Sale of Goods Act, 1930 – Important Terms

The Sale of Goods Act, 1930 herein referred to as the Act, is the law
that governs the sale of goods in all parts of India. It doesn’t apply to
the state of Jammu & Kashmir. The Act defines various terms which
are contained in the act itself. Let us see below:

I. Buyer And Seller

As per the sec 2(1) of the Act, a buyer is someone who buys or has
agreed to buy goods. Since a sale constitutes a contract between two
parties, a buyer is one of the parties to the contract.

The Act defines seller in sec 2(13). A seller is someone who sells or
has agreed to sell goods. For a sales contract to come into existence,
both the buyers and seller must be defined by the Act. These two terms
represent the two parties of a sales contract.

A faint difference between the definition of buyer and seller

established by the Act and the colloquial meaning of buyer and seller
is that as per the act, even the person who agrees to buy or sell is
qualified as a buyer or a seller. The actual transfer of goods doesn’t
have to take place for the identification of the two parties of a sales
contract.

II. Goods

One of the most crucial terms to define is the goods that are to be
included in the contract for sale. The Act defines the term “Goods” in
its sec 2(7) as all types of movable property. The sec 2(7) of the Act
goes as follows:

“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
before sale or under the contract of sale will be considered goods”
As you can see, shares and stocks are also defined as goods by the Act.
The term actionable claims mean those claims which are eligible to be
enforced or initiated by a suit or legal action. This means that those
claims where an action such as recovery by auction, suit, refunds etc.
could be initiated to recover or realize the claim.

We say that goods are in a deliverable state when their condition is

such that the buyer would, under the contract, be bound to take delivery
of these goods. Goods may be further understood in the following
subtypes:

1. Existing Goods

The goods that are referred to in the contract of sale are termed as
existing goods if they are present (in existence) at the time of the
contract. In sec 6 of the Act, the existing goods are those goods which
are in the legal possession or are owned by the seller at the time of the
formulation of the contract of sale. The existing goods are further of
the following types:
A) Specific Goods

According to the sec 2(14) of the Act, these are those goods that are
“identified and agreed upon” when the contract of sale is formed. For
example, you want to sell your mobile phone online. You put an
advertisement with its picture and information. A buyer agrees to the
sale and a contract is formed. The mobile, in this case, is specific good.

B) Ascertained Goods:

This is a type not defined by the law but by the judicial interpretation.
This term is used for specific goods which have been selected from a
larger set of goods. For example, you have 500 apples. Out of these
500 apples, you decide to sell 200 apples. To sell these 200 apples, you
will need to separate them from the 500 (larger set). Thus you specify
200 apples from a larger group of unspecified apples. These 200 apples
are now the ascertained goods.

C) Unascertained Goods:

These are the goods that have not been specifically identified but have
rather been left to be selected from a larger group. For example, from
your 500 apples, you decide to sell 200 apples but you don’t specify
which ones you want to sell. A seller will have the liberty to choose
any 200 apples from the lot. These are thus the unascertained goods.

2. Future Goods

In sec 2(6) of the Act, future goods have been defined as the goods that
will either be manufactured or produced or acquired by the seller at the
time the contract of sale is made. The contract for the sale of future
goods will never have the actual sale in it, it will always be an
agreement to sell.
For example, you have an apple orchard with apples in it. You agree
to sell 1000 apples to a buyer after the apples ripe. This is a sale that
has to occur in the future but the goods have been identified already
and the agreement made. Such goods are known as future goods.

3. Contingent Goods

Contingent goods are actually a subtype of future goods in the sense

that in contingent goods the actual sale is to be done in the future.
These goods are part of a sale contract that has some contingency
clause in it. For example, if you sell your apples from your orchard
when the trees are yet to produce apples, the apples are a contingent
good. This sale is dependent on the condition that the trees are able to
produce apples, which may not happen.

III. Delivery

The delivery of goods signifies the voluntary transfer of possession

from one person to another. The objective or the end result of any such
process which results in the goods coming into the possession of the
buyer is a delivery process. The delivery could occur even when the
goods are transferred to a person other than the buyer but who is
authorized to hold the goods on behalf of the buyer.

There are various forms of delivery as follows:

• Actual Delivery: If the goods are physically given into the

possession of the buyer, the delivery is an actual delivery.
• Constructive delivery: The transfer of goods can be done even
when the transfer is effected without a change in the
possession or custody of the goods. For example, a case of the
delivery by attornment or acknowledgment will be a
constructive delivery. If you pick up a parcel on behalf of your
friend and agree to hold on to it for him, it is a constructive
delivery.
 • Symbolic delivery: This kind of delivery involves the delivery
of a thing in token of a transfer of some other thing. For
example, the key of the godowns with the goods in it, when
handed over to the buyer will constitute a symbolic delivery.

Sale and Agreement of Sale (Section 4)

A contract is a formal or verbal agreement that is enforceable by law.
Every contract must have an agreement but every agreement is not a
contract. The section 4(1) of the Sale of Goods Act, 1930 states that –
‘A contract of sale of goods is a contract whereby the seller either
transfers or agrees to transfer the property in goods to the buyer for a
decided price.’

In Section 4(4) of the Act, it is maintained that for an agreement of sale

to become a sale, the time has to elapse or the conditions have to be
fulfilled subject to which the property in the goods is to be transferred.

The point that is to be understood from the above discussion is that a

contract for the sale of goods can either be a sale or an agreement of
sale. Let us see both the cases in the light of the Act.

Sale

Here the property in goods is transferred at once to the buyer from the
seller. The Section 4(3) of the Act says that “where under a contract of
sale the property in the goods is transferred from the seller to the buyer,
the contract is then known as a sale.” A sale is carried out on
deliverable 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)].

The transfer of goods may be affected directly, after the fulfilment of

a contingency or to a party authorized by the seller.
Agreement To Sell

We saw that in a sale the property in the goods is transferred from the
seller to the buyer. However, in an agreement to sell, the ownership of
the property in goods is not transferred immediately. The objective of
the agreement is to transfer the goods at a future date, once some
contingent clauses in the agreement or certain conditions are satisfied.

The Act in Section 4(3), defines what an agreement to sell is. The
section 4(3) of the sale of Goods Act defines it 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, the contract is called an
agreement to sell.”

Thus we see that a contract for the sale of goods may be either sale or
agreement to sell. This depends on the condition whether
it postulates an immediate transfer of property from the seller to the
buyer or whether it postulates the transfer to take place at some future
date.

Now the question is that how does this transition from agreement to
sell to sale occur? The agreement to sell will become a sale if and only
when the time elapses or the conditions are fulfilled subject to which
the contract of sale is to be fulfilled.

Elements of A Contract Of Sale

From the Sale of Goods Act, 1930, we see that certain elements must
co-exist for a contract of sale to be constituted. they are as follows:

1. The presence of two parties is a must. As is the case with a

contract, there must be at least two parties in the contract of
sale. One shall become the seller and the other a buyer.
 2. The clauses therein present in the contract of sale must limit
their scope to only the movable property. This “movable
property” may constitute existing goods, goods in
the possession or the ownership of the seller or future goods.
3. One of the important elements is the consideration of price.
A price in value (currency and not in kind) has to be paid or
promised. The price consideration or the actual payment could
be partly in kind and partly in money but never in kind alone.
4. The ownership of the property of goods must change from
the seller to the buyer. In the contract of sale, like we saw in
the elements of a contract, an offer has to be made and then
accepted. The offer is made by a seller and then accepted by
the buyer.
5. The contract of sale may be absolute or conditional.
6. The other essential elements of a contract, that we have already
seen must also be present here. The crucial elements of a
contract like competency of parties, the legality of object and
consideration etc. have to be present like in any other contract.

Solved Question on Sale and Agreement of Sale

Q: What is the specific condition that makes a contract an agreement
to sell?

Answer: The condition 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, the
contract is called an agreement to sell.”

Thus here the ownership of goods is not transferred immediately but

an intention to transfer the ownership is made clear.
Warranty And Conditions
In a contract of sale, parties may make certain statements about the
stipulation or the course of trade. These stipulations in the contract of
sale are made with reference to the subject matter of the sale. These
stipulations may either be a condition or in the form of a warranty.

The provisions of the conditions and warranty are provided in the

sections 11 to 17 of the Act. The stipulations are the essence of the
contract of sale and a breach of these stipulations provides a remedy to
the grieved party.

Stipulations As To Time – Sec 11

To understand the concept of warranty and conditions, we need to

learn about the stipulation as to time. The stipulation as to time may be
with regards to the delivery of goods or it may be with regards to the
payment of the price.

However, it may be noted that stipulations as to the time of delivery of

the goods are usually the essence of the contract. In Section 11 of the
Act, the topic of the stipulation as to time has been discussed. The Sec
11 states the follows:

Stipulations as to time: Unless a different intention can be ascertained

from the contract, stipulations as to the time of payment are not
considered to be of the essence of a contract of sale. Whether any other
stipulation as to time is of the essence of the contract or not will
ultimately depend on the terms of the contract.

This means that whether the stipulations as to the time of payment of

the price is of the essence of the contract or not depends on the terms
of the contract. Unless the terms of the contract specify something
different than this.
Conditions

A condition is a stipulation essential to the main purpose of the

contract, the breach of which gives the right to repudiate the contract
and to claim damages. (Sec 12 (2)). We can understand this with the
help of the following example:

Say ‘X’ wants to purchase a car from ‘Y’, which can have a mileage
of 20 km/lt. ‘Y’ pointing at a particular vehicle says “This car will suit
you.” Later ‘X’ buys the car but finds out later on that this car only has
a top mileage of 15 km/ litre. This amounts to a breach of condition
because the seller made the stipulation which forms the essence of the
contract. In this case, the mileage was a stipulation that was essential
to the main purpose of the contract and hence its breach is a breach of
condition.

Express and Implied Conditions

Warranty

A warranty is a stipulation collateral to the main purpose of the said

contract. The breach of warranty gives rise to a claim for damages.
However, it does give a right to reject the goods or treat the contract as
repudiated. (Sec 12(3)). Let us understand this with the help of an
example below.
 A man buys a particular car, which is warranted to be quite to drive
and very comfortable. It turns out that after some days the car starts to
make a very unpleasant noise every time it is operated. Also sitting
inside it is also not very comfortable.

Thus the buyer’s only remedy is to claim damages. This is not a breach
of the condition but rather a breach of warranty, because the stipulation
made by the seller was only a collateral one.

Identification of a Stipulation as a Condition or Warranty

Whether a stipulation is a condition or a warranty is a very important

aspect to have the knowledge about. A stipulation in a contract of sale
is either a condition or is a warranty depending in either case on
the construction of the contract. A stipulation may be a condition,
though called a warranty in the contract.

Solved Examples on Concept of Condition and

Warranty
Q: List the main difference between a Condition and a Warranty?

Ans: Following is a table that indicates the major differences between

a condition and a warranty:

Difference Basis Warranty Condition

A warranty is only collateral to the main purpose of It is essential to the main purpose of the
Nature
the contract. contract.
 The aggrieved party can repudiate the
Exemption from
In this case, the aggrieved party can’t rescind the contract and is exempted from
performance in case of a
contract but can claim damages only. performance and can also claim
breach of the stipulation.
damages.

Breach of warranty can’t be treated as a breach of A breach of contract may be treated as

Treatment
condition. a breach of warranty.

Rights of Unpaid Seller Against Goods

An unpaid seller has certain rights against the goods and the buyer. In
this article, we will refer to the sections of the Sale of Goods Act, 1930
and look at the rights of an unpaid seller against goods namely rights
of lien, rights of stoppage in transit etc.

Rights of Lien
Seller’s Lien (Section 47)

According to subsection (1) of Section 47 of the Sale of Goods Act,

1930, an unpaid seller, who is in possession of the goods can retain
their possession until payment. This is possible in the following cases:

1. He sells the goods without any stipulation for credit

 2. The goods are sold on credit but the credit term has expired.
3. The buyer becomes insolvent.
Subsection (2) specifies that the unpaid seller can exercise his right of
lien notwithstanding that he is in possession of the goods acting as
an agent or bailee for the buyer.

Part-delivery (Section 48)

Further, Section 48 states that if an unpaid seller makes part-delivery

of the goods, then he may exercise his right of lien on the remainder.
This is valid unless there is an agreement between the buyer and the
seller for waiving the lien under part-delivery.

Termination of Lien (Section 49)

According to subsection (1) of Section 49 of the Sale of Goods Act,

1930, an unpaid seller loses his lien:

• If he delivers the goods to a carrier or other bailee for

transmission to the buyer without reserving the right of
disposal of the goods.
• When the buyer or his agent obtain possession of the goods
lawfully.
• By waiver.
Further, subsection (2) states that an unpaid seller, who has a lien, does
not lose his lien by reason only that he has obtained a decree for
the price of the goods.

Right of Stoppage in Transit

This right is an extension to the right of lien. The right of stoppage in

transit means that an unpaid seller has the right to stop the goods while
they are in transit, regain possession, and retain them till he receives
the full price.

If an unpaid seller has parted with the possession of the goods and the
buyer becomes insolvent, then the seller can ask the carrier to return
the goods back. This is subject to the provisions of the Act.

Duration of Transit (Section 51)

Goods are in the course of transit from the time the seller delivers them
to a carrier or a bailee for transmission to the buyer until the buyer or
his agent takes delivery of the said goods.

Pledge by the Buyer (Section 53)

Unless the seller agrees, the right of lien or stoppage is unaffected by

the buyer selling or pledging the goods. The principle is simple: the
second buyer cannot be in a better position that the seller (first buyer).
However, if the buyer transfers the document of title or pledges the
goods to a sub-buyer in good faith and for consideration, then the right
of stoppage is defeated.

There are two exceptions to make note of:

a. The seller agrees to resale, mortgage or other disposition of the

goods

If the seller agrees to the buyer selling, pledging or disposing of the

goods in any other way, then he loses his right to lien.

b. Transfer of the document of title of goods by the buyer

When the seller transfers the document of title of goods to the buyer
and the buyer further transfers it to another buyer who purchases the
goods in good faith and for a price, then:
 • If the last mentioned transfer is by way of sale, the original
seller’s right of lien and stoppage is defeated.
• If the last mentioned transfer is by way of a pledge, the original
seller’s right of lien or stoppage can be executed subject to the
rights of the pledgee.
Right of Resale (Section 54)

The right of resale is an important right for an unpaid seller. If he does

not have this right, then the right of lien and stoppage won’t make
sense. An unpaid seller can exercise his right of resale under the
following conditions:

• Goods are perishable in nature: In such cases, the seller does

not have to inform the buyer of his intention of resale.
• Seller gives a notice to the buyer of his intention of resale:
The buyer needs to pay the price of the goods and ask for
delivery within the time mentioned in the notice. If he fails to
do so, then the seller can resell the goods. He can also recover
the difference between the contract price and resale price if the
latter is lower. However, if the resale price is higher, then the
seller keeps the profits.
• Unpaid seller resells the goods post exercising his right of
lien or stoppage: The subsequent buyer acquires a good title
to the goods even if the seller has not given a notice of resale
to the original buyer.
• Resale where the right of resale is reserved in the contract of
sale: If the contract of sale specifies that the seller can resell
the goods if the buyer defaults, then the seller reserves his right
of sale. He can claim damages from the original buyer even if
he does not give a notice of resale to him.
• Property in the goods has not passed to the buyer: The unpaid
seller can exercise his right of withholding delivery of goods.
This is similar to the right of lien and is called quasi-lien.