
objection regarding the sale transaction. This will be considered sale by estoppel
if below mentioned conditions are fulfilled:
 The actual owner don’t show any objection regarding the sale transaction
 Buyer acted in good faith (buyer don’t have any doubt)
2. Sale by mercantile agent
Mercantile agent is a person who is appointed by principal to do some acts on
his behalf. So, mercantile agent can sell the goods on behalf of principal even if
he is not the actual owner of the goods. But below mentioned conditions should
be fulfilled by mercantileagent:
à Possession of goods with consent of principal
à Acting in ordinary course of business (following lawful ways to sellthe goods)
à Buyer acted in good faith (buyer don’t have any doubt)
à No notice of no authority to sell given by principal
3. Sale by person in person in possession under a voidable contract (Sec
29): It provides that a person in possession of goods under a voidable contract
which has not been rescinded can transfer a good title to the buyer who buys the
goods in good faith and without notice of the seller’s defective of tile.
For example: ‘A’ purchase a piano from ‘B’ y fraud. Before ‘B’ rescinds the
contract, ‘A’ sells the piano to ‘C’, who buys it in good faith and without
knowledge of defective title. Held, ‘C’ gets a good title.
4. Sale by seller in possession of goods after sale (Sec30 (1)): It provides that
where a person has sold goods but continues in possession of them or of the
documents of title to them he may sell them to a third person and if such person
obtains delivery thereof in good faith and without notice of the previous sale, he
gets a good title to them.
For example: ‘A’ sold certain goods to ‘B’, but continued to remain in
possession thereof with the consent of the buyer, ‘A’ subsequently resold the
goods to ‘C’. It was held that ‘C’ had acquire a good title.
5. Sale by buyer in possession before buying (Sec 30(2)): Where a person
having bought or agreed to buy goods, obtain with the consent of the seller, had
possession of goods or documents of title of goods and sells them to a third
party, who buys it in good faith and without notice of defective title, then the
third party gets a better title.
For example: ‘A’ sold goods to ‘B’, ‘B’ had the possession of goods, thereof
with the consent of seller, ‘B’ sold goods to ‘C’. it was held that ‘C’ had acquire
a good title.
6. Sale by an unpaid seller (Sec 54(3)): A seller who has not received his
payment is called as an unpaid seller. An unpaid seller who has exercised his
right to lien and right to stoppage in transit may resell the goods to another
buyer. Then, such new buyer shall acquire a better title of the goods.
7. Sale by a finder of goods: The finder may sell goods in the following
situations:
i) When the thing is in danger of perishing or of losing the greater part of its
value or
ii) When the lawful charges of the finder, in respect of the thing found, amount
to two-thirds of its value.
When the finder of goods sells them under these circumstances, the buyer of
such goods gets a good title to them.
Performance of contract of sale
Who is a buyer?
The definition of the buyer is given in Section 2(1) of the Sale of Goods Act,
1930. The buyer can be defined as a person who buys goods from the seller.

Rights of the Buyer:

1). Right to have delivery of goods:
It is the basic right of the buyer to take the delivery of goods from the seller
after payment of consideration.
2). Right to Reject:
It is the right of the buyer to reject the goods if it is found that the seller has
delivered him the goods of other quantity or quality or if the buyer notices any
defects in the goods he may also refuse to take those defective goods.
3). Right to Cancel:
It is another right of the buyer to cancel the contract if the seller does not
perform his part in the stipulated time or otherwise, if the seller commits any
negligence as to the performance of a contract in that situation it is the right of
the buyer to cancel the contract.
4). Right to claim damages:
If there is any defect in the Goods which may cause loss to the buyer or if due to
the negligence of a seller. The buyer sustains a loss, in such circumstance or
eventuality, it is the right of the buyer to be compensated or the buyer may
claim damages.

5). Right to Examine:

It is the right of the buyer to examine the goods before their purchase and to
duly satisfy himself as to be quality of goods.

6). Right to sue for performance:

If the seller refuses to obey the terms and conditions of the contract which gives
irreparable loss to the buyer, the buyer has the right to knock or approach the
competent court of law to compel the seller for specific performance.

7). Right to take insurance:

It is the duty of the seller to give notice to the buyer to be ensured the goods if
the seller delivers in a good way whether by sea or by any other method/means
due to which apprehension that the goods may be destroyed then it is the right
of the buyer to ensure the goods before its delivery.

8). Right to sue for recovery of price:

It is the right of the buyer to file a suit for recovery of the price which he has
already paid to the seller but even then, the seller refuses to perform his part.

9). Right to claim interest:

It is the right of the buyer to claim an interest in the situation if the delay is
caused by the seller in the delivery of goods.

Duties of Buyer:
1). Duty to accept goods:
After the execution of the agreement if the seller delivers the goods to the buyer
to accept the goods without any delay. If the buyer refuses to take the goods
from the seller and the goods sustain any damage, the seller cannot be held
responsible for the same.

2). Duty to pay the consideration:

It is the basic duty of the buyer to pay the agreed consideration to the seller on
time.

3). Duty to pay damages:

It is the duty of the buyer to pay damages to the seller if due to the refusal of
buyer receives goods from the seller and the seller sustains any injury or for
maintenance if the seller incurs any cost over the goods.

4). Duty to perform agreement:

It is the duty of the buyer to perform his part/obligation in true spirit as agreed
between buyer and seller and in case of his non-performance, the buyer can be
held liable for any loss to the seller.

5). Duty to apply for goods:

It is another duty of the buyer to apply for delivery of goods to the seller. If it
was agreed that the seller would only deliver the goods if the buyer applies for
its delivery.

Who is a seller
The definition of the seller is given in Section 2(13) of the Sale of Goods Act,
1930. The seller can be defined as a person who agrees to sell goods.

Rights of Seller:
1). Right to have acceptance of goods:
It is the right of the seller that goods delivered by a seller under a contract of
sale must be accepted by the buyer.

2). Right to claim loss:

If the buyer unlawfully refuses to accept the delivery of goods, the seller has a
right to claim from the buyer the loss caused to him due to non-acceptance of
the goods and also reasonable charges for the care and custody of the goods.

3). Right to receive the price of goods:

It is the right of the seller to receive the price of goods from the buyer as per the
term of the contract.

4). Right to take legal action:

It is the right of a seller to take legal action against the buyer if the price is not
paid to him.

5). Right to interest:

Seller is entitled to interest at a reasonable rate on the total unpaid price of
goods sold, from the time it was due until it is actually paid to him.

Duties of Seller:
1). Duty to Deliver goods:
It is the duty of a seller to deliver the goods to the buyer according to the terms
and conditions of the contract. If the seller refuses to deliver the goods to the
buyer, he may sue the seller for damages for non-delivery.
2). Duty to put goods in the deliverable state:
Where it is necessary for the seller to do something with the goods in order to
put them into a deliverable state, he must do such a thing to put the goods into a
deliverable state within a stipulated or reasonable time.

3). Duty to refund the price:

Where the seller fails to deliver the goods to the buyer, he must pay back the
price of the goods to the buyer which he had received in advance.

4). Duty to pay interest:

Where the seller has already received the price but fails to deliver the goods to
the buyer, he must pay interest at a reasonable rate on the total received price,
from the date of receiving such price until it is actually paid back to the buyer.

5). Duty to pay damages for breach of warranty:

Where there is a breach of warranty on the part of a seller, the seller is bound to
pay the damages to the buyer for the breach of warranty.

Who is unpaid seller?

He is the seller to whom:-

1. Whole of the price is not paid

2. Conditional payment
Bill of exchange/ promissory note/ cheque has been received by seller but it
dishonours. Till the time bill of exchange/ promissory note/ cheque is with the
seller so, till that time he is only called as seller but when any of the mentioned
instruments dishonours then after this seller is called unpaid seller.

Features of an unpaid seller

1. Seller must sell the goods on cash basis and must be unpaid (in cash
transactions payment becomes due instantly)

2. Seller must be unpaid either wholly or party

3. The decided period has expired and the price has not been paid to seller

4. Seller must not refuse to accept the payment

5. Where the price paid through negotiable instrument (bill of exchange/

promissory note/ cheque) and the same has been dishonoured

Example: A sells his bike to B for Rs. 60,000 and receives a cheque for the
price. Till this time seller will only be called as seller. But when subsequently,
the cheque is dishonoured due to insufficiency of funds in B’s bank account,
then only A becomes an unpaid seller.

Rights (Remedies) of Unpaid Seller

(The unpaid seller has the rights/ remedies against goods and buyer both)

1. Rights of unpaid seller against goods

 Right of possession/ lien
 Right of stoppage of goods in transit
 Right of resale
2. Rights of unpaid seller against buyer
 Suit for price
 Suit for interest and special damages
 Suit for damages for nonacceptance
 Suit for breach of contract
A. Rights of unpaid seller against goods
1.Right of possession/ lien
If the buyer fails to pay the price within the decided time, then unpaid seller has
the right to keep the goods in his possession and he can refuse to deliver the
goods until the due payment is paid.
When right of possession can be exercised:-
 When goods are sold on cash basis, but payment is unpaid
 When goods have been sold on credit basis and the term of credit has
expired
 When the buyer becomes insolvent even within the decided period for
payment
 So, far as the goods are in the possession of unpaid seller, he can exercise
this right. If goods are lost/ given up then right of possession/ lien is also
lost/ given up
Termination of Right of Possession
 By delivery of goods to the buyer/ his agent
 By delivery of goods to the carrier/ courier company
 By waiver
This means that it’s specifically mentioned in the contract that seller can’t retain
the possession of the goods even if the price has not been paid
 When buyer has obtained the possession of goods lawfully
2.Right of stoppage of goods in transit
If a buyer fails to pay the price within the decided time, then unpaid
seller has the right to stop the goods in transit.
Conditions for stoppage of goods:-
 When seller is unpaid either wholly or partially
 When the buyer becomes insolvent
 Goods must be in the course of transit- This means that goods must not
be in the possession of the seller and have not reached the buyer’s
possession as well
Termination of Transit
  By delivery to the buyer/ his agent
 Interception by the buyer (Interception means the act of catching/
receiving) When buyer or his agent obtains the delivery of the goods
before their arrival at the appointed destination hence, the transit comes
to an end
 Acknowledgement to the buyer by the carrier/ courier company that they
are holding the goods on buyer’s behalf, then also transit comes to an end
 Part delivery of goods :If part of the goods are delivered to the buyer
then the transit comes to an end for the remainder of the goods as well
3.Right of resale
The unpaid seller has the right to resell the goods.
Conditions for resale:
 When goods are of perishable nature- Then unpaid seller can resell them
immediately without the notice to the buyer. But in case of non-perishable
items unpaid seller needs to send notice to the buyer for reselling them
 Where unpaid seller gives the notice to buyer and buyer still don’t pay for
it
 Where the right of resale is reserved/ mentioned in the contract
If contract clearly specifies that reselling can’t be done or vice versa
 Buyer becomes insolvent
 Buyer fails to pay the price of the goods
B. Rights of unpaid seller against buyer
1.Suit for price
2.Suit for interest and special damages
Here, suit can be filed for interest and special damages. Where, interest will be
paid on the amount of the deal between seller and buyer on the choice/
discretion of the court.
3.Suit for damages for non-acceptance
Suit can be filed against the buyer if the buyer wrongfully refuses to accept the
goods.
4.Suit for breach of contract
Rights (Remedies) of Buyer against Seller
1.Suit for damages for non-delivery
2.Suit for interest and special damages
3.Suit for specific performance
4. Suit for breach of contrac