SALE OF GOODS ACT, 1930

CHAPTERS 7
SECTIONS 66
 SCOPE
CHAPTERS HEADING SECTIONS

I PRELIMINARY 1–3

II FORMATION OF THE CONTRACT 4 – 17

III EFFECTS OF THE CONTRACT 18 – 30

IV PERFORMANCE OF THE CONTRACT 31 – 44

V RIGHTS OF UNPAID SELLER AGAINST THE 45 – 54

GOODS
VI SUITS FOR BREACH OF THE CONTRACT 55 – 61

VII MISCELLANEOUS 62 – 66
• Scope of the Act The sale of Goods Act deals with ‘Sale of
Goods Act,1930,’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.” ‘Contract of sale’ is a
generic term which includes both a sale as well as an
agreement to sell.
 Essential elements of Contract of sale

I. Seller and buyer

• There must be a seller as well as a buyer. ‘Buyer’ means a

person who buys or agrees to buy goods. ‘Seller’ means a
person who sells or agrees to sell goods.
 II. Goods

There must be some goods. ‘Goods’ means every kind of

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

Property means the general property in goods, and not merely a

special property. General property in goods means ownership
of the goods. Special property in goods means possession of
goods. Thus, there must be either a transfer of ownership of
goods or an agreement to transfer the ownership of goods. The
ownership may transfer either immediately on completion of
sale or sometime in future in agreement to sell.
 IV. Price

There must be a price. Price here means the money

consideration for a sale of goods. When the consideration is
only goods, it amounts to a ‘barter’ and not sale. When there is
no consideration ,it amounts to gift and not sale.
 V. Essential elements of a valid contract

In addition to the aforesaid specific essential elements, all the

essential elements of a valid contract as specified under
Section 10 of Indian Contract Act,1872 must also be present
since a contract of sale is a special type of a contract.
 GOODS

Goods means every kind of movable property other than actionable

claims and money, and includes the following:

• Stock and share

• Growing crops,grass and thing attached to or forming part of the land
which are agreed to be served before sale or under the Contract of sale.
 Types of Goods[Section 6]

1. Existing Goods
a) Specific Goods[Section 2(14)]:
b) Ascertained Goods:
c) Unsanctioned Goods:

2. Future Goods[Section 2(6)]

3. Contingent Goods [Section 6(2)]
 Existing Goods

Existing goods mean the goods which are either owned or

possessed by the seller at the time of contract of sale. The
existing goods may be specific or ascertained or unascertained.
 Specific Goods [Section 2(14)]

These are the goods which are identified and agreed upon at
the time when a contract of sale is made. For example,
specified Bike, Car, etc.
 Ascertained Goods

Goods are said to be ascertained when out of a mass of

unascertained goods, the quantity extracted for is identified and
set aside for a given contract. Thus, when part of the goods
lying in bulk are identified and for sale, such goods are termed
as ascertained goods.
 Unsanctioned Goods

These are the goods which are not identified and agreed upon
at the time when a contract of sale is made e.g. goods in stock
or lying in lots.
 Future Goods [Section 2(6)]

Future goods mean goods to be manufactured or produced or

acquired by the seller after the making of the contract of sale.
There can be an agreement to sell only. There can be no sale in
respect of future goods because one cannot sell what he does
not possess.
 Contingent Goods [Section 6(2)]

These are the goods the acquisition of which by the seller

depends upon a contingency which may or may not happen.
Consequences of not determining the Price in any of
the Mode [Section 9(2)]

Price means the money consideration for a sale of

goods. Where the price is not determined in accordance
with Section 9(1),the buyer must pay seller a reasonable
price. What is a reasonable price is a question of fact
dependent on the circumstances of each particular case.
It may be noted that a reasonable price need not be
market price.
 Duty of buyer

A buyer who has received and appropriated the goods, must

pay a reasonable price therefor.
SALE AND AGREEMENT TO SELL
DISTINGUISHED
 SALE
It is a contract where the ownership in the goods is transferred by seller
to the buyer immediately at the conclusion contract. Thus, strictly
speaking, sale takes place when there is a transfer of property in goods
from the seller to the buyer. A sale is an executed contract.
It must be noted here that the payment of price is immaterial to the
transfer of property in goods.

Example -
A sells his Yamaha Motor Bicycle to B for Rs. 10,000. It is a sale since
the ownership of the motorcycle has been transferred from A to B.
 AGREEMENT TO SELL
It is a contract of sale where the transfer of property in goods is to take
place at a future date or subject to some condition thereafter to be
fulfilled.

Example -
A agreed to buy from B a certain quantity of nitrate of soda. The ship
carrying the nitrate of soda was yet to arrive. This is an agreement to
sale. In this case, the ownership of nitrate of soda is to be to transferred
to A on the arrival of the ship containing the specified goods (i.e. nitrate
of soda) [Johnson V McDonald (1842) 9 M & W 600, 60 RR 838]
 Sale Agreement to sell
Ownership passes to the buyer. Ownership remains with the seller.

It is a executed contract. It is a executory contract.

Risk of loss falls on the buyer. Risk of loss falls on the seller.

Seller cannot resell the goods. Seller can sell goods to third party.

It can be in case of existing and specific goods. It can be in case of future and unascertained
goods
In case of breach of a contract, seller can sue for In case of breach of a contract, seller can sue only
the price of the goods . for damages not for the price.
The seller is only entitled to the ratable dividend The seller may refuse to sell the goods to the
of the price due if the buyer becomes insolvent. buyer
w/o payments if the buyer becomes insolvent.
CONDITIONS AND WARRANTIES
[SEC 11-17]
 CONDITION

A condition is a stipulation –
(a) which is essential to the main purpose of the contract
(b) the breach of which gives the aggrieved party a right to
terminate the contract.

• It goes to the root of the contract.

• Its non-fulfillment upsets the very basis of the contract.
 Sec 12(2) of Sales of Goods Act, 1930 has defined Condition as:

“A condition is a stipulation essential to the main

purpose of the contract, the breach of which gives rise
to a right to treat the contract as repudiated”.
 Behn v. Burness, 1863

By charter party (a contract by which a ship is hired for the

carriage of goods), it was agreed that ship of 420 tons “now in
port of Amsterdam” should proceed direct to new port to load a
cargo. In fact at the time of the contract the ship was not in the
port of Amsterdam and when the ship reached Newport, the
charterer refused to load. Held, the words “now in the port of
Amsterdam” amounted to a condition, the breach of which
entitled the charterer to repudiate the contract.
 WARRANTY

• It is a stipulation collateral to the main purpose of the

contract
• It is of secondary importance
• If there is a breach of a warranty, the aggrieved party can only
claim damages and it has no right to treat the contract as
repudiated.
 Sec 12(3) of Sale Of Goods Act, 1930 has defined Warranty as:

“A warranty is a stipulation collateral to the main

purpose of the contract, the breach of which gives rise
to only claim for damages but not to a right to reject the
goods and treat the contract as repudiated”.
 Conditions to be treated as Warranty
[Section 13]
In the following cases a breach of a condition is treated as a breach of a
warranty:

• Where the buyer waives a conditions;

once the buyer waives a conditions, he cannot insist on its fulfillment e.g.
accepting defective goods or beyond the stipulated time amount to waiving a
conditions.

• Where the buyer elects to treat breach of the condition as a breach of

warranty;
e.g. where he claims damages instead of repudiating the contract.
Where the contract is not severable and the buyer has accepted
the goods or part thereof, the breach of any condition by the
seller can only be treated as breach of warranty. It can not be
treated as a ground for rejecting the goods unless otherwise
specified in the contract. Thus, where the buyer after
purchasing the goods finds that some condition is not fulfilled,
he cannot reject the goods. He has to retain the goods entitling
him to claim damages.
 Express and Implied Conditions and Warranties

In a contract of sale of goods, conditions and warranties may be

express or implied.
 Express Conditions and Warranties.

These are expressly provided in the contract. For example, a

buyer desires to buy a Sony TV Model No. 2020. Here, model
no. is an express condition. In an advertisement for Khaitan
fans, guarantee for 5 years is an express warranty.
 Implied Conditions and Warranties

There are implied by law in every contract of sale of goods

unless a contrary intention appears from the terms of the
contract.
 Implied Conditions

1.Conditions as to title [ Section 14 (a)]

There is an implied condition on the part of the seller that In

the case of a sale, he has a right to sell the goods, and In the
case of an agreement to sell, he will have a right to sell the
goods at the time when the property is to pass.
 2. Condition in case of sale by description [Section 15]

Where there is a contract of sale of goods by description, there is an

implied condition that the goods shall correspond with description. The
main idea is that the goods supplied must be same as were described by
the seller. Sale of goods by description include many situations as
under:
i. Where the buyer has never seen the goods and buys them only on the
basis of description given by the seller.
ii. Where the buyer has seen the goods but he buys them only on the
basis of description given by the seller.
iii.Where the method pf packing has been described.
 3. Condition in case of sale by sample [Section 17]

A contract of sale is a contract for sale by sample when there is a term in

the contract, express or implied, to that effect. Such sale by sample is
subject to the following three conditions:

The goods must correspond with the sample in quality. The buyer must
have a reasonable opportunity of comparing the bulk with the sample.
The goods must be free from any defect which renders them
unmerchantable and which would not be apparent on reasonable
examination of the sample. Such defects are called latent defects and are
discovered when the goods are put to use.
 4. Condition in case of sale by description and sample
[Section 15]

If the sale is by sample as well as by description, the goods

must correspond with the sample as well as the description.
 5. Condition as to quality or fitness [Section 16(1)]
There is no implied condition as to the quality or fitness for any
particular purpose of goods supplied under a contract of sale. In other
words, the buyer must satisfy himself about the quality as well as the
suitability of the goods.
Exception to this rule:
There is an implied condition that the goods shall be reasonably fit for a
particular purpose described if the following three conditions are
satisfied:
1. The particular for which goods are required must have been
disclosed(expressly or impliedly) by the buyer to the seller.
2. The buyer must have relied upon the seller’s skill or judgement.
3. The seller’s business must be to sell such goods.
 6. Condition as to merchantable quality[Section 16(2)]

Where the goods are bought by description from a seller who deals in
goods of that description, there is an implied condition that the goods
shall be of merchantable quality. The expression ‘ merchantable quality’
means that the quality and condition of the goods must be such that a
man of ordinary prudence would accept them as the goods of that
description. Goods must be free from any latent or hidden defects.
 7. Condition as to wholesomeness
In case of eatables or provisions or food stuffs, there is an implied
condition as to wholesomeness. Condition as to wholesomeness means
that the goods shall be fit for human consumption.

8. Conditions implied by custom [Section 16(3)]

Condition as to quality or fitness for a particular purpose may be
annexed by the usage of trade.
 Implied warranties

a)Warranty as to quiet possession [Section14(b)]

There is an implied warranty that the buyer shall have and enjoy
quiet possession of the goods. The reach of this warranty gives
buyer a right to claim damages from the seller.
 b)Warranty of freedom from encumbrances [Section 14(c)]

There is an implied warranty that the goods are free from any charge or
encumbrance in favour of any third person if the buyer is not aware of
such charge or encumbrance. The breach of this warranty gives buyer a
right to claim damages from the seller.

• Warranty as to quality or fitness for a particular purpose annexed by

usage of trade[Section 16(3)]
• Warranty to disclose dangerous nature of goods
DISTINCTION BETWEEN CONDITION AND
WARRANTY
 Condition Warranty

A condition is a stipulation (in a A warranty is a stipulation, which is only

contract), which is essential to the main collateral or subsidiary to the main
purpose of the contract. purpose of the contract.

A breach of condition gives the A breach of warranty gives only the right
aggrieved party a right to sue for to sue for damages. The contract cannot
damages as well as the right to repudiate be repudiated.
the contract.
A breach of condition may be treated as a A breach of warranty cannot be treated as
breach of warranty in certain a breach of condition.
circumstances.
 DOCTRINE OF CAVEAT EMPTOR

• Caveat Emptor is a fundamental principle of the law of sale

of goods
• It means "Caution Buyer", i.e. "Let the buyer beware".
• It is the duty of the buyer to be careful while purchasing
goods of his requirement and in the absence of the enquiry
from the buyer, the seller is not bound to disclose every
defect in the goods of which he may be cognizant.
 EXCEPTIONS TO THE DOCTRINE OF
CAVEAT EMPTOR (SEC16)

• In case of misrepresentation by the seller

• In case of concealment of latent defect
• In case of sale by description
• In case of sale by sample
• Fitness for a particular purpose
• Merchantable quality
 PASSING / TRANSFER OF PROPERTY
• Transfer of property in goods from the seller to the buyer is
the main object of a contract of sale.
• “property in goods” means the ownership of goods
• An article may belong to A although it may not be in his
possession. B may be in possession of that article although he
is not its owner.
• It is important to know the precise moment of time at which
the property in goods passes from the seller to the buyer for
the following reasons
• Significance – Time of transfer of ownership of goods
decides various rights and liabilities of the seller and
buyer.

• Risk – Owner to bear the risk and not the person who
merely has the possession

• Action against third party – Owner can take action

and not the person who merely has possession.
 RIGHTS OF UNPAID SELLER
A seller of goods is deemed to be an unpaid seller when:-

• The whole of the price has not been paid or tendered;

• A bill of exchange or other negotiable instrument has been received as a

conditional payment, and the condition on which it was received has not been
fulfilled by reason of the dishonour of the instrument or otherwise.
 CONDITIONS
• The term "seller" includes any person who is in the position of a
seller, as, for instance, an agent of the seller to whom the bill of
lading has been endorsed or agent who has himself paid, or is
directly responsible for, the price.

• The seller shall be called an unpaid seller even when only a small
portion of the price remains to be unpaid.

• It is for the non payment of the price and not for other expenses
that a seller is termed as an unpaid seller.

• Where the full price has been tendered by the buyer and the seller
refused to accept it, the seller cannot be called as unpaid seller.
Where the goods have been sold on credit, the seller
cannot be called as an unpaid seller. Unless :

• If during the credit period seller becomes insolvent, or

• On the expiry of the credit period, if the price remains

unpaid, Then, only the seller will become an unpaid seller.
RIGHTS OF AN UNPAID SELLER

• Against goods

• Against buyer personally

 AGAINST GOODS
Where the property in goods has passed to the buyer
• Right of lien
• Right of stoppage in transit
• Right of resale

Where the property in goods has not passed to the buyer

• Withholding delivery
• Stoppage in transit
• Resale
 RIGHT OF LIEN (SEC.47-49)

 The right of lien means the right to retain the possession of

the goods until the full price is received.

 Circumstances under the right of lien can be exercised

• Where the goods have been sold without any stipulation to credit
• Where the goods have been sold on credit, but the term of credit
has expired
• Where the buyer becomes insolvent
 RIGHT OF STOPPAGE OF GOODS IN
TRANSIT (SEC.50-52)
• Right of stoppage in transit means the right of stopping the
goods while they are in transit, to regain possession and to
retain them till the full price is paid.

i. Conditions under which Right of stoppage in transit can be

exercised Seller must have parted with the possession of goods,
i.e., the goods must not be in the possession of the buyer.
ii. The goods must be in course of transit
iii. Buyer must have become insolvent
 RIGHT OF RESALE (SEC.54)
• An unpaid seller can resell the goods under the following
circumstances:

i. Where the goods are of a perishable nature

ii. Where the seller expressly reserves the right of resale if the
buyer commits a default in making payment
iii. Where the unpaid seller who has exercised his right of lien or
stoppage in transit gives a notice to the buyer about his intention
to resell and buyer does not pay or tender within a reasonable
time.
 Against the buyer personally

Suit for price

Suit for damages

• Suit for price.- (1) Where under a contract of sale the property in the
goods has passed to the buyer and the buyer wrongfully neglects or
refuses to pay for the goods according to the terms of the contract, the
seller may sue him for the price of the goods.

• (2) Where under a contract of sale the price is payable on a day certain
irrespective of delivery and the buyer wrongfully neglects or refuses to
pay such price, the seller may sue him for the price although the
property in the goods has not passed and the goods have not been
appropriated to the contract.
• Damages for non-acceptance.- Where the buyer wrongfully
neglects or refuses to accept and pay for the goods, the seller
may sue him for damages for non-acceptance.

• Damages for non-delivery.- Where the seller wrongfully

neglects or refuses to deliver the goods to the buyer, the buyer
may sue the seller for damages for non-delivery.