Sale of Goods Act, 1930

INTRODUCTION
The Indian Sale of Goods Act, 1930 is a Mercantile Law, which came into existence on 1 July 1930, during
the British Raj, borrowing heavily from the Sale of Goods Act 1893. Till 1930 the transactions relating to
sale and purchase of goods was regulated by the Indian contract act, 1872, (sec 76-123) and were repealed
and made separate act called Indian Sale of Goods Act, 1930.
The act was amended on 23 September 1963, and was renamed to the Sale of Goods Act, 1930. It is still in
force in India. 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.
Originally, the transactions related to sale and purchase of goods was regulated by Chapter VII (Sections
76 to 123) of Indian Contract Act, 1872 – which was broadly based on English common law. A need was
felt to overhaul the law due to rapid growth of mercantile transactions and various progressive English
judgments being passed to meet the needs of the community. Thus, the provisions of Chapter VII were
repealed, suitably amended keeping in mind the English Sales of Goods, 1893 and recent judicial decisions
of the time. A separate act, the Sale of Goods Act came into force on 1st July 1930. It does not affect rights,
interests, obligations and titles acquired before the commencement of the Act.
The Act deals with sale but not with mortgage or pledge of the goods.
The contacts for sale of goods are subject to the general principles of the law relating to contracts i.e. the
Indian Contact Act. A contract for sale of goods has, however, certain peculiar features such as, transfer of
ownership of the goods, delivery of goods rights and duties of the buyer and seller, remedies for breach of
contract, conditions and warranties implied under a contract for sale of goods, etc.

SECTION - 2. Definitions —In this Act, unless there is anything repugnant in the subject or context—

(1) “buyer” means a person who buys or agrees to buy goods;

(2) “delivery” means voluntary transfer of possession from one person to another;

(4) “document of title to goods” includes a bill of lading, dock warrant, warehouse keeper’s certificate, wharfingers’
certificate, railway receipt, 5 [multimodal transport document,] warrant or order for the delivery of goods and any
other document used in the ordinary course of business as proof of the possession or control of goods, or authorising
or purporting to authorise, either by endorsement or by delivery, the possessor of the document to transfer or
receive goods thereby represented;

(6) “future goods” means goods to be manufactured or produced or acquired by the seller after the making of the
contract of sale;

(7) “goods” means every kind of moveable 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;

(9) “mercantile agent” means a mercantile agent having in the customary course of business as such agent authority
either to sell goods, or to consign goods for the purposes of sale, or to buy goods, or to raise money on the security
of goods;

(10) “price” means the money consideration for a sale of goods;

(13) “seller” means a person who sells or agrees to sell goods;

(14) “specific goods” means goods identified and agreed upon at the time a contract of sale is made;

SECTION 4. Sale and agreement to sell —

(1) A 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. There may be a contract of sale between one part-owner and another. (The term ‘contract of
sale’ is a generic term and includes both a sale and an agreement to sell.)
(2) A contract of sale may be absolute or conditional.

(3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the
contract is called a sale, but 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.

(4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the
property in the goods is to be transferred.

A Contract of Sale is:

 an offer to buy for a price, or
 An offer to sell good for a price, and
 the acceptance of such offer.

SECTION 5: - Contract of sale how made

 the immediate delivery of the goods, or
 immediate payment of the price, or
 the immediate delivery of the goods and payment both, or
 for the delivery or payment by instalments, or
 That the delivery or payment or both shall be postponed.

per the Section 5 sub-clause (2) –

Subject to the provisions of any law for the
time being in force, a contract of sale may be made-
 in writing or
 by word of mouth, or
 partly in writing and partly by word of mouth or
 may be implied from the conduct of the parties

Formalities of a contract of sale: Section 5 of the Act specifically provides for

the following three steps or formalities in a contract of sale:
1) Offer and Acceptance: A contract of sale is made by an offer to buy or sell the goods for a price
and acceptance of such offer.
2) Delivery and Payment: It is not necessary that the payment for the goods to the seller and
delivery of goods to the buyer must be simultaneous. They can be made at different times or in
instalments – as per the contract.
3) Express or Implied: The contract can be in writing, oral or implied. It can also be partly oral and
partly written.

Essential features
The five essential features of a contract of sale are as discussed below:
1) Two parties (It is a contract between 2 parties, one known as the seller and the other the buyer)
2) Subject matter to be goods
3) Transfer of ownership of goods (The seller should transfer or agree to transfer the property (ownership)
in the goods to the buyer) Passing of property in the goods.
4) Consideration is price (The transfer of property (ownership) in the goods from the seller to the buyer is
for consideration known as, ‘price’)
5) Essential elements of a valid contract- Agreement between the competent Parties

Two parties: there must be 2 distinct parties i.e. a buyer and a seller, to affect a contract of sale and they
must be competent to contract.
‘Buyer’ means a person who buys or agrees to buy goods [Sec. 2(1)].
‘Seller’ means a person who sells or agrees to sell goods [Sec. (13)].
A sale has to be bilateral because the goods have to pass from one person to
another. The seller and the buyer must be different persons.

Subject matter to be goods: Goods: there must be some goods the property in which is or is to be
transferred from the seller to the buyer. The goods which form the subject-matter of the contract of sale
must be movable. Transfer of immovable property is not regulated by the Sale of Goods Act.
The term ‘goods’ is defined in Section 2(7).
Money cannot be sold because money means legal tender. NOTE: not the old coins which can be sold and
purchased as goods.
Actionable claims are things that a person cannot make use of, but which can be claimed by him by means
of legal action such as a debt.
Sale of immovable property is not covered under this Act. As per Section 3 of the Transfer of Property Act,
1882, ‘immovable property’ does not include standing timber, growing crops or grass. They are considered
movable property and thus goods. Standing timber is taken as movable property while trees are
immovable property.
Things like goodwill, copyright, trademark, patents, water, gas, electricity are all goods.

In the case of Commissioner of Sales Tax vs. Madhya Pradesh Electricity Board - the Supreme Court
observed –
“…electricity…can be transmitted, transferred, delivered, stored, possessed, etc., in the same way as any
other movable property…If there can be sale and purchase of electric energy like any other movable
object, we see no difficulty in holding that electric energy was intended to be covered by the definition of
“goods”.
In the case of H. Anraj vs. Government of Tamil Nadu – it was held that lottery tickets are goods and not
actionable claims. Thus, sale of lottery tickets is sale of goods.

In the case of UP Cooperative Cane Unions Federation vs. West UP Sugar Mills Assn. – It was held that
Sugarcane supplied to a sugar factory is goods within the meaning of Section 2(7) of the Act.

In the case of A.M.P. Arunachalam vs A.R. Krishnamurthy And Ors. – It was held that crops, grass etc that
are attached to ground but can be detached and sold comes under the definition of goods.

SECTION 6. Existing or future goods —

(1) The goods which form the subject of a contract of sale may be either existing goods, owned or
possessed by the seller, or future goods.
(2) There may be a contract for the sale of goods the acquisition of which by the seller depends upon a
contingency which may or may not happen.
(3) Where by a contract of sale the seller purports to effect a present sale of future goods, the contract
operates as an agreement to sell the goods.
SECTION 7. Goods perishing before making of contract. — Where there is a contract for the sale of
specific goods, the contract is void if the goods without the knowledge of the seller have, at the time
when the contract was made, perished or become so damaged as no longer to answer to their
description in the contract.
SECTION 8. Goods perishing before sale but after agreement to sell —Where there is an agreement to sell
specific goods, and subsequently the goods without any fault on the part of the seller or buyer perish or
become so damaged as no longer to answer to their description in the agreement before the risk passes
to the buyer, the agreement is thereby avoided.
‘Fault’ means wrongful act or default [Sec 2(5)]
Sections 7 and 8 deal with the effect of perishing of goods on the rights and obligations of the parties to a
contract of sale. Under these Sections, the word ‘perishing’ means not only physical destruction of the
goods but it also covers:
(a) Damage to goods so that the goods have ceased to exist in the commercial sense, i.e., their
merchantable character as such has been lost by water and becomes almost stone or where sugar
becomes sharbat and thus are unsaleable as cement or sugar;
(b) Loss of goods by theft (Barrow Ltd. vs. Philips Ltd.);
(c) Where the goods have been lawfully requisitioned by the government (Re Shipton, Anderson & Co.).

It may also be mentioned that it is only the perishing of specific and ascertained goods that affects a
contract of sale.
Where, therefore, unascertained goods form the subject-matter of a contract of sale, their perishing does
not affect the contract and the seller is bound to supply the goods from wherever he likes, otherwise be
liable for breach of contract.
Thus, where A agrees to sell to B ten bales of Egyptian cotton out of 100 bales lying in his godown and the
bales in the godown are completely destroyed by fire, the contract does not become void. A must supply
ten bales of cotton after purchasing them from the market or pay damages for the breach.

(i) In case of perishing of the whole of the goods: -

Where specific goods form the subject- matter of a contract of sale (both actual sale and agreement to
sell), and they, without the knowledge of the seller, perish, at or before the time of the contract, the
contract is void.
This provision is based either on the ground of mutual mistake as to a matter of fact essential to the
agreement, or on the ground of impossibility of performance, both of which render an agreement void ab-
initio.
Illustration A sold to B a specific cargo of goods supposed to be on its way from England to Bombay. It
turned out, that before the day of the bargain, the ship conveying the cargo had been cast away and the
goods were lost. Neither party was aware of the fact. The agreement was held to be void (Hastie vs
Conturier).

(ii) In case of perishing of only ‘a part’ of the goods: -

Where in a contract for the sale of specific goods, only part of the goods are destroyed or damaged, the
effect of perishing will depend upon whether the contract is entire or divisible.
If it is entire (i.e., indivisible) and only part of the goods had perished, the contract is void.
If the contract is divisible, it will not be void and the part available in good condition must be accepted by
the buyer.
Illustration There was a contract for the sale of a parcel containing 700 bags of Chinese groundnuts of
different qualities. Unknown to the seller, 109 bags had been stolen at the time of the contract. The seller
delivered the remaining 591 bags, and on the buyer’s refusal to take them, brought an auction for the
price. It was held that the contract, being indivisible, had become void by reason of the loss of the goods
and the buyer was not bound to take delivery of 591 bags or pay for the goods (Barrow Ltd. vs. Philips
Ltd.)

SECTION 8 - Provision is based or the ground of Supervening impossibility of performance which makes a
contract void.
If only part of the goods agreed to be sold perish, the contract becomes void if it is indivisible. But if it is
divisible then the parties are absolved from their obligations only to the extent of the perishing of the
goods (i.e., the contract remains valid as regards the part available in good condition).

It must further be noted that if fault of either party causes the destruction of the goods, then the party in
default is liable for non-delivery or to pay for the goods, as the case may be (Sec. 26). Again, if the risk has
passed to the buyer, he must pay for the goods, though undelivered [unless otherwise agreed risk prima
facie passes with the property (Sec. 26).]
Illustration:
(a) A buyer took a horse on a trial for 8 days on condition that if found suitable for his purpose, the bargain
would become absolute. The horse died on the 3rd day without any fault of either party. Held, the contact,
which was in the form of an agreement to sell, becomes void and the seller should bear the loss (Elphick
vs. Barnes).
(b) A, had contracted to erect machinery on M’s premises, the price was to be paid on completion. During
the course of the work, there was a fire which completely destroyed the premises and the machinery. It
was held that both parties were excused from further performance and A was not entitled to any payment
as the price was payable on the completion of entire work (Appleby vs. Myers.).

IMP. - Howell vs. Coopland, where it has been held that future goods, if sufficiently identified, are to be
treated as specific goods, the destruction of which makes the contract void. The facts of the case - C agreed
to sell to H 200 tons of potatoes to be grown on C’s land. C sowed sufficient land to grow the required
quantity of potatoes, but without any fault on his part, a disease attacked the crop and he could deliver
only about ten tons. The contract was held to have become void.

Transfer of ownership of Goods: There must be transfer of ownership or an agreement to transfer the
ownership of goods from the seller to the buyer – not the transfer of mere possession or limited interest as
in the case of pledge, lease or hire purchase agreement.
If goods remain in possession of seller after sale transaction is over, the ‘possession’ is with seller, but
‘ownership’ is with buyer.
The Act uses the term ‘general property’ implying that sale involves total ownership and not a specific right
limited by conditions.
Delivery of goods refers to a voluntary transfer of possession of goods from one person to another.
Delivery may be constructive or actual depending upon the circumstances of each case. A contract may
provide for the immediate delivery of the goods or immediate payment of the price or both. Alternatively,
the delivery or payment may be made by instalments or be postponed.

Consideration is Price: Price is an essential ingredient for all transactions of sale and in the absence of the
price or the consideration, the transfer is not regarded as a sale. The transfer by way of sale must be in
exchange for a price.
It has been held that price normally means money considerations for a sale of goods sec 2 (10). The price
can be paid fully in cash or it can be partly paid and partly promised to be paid in future.
The price can be fixed by the agreement between the parties before the conveyance of the property.

When goods are exchanged for goods, it is a contract of barter or exchange - (Commissioner of Income
Tax v Motor and General Store ltd.).
When there is no consideration for the contract and the transfer is gratuitous, the transaction will be by
way of gift.
But where the goods are sold for definite sum and the price is paid partly in kind and partly in cash, the
transaction is a sale.
Consideration is an essential for a valid contract as per the Indian Contract Act, 1872.
According to Section 2(10) ‘price’ means the money consideration for the sale of goods. If the price is not
fixed, the contract is void ab initio.

Section 9 lays down how the price may be fixed in a contract of sale:
a) It can be fixed by the contract itself; or
b) It can be fixed in a manner provided by the contract, such as appointment of
a valuer; or
c) It can be determined by the course of dealings between the parties; or
d) If the price is not capable of being fixed in any of the ways mentioned, the buyer is bound to pay
reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each
particular case. (Section 9 Sub-section 2) It is not necessary that reasonable price should be equal to the
market price.

Section 10 makes it clear that if the third party appointed under the agreement to fix the price cannot or
does not make such valuation, then the agreement to sell goods will become void (avoided). (1)
(Provided if the goods or any part thereof have been delivered to, and appropriated by, the buyer, he shall
pay a reasonable price therefor)
(2) If the third party is prevented in his valuation due to the buyer or the seller, the party not at fault can
file a suit for damages against the party in fault.

Essential elements of a valid contract: All essential elements of a valid contract must be present in the
contract of sale. viz., competent parties, free consent, legal object and legal consideration. The transfer of
possession and ownership under the Act has to be voluntary and not be tainted with fraud or duress.

SALE & AGREEMENT TO SELL

A contract of sale is a generic term and includes both an actual sale and an agreement to sell. Section 4
provides that if the property in goods is transferred from the seller to the buyer under a contract, the
contract is called a sale. Where the transfer of the property in the goods will take place at a future time or
is subject to some condition which has to be fulfilled, the contract is called an agreement to sell. Such an
agreement to sell becomes a sale when the prescribed time lapses or the conditions are fulfilled.
SALE & HIRE PURCHASE AGREEMENT
A Hire purchase agreement is an agreement for hire of goods where the person who hires the goods has an
option to purchase the goods at the end.
The possession of the goods is delivered to such a hirer and he has to pay via instalments. The property in
the goods passes to the hirer on the payment of the last instalments.
The Hire purchase agreements are treated as bailment and the parties have the same rights as a bailor and
bailee.
The hirer has a right to terminate the agreement at any time before the property passes.
The test whether an agreement is sale or hire purchase was given in the case of Lee vs. Butler –
If a person taking the goods has no option to terminate the agreement, is a contract of sale irrespective
of where the price is paid in instalments.
(The plaintiff let furniture on a HIRE AND PURCHASE agreement to the hirer. The hirer was to pay 1pound
at once and the balance of 96 pounds in 4 monthly instalments. The furniture was to become the hirer’s
upon payment of the last instalment. Before this condition was fulfilled the hirer sold and delivered the
furniture to the defendant who bought it for value and without notice of the plaintiff’s rights. The CA held
that under the agreement the hirer was under an obligation to pay all the instalments and she had ‘agreed
to purchase’ the furniture.)
CONDITION AND WARRANTY
The condition is a fundamental precondition on the basis of which the whole contract is based upon, on
the other hand, warranty is the written guarantee wherein the seller commits to repair or replace the
product in case of any fault in the product. Section 11 to 17 of the Sale of Goods Act enlightens the
provisions relating to Conditions and Warranties.

SECTION 12. Condition and warranty—

(1) A stipulation in a contract of sale with reference to goods which are the subject thereof may be a
condition or a warranty.
(2) 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.
(3) A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives
rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated.
(4) 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 a condition, though called a warranty in the contract.
CONDITION
SECTION 12(2)
A condition is referred to as, an essential element attached to the subject matter of an agreement which is
mentioned by the buyer to the seller and is either expressed or implied while entering into the contract.
The buyer can refuse to accept the goods delivered by the seller, in case of non-compliance with the
condition mentioned by the seller in the contract. The condition may be express or implied.

If while entering into a contract, the buyer mentions (in words or writing) that the goods are to be
delivered to him before a given date, the date is taken as a condition to the contract since the buyer
expressed it. Whereas, if a buyer contracts to buy a red-coloured saree for her ‘wedding’ which is to be
held on a date mentioned to the seller, then the time is the implied condition for the contract. Even if the
buyer doesn’t mention the date of delivery (but has mentioned the date of the wedding or occasion), it is
implied on the part of the seller that the garment is to be delivered before the mentioned date of the
wedding. In this case, the seller is bound to deliver the garment before the date of the wedding as the
delivery of the garment after the said date of the wedding is of no use to the buyer and the buyer can
refuse to accept the same since the condition to the contract is not fulfilled.

TYPES – 1- EXPRESSED – Agreed by both parties and written.

2 - IMPLIED – SECTION 14-17.

SECTION 13. When condition to be treated as warranty —

(1) Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may waive the
condition or elect to treat the breach of the condition as a breach of warranty and not as a ground for
treating the contract as repudiated.
(2) Where a contract of sale is not severable and the buyer has accepted the goods or part thereof, the
breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty and not as
a ground for rejecting the goods and treating the contract as repudiated, unless there is a term of the
contract, express or implied, to that effect.
(3) Nothing in this section shall affect the case of any condition or warranty fulfilment of which is excused
by law by reason of impossibility or otherwise.

WARRANTY
Sec 12(3)
A warranty is referred to as extra information given with respect to the desired good or its condition. The
warranty is of secondary importance to the contract for its fulfilment. Non-compliance of the seller to the
warranty of the contract does not render the contract repudiated and hence, the buyer cannot refuse to
buy the good but can only claim compensation from the buyer.
Warranty is the additional stipulation and a written guarantee that is collateral to the main purpose of the
contract. The effect of a breach of a warranty is that the aggrieved party cannot repudiate the whole
contract however, can claim for the damages. Unlike in the case of breach of condition, in the breach of
warranty, the buyer cannot treat the goods as repudiated.

TYPES – 1- EXPRESSED – Agreed by both parties and written.

2 - IMPLIED – SECTION 14-17 (assumed to have been incorporated in the contract of sale despite
the fact that the parties have not specifically included them in the contract.)
IMPLIED CONDITIONS AND WARRANTIES
Meaning- Apart from what may be provided by the parties in the contract, certain conditions and
warranties as provided under S.14 to 17 are impliedly there in every contract of sale of goods. Thus, the
stipulation that are implied in a contract of sale of goods corresponding to their nature of being a condition
or warranty as according to the nature of contract is called as Implied Conditions and Warranties.
They are binding in every contract unless they are inconsistent with any express condition and warranty
agreed by the parties.

Section 14-17 of the Sale of Goods Act, 1930 deal with the implied conditions and warranties attached to
the subject matter for the sale of a good which may or may not be mentioned in the contract.

IMPLIED CONDITIONS
There are seven implied conditions in a contract of sale of goods.

Condition as to Title [Section 14(a)]

Section 14(a) explains the implied condition as to title as ‘in the case of a sale, he has a right to sell the
goods and that, 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’.

In every contract of sale, the basic yet essential implied conditions on the part of the seller are that-
1. Firstly, he has the title to sell the goods.
2. Secondly, in case of an agreement to sell, he will have the right to sell the goods at the time of
performing the contract.

Consequently, if the seller has no title to sell the given goods, the buyer may refuse or reject those goods.
He is also entitled to recover the full price paid by him.
In every contract of sale, unless the circumstances are such as to show a different intention, there is an
implied condition on the part of the seller that in case of sale, he has a right to sell the goods and in the
case of agreement to sell, he will have the right to sell goods at the time when property in them is to pass.
This means that the seller has the right to sell a good only if he is the true owner and holds the title of the
goods or is an agent of the title holder.

CASE LAW: Rowland v Divall – The plaintiff had purchased a car from the defendant and was compelled to
return it to the true owner after having used it for a while. The plaintiff then sued the defendant for the
purchase money, since the defendant didn’t receive the consideration as per the condition of the title of
ownership.

Sale by Description (Section 15)

Section 15 explains that when a buyer intends to buy goods by description, the goods must correspond
with the description given by the buyer at the time of formation of the contract, failure in which the buyer
can refuse to accept the goods.

In the contract of sale, there is an implied condition that the goods should be in conformity with the
description. The buyer has the option to either accept or reject the goods which do not conform with the
description of the good.
Lord Blackburn in Bowes v Shand stated: If you contract to sell peas, you cannot oblige to take
beans.
In Shepherd v Kane, A ship was contracted to be sold as "copper fastened vessel" to be taken with all
faults, without any allowance for any defects whatsoever. The ship turned to be partially copper fastened.
The court held that that the buyer was entitled to reject the goods.
Sale by Sample (Section 17)
When the goods are to be supplied on the basis of a sample provided to the seller by the buyer while the
formation of a contract the following conditions are implied:
- Bulk supplied should correspond with the sample in quality, that the actual products would
correspond with the sample with respect to the quality, size, colour etc. (2 a)
- Buyer shall have a reasonable opportunity to compare the goods with the sample (2 b)
- The good shall be free from any apparent defect on reasonable examination by the buyer. (2 c)

According to S. 17 (1) - A contract of sale is a contract for sale by sample where there is a term in the
contract, express or implied, to that effect.
The purpose of a sample is to present to the eyes the real meaning and intention of the parties
with regard to the subject matter of the contract which owing to the imperfection of language, it may be
difficult or impossible to express in words.

Sale by sample as well as Description (Section 15)

When the sale of goods is by a sample as well as a description the bulk of the goods should correspond
with both, i.e. description and sample provided to the seller in the contract and not only sample or
description.
In Nichol v. Godis (1854), there was a sale of foreign refined rape-oil. The delivered oil was the same as the
sample but it was having a mixture of other oil too. It was held in this case that the seller was liable to
refund the amount paid.

S. 15- When the goods are sold by sample as well as description, it is not sufficient that the bulk of goods
correspond with the sample if the goods do not correspond with the description.

Doctrine of Caveat Emptor meaning 'Buyer beware'.

This doctrine of caveat emptor is based on the fundamental principle that once a buyer is satisfied with the
product's suitability, then he has no subsequent right to reject such product.

This doctrine is enshrined through Section 16 of the Act.

The section provides that as a general rule, there is no implied warranty or condition as to the quality or
fitness for any particular purpose of goods supplied under a contract of sale.

It is incorporation of the rule contained in maxim caveat emptor which means buyer beware. According to
this rule, the buyer himself should be careful while purchasing the goods and he should himself ascertain
that the goods suit his purpose; but if the goods are subsequently found to be unsuitable for the purpose
of the buyer, he cannot blame seller for the same.

For e.g. A purchases a horse from B. A needs the horse for riding but he doesn't mention this to B. The
horse is not suitable for riding but only for carriage. A can neither reject the horse nor can he claim any
compensation.

In Re Andrew Yule & Co., the buyer ordered for hessian cloth without specifying purpose for which he
wanted the same. It was in fact needed for packing. Because of its unusual smell, it was unsuitable for the
same. It was held that the buyer had no right to reject the cloth and claim damages.

Section 16 of the act incorporates certain exceptions to the rule of caveat emptor which are the next two
implied conditions of a contract of sale also.
Condition as to Quality or Fitness (Section 16)
The doctrine of Caveat Emptor is applicable in the case of sale/purchase of goods, which means ‘Buyer
Beware’. The maxim means that the buyer must take care of the quality and fitness of the goods he intends
to buy and cannot blame the seller for his wrong choice. However, section 16 of the Sale of Goods Act 1930
provides a few conditions which are considered as an implied condition in terms of quality and fitness of
the good: SECTION 16(1)

- When the buyer specifies the purpose for the purchase of the good to the seller, he relied on the
sound judgment and expertise of the seller for the purchase there is an implied condition that the
goods shall comply with the description of the purpose of purchase.
- When the goods are bought on a description from a person who sells goods of that description
(even if he doesn’t manufacture the good), there is an implied condition that the goods shall
correspond with the description.

However, in case of an easily observable defect that is missed by the buyer while examining the good is not
considered as an implied condition.
S. 16(1) {First exception to caveat emptor}

In Priest v Last, B went to S, a chemist and demanded a hot water bottle from him, S gave a bottle to him
telling that it was meant for hot water, but not boiling water. After few days while using the bottle B's wife
got injured as the bottle burst out, it was found that the bottle was not fit to be used as hot water bottle.
The court held that the buyer's purpose was clear when he demanded a bottle for hot water bottle, thus
the implied condition as to fitness is not met in this case.

Proviso to Section 16 (1)- No implied condition when the sale under patent or trade name
In Chanter v Hopkins, the buyer's order to the seller said: 'Send me your patent hopper and apparatus to fit
up my brewing copper with your smoke consuming furnace'. The seller supplied the buyer the furnace and
apparatus asked for but the same was not suitable for the purpose of buyer's brewery. It was held that the
seller had supplied what was ordered and he was entitled to recover its price from the buyer.

Implied condition of merchantable quality

Sec. 16(2) {Second exception to caveat emptor}
It has been noted before in S.15 that when the goods are bought by description, there is an implied
condition that the goods supplied shall answer the description.
Goods must be of merchantable quality. In other words, the goods are of such quality that would be
accepted by a reasonable person.
For eg: A purchased sugar sack from B which was damaged by ants. The condition of merchantability is
broken here and it is unfit for use.

It must be noted from this section that the buyer has the right to examine the goods before accepting it.

But a mere opportunity without an actual examination would not suffice to deprive the buyer of his rights.
If, however, the examination does not reveal the defect but within a reasonable time period the goods are
found to be defective, He may repudiate the contract even if he approves the goods. The implied conditions
especially in case of eatables must be wholesome and sound and reasonably fit for the purpose for which
they are purchased.

In Grant v Australian Knitting Mills, Dr Grant purchased two pairs of woollen underwear and two singlets
from John Martin & Co. There was nothing to say the underwear should be washed before wearing and Dr
Grant did not do so. He suffered a skin irritation within nine hours of first wearing them. It was held that
because of such a defect the underwears were not of merchantable quality.
In Shivallingappa v. Balakrishna & Son, the buyer ordered for the best quality of 'toor dal'. The dal was
loaded in rain and by the time it reached the destination, it became damages by moisture. It was held that
since the damaged toor dal could not be sold as that of best quality as it was no longer of merchantable
quality. The buyer was entitled to claim damages.
Proviso to Sec. 16(2) “Condition negative when the goods examined by the buyer:
Thus, the proviso divides defect into two kinds-
# Patent “Patent defects are those which can be found on examination by an ordinary prudence with the
exercise of due care and attention.
# Latent “In latent defects, the implied condition of merchantability continues in spite of the examination of
the goods by the buyer.

Conditions implied by trade usage

S. 16(3) gives statutory force to conditions implied by the usage of a particular trade. It says: "An implied
warranty or condition as to the quality or fitness for the particular purpose may be annexed by the usage of
trade."
In case of Peter Darlington Partners Ltd v Gosho Co Ltd, where a contract for the sale of canary seed was
held subject to the custom of the trade that for impurities in the seed, the buyer would get a rebate on the
price, but would not reject the goods.

IMPLIED WARRANTY

Warranty as to undisturbed possession

Section 14(2) of the given Act provides that there is an implied warranty that the buyer shall enjoy the
uninterrupted possession of goods.
As a matter of fact, if the buyer having got possession of the goods, is later disturbed at any point, he can
sue the seller for the breach of warranty.
For eg: ‘X’ purchased a second-hand bike from ‘Y’. Unknown to the fact that the bike was a stolen one, he
used the bike. Later, he was compelled to return the same. X is entitled to sue Y for the breach of warranty.

Warranty as to freedom from Encumbrances

In Section 14(3), there is an implied warranty that the goods shall be free from any charge or
encumbrances that are in favour of any third party not known to the buyer.
But if it is proved that the buyer is known to the fact at the time of entering into the contract, he will not be
entitled to any claim.
For eg: A pledges his goods with C for a loan of Rs. 20000 and promises him to give the possession. Later
on, A sells those goods to B. B is entitled to claim the damages if he suffers any.

Implied warranty to disclose Dangerous nature of the goods sold

If the goods sold are inherently dangerous or likely to be dangerous and the buyer is not aware of the fact,
it is the duty of the seller to warn the buyer for the probable danger. If there would be a breach of this
warranty, the seller will be liable.
For eg: A purchases a horse from B if the horse is violent and then it is the duty of the seller to inform A
about the probable danger. While riding the horse, A was inflicted with serious injuries. A is entitled to
claim damages from B.
DIFFERENCE
1. A condition is an obligation which requires being fulfilled before another proposition takes place.
A warranty is a surety given by the seller regarding the state of the product.
2. The condition is vital to the theme of the contract while Warranty is ancillary.
3. Breach of any condition may result in the termination of the contract while the breach of warranty
may not lead to the cancellation of the contract.
4. Violating a condition means violating a warranty too, but this is not the case with warranty.
5. In the case of breach of condition, the innocent party has the right to rescind the contract as well
as a claim for damages. On the other hand, in breach of warranty, the aggrieved party can only sue
the other party for damages.

Transfer of Title
Nemo Dat Quod Non Habet- Sec. 27
The general rule relating to the transfer of title on sale is that “the seller cannot transfer to the buyer of
goods a better title than he himself has.” If the title of the seller is defective, the buyer’s title will also be
subject to the same defect.

Section 27 lays down to the same effect and provides that “where goods are sold by a person who is not
the owner thereof and who does not sell them under the authority or with the consent of the owner, the
buyer acquires no better title to the goods than the seller had…”
This rule is expressed by the maxim “nemo dat quod non habet”, which means that no one can give what
he has not got, i.e., a seller cannot convey a better title than that of his own. When the seller himself is the
owner of the goods which he sells or he is somebody’s agent to dispose of the goods, he conveys a good
title in the goods to the buyer. Difficulty arises when the seller is neither himself the owner nor has he any
such authority from the owner to sell the goods.
E.g., a person finds goods lying on the road and sells them, or a thief sells the goods after he has stolen
them.

Section 27, as a general rule, tries to protect the interest of the true owner when it provides that where the
goods are sold by a person who is not the owner thereof and who does not sell them under the authority
or with the consent of the owner, the buyer acquires no better title to the goods than the seller had.
This rule is a manifestation of the maxim “nemo dat quod non habet”, which has been already explained
above.
It means is that the buyer cannot acquire a superior title to that of the seller. If a thief disposes of stolen
goods, the buyer of such goods has the same title as the seller had.

Exceptions to the rule the above stated general rule contained in section 27, as stated in the opening words
of the section itself, is “Subject to the provisions of this Act and of any other law for the time being in
force.” Various exceptions to this rule have been mentioned in this Act and the Indian Contract Act and in
those exceptional situations, the seller of the goods may not be having a good title to the goods, yet the
buyer of the goods gets a good title to them.
The exceptions are as follows:
- Sale under the implied authority of the owner, or transfer of title by estoppel (S. 27)
- Sale by a mercantile agent (proviso to S. 27)
- Sale by one of joint owners (S. 28)
- Sale by a person in possession under a voidable contract (S. 29)
- Sale by the seller in possession of goods, the property in which has passed to the buyer (S. 30(1))
- Sale by the buyer in possession of the goods before the property in them has passed to him
(S.30(2))
- Re-sale of the goods by an unpaid seller after he has exercised the right of lien or stoppage in transit
(S. 54(3))
- Sale by finder of goods (S. 169, Indian Contract Act)
- Sale by a pawnee when the pawner makes a default in payment (S. 176, Indian Contract Act)

Simply,
Section 27 deals with the sale by a person who is not the owner. Imagine a sale contract where the seller –
 Is not the owner of the goods
 Does not have consent from the owner to sell the goods
 Has not been given authority by the owner to sell the goods on his behalf
In such cases, the buyer acquires no better title to these goods than the seller had, provided the conduct of
the owner precludes the seller’s authority to sell.

Exceptions to Section 27 - Explanation.

In the following scenarios a non-owner of goods can transfer a better title to the buyer:
1] Sale by a Mercantile agent (Proviso to Section 27)
Consider a mercantile agent, who is in possession of the goods or a document to the title of the goods,
with the consent of the owner. Such an agent can sell the goods when acting in the ordinary course of
business of a mercantile agent. The sale shall be valid provided the buyer acts in good faith and has no
reason to believe that the seller doesn’t have any right to sell the goods. The transfer of title is valid in such
a case.
2] Sale by one of the Joint Owners (Section 28)
Many times, goods are purchased in joint ownership. In many cases, the goods are kept in the possession
of one of these joint owners by the permission of the co-owners. If this person (who has the sole
possession of the goods) sells the goods, the property in the goods is transferred to the buyer. This is
provided the buyer acts in good faith and has no reason to believe that the seller does not have a right
to sell the goods.
3] Sale by a Person in Possession of Goods under a Voidable Contract (Section 29)
Consider a person who acquires possession of certain goods under a contract voidable on grounds of
coercion, misrepresentation, fraud or undue influence (Section 19 and 19a of contract act). If this person
sells the goods before the contract is terminated by the original owner of the goods, then the buyer
acquires a good title to the goods.
4] Sale by a Person who has already sold the Goods but Continues to have Possession [Section 30 (1)]
Consider a person who has sold goods but continues to be in possession of them or of the documents of
title to them. This person might sell the goods to another buyer.
If this buyer acts in good faith and is unaware of the earlier sale, then he will have a good title to the goods
even though the property in the goods was passed to the first buyer. A pledge or other disposition of the
goods or documents of title by the seller in possession are valid too.
5] Sale by Buyer obtaining possession before the Property in the Goods has Vested in him [Section 30 (2)]
Consider a buyer who obtains possession of the goods before the property in them is passed to him, with
the permission of the seller. He may sell, pledge or dispose of the goods to another person.
If the second buyer obtains delivery of the goods in good faith and without notice of the lien or any other
right of the original seller, he gets a good title to them.
This rule does not hold true for a hire-purchase agreement which allows a person the possession of the
goods and an option to buy unless the sale is agreed upon.
Example: Peter takes a car from John under the conditions that he will pay Rs.5,000 every month as rent of
the vehicle and that he can choose to purchase it for Rs. 100,000 to be paid in 24 equal instalments. Peter
pays Rs. 5,000 for three months and then sells the car to Oliver. In this case, John can recover his car from
Oliver since Peter had neither purchased the car nor agreed to purchase it. He only had an option to buy
the car.
6] Estoppel
If an owner of goods is stopped by the conduct from denying the seller’s authority to sell, the buyer gets a
good title.
However, to get a good title by estoppel, it needs to be proved that the original owner had actively suffered
or held out the seller in question as a person authorized to sell the goods.
Example: Peter, John, and Oliver are having a conversation. Peter tells John that he owns the BMW car
parked nearby which actually belongs to Oliver. However, Oliver remains silent. Subsequently, Peter sells
the car to John. In this case, John will get a good title to the car even though the seller is Peter who has no
title to it. This is because, Oliver, by his conduct, did not deny Peter’s authority to sell the car.
7] Sale by an Unpaid Seller [Section 54 (3)]
If an unpaid seller exercises his right of lien or stoppage in transit and sells the goods to another buyer,
then the second buyer gets a good title to the goods as against the original buyer. So, in such a case transfer
of title will occur.
8] Sale under the Provisions of other Acts

- Sale by an Official Receiver or Liquidator of the Company will give the purchaser a valid title.
- Purchase of goods from a finder of goods will get a valid title under circumstances [Section 169 of
the Indian Contract Act, 1872]
- A sale by a pawnee can convey a good title to the buyer [Section 176 of the Indian Contract Act,
1872]
UNPAID SELLER
Who is an Unpaid seller?
As defined by Section 45 of Sale of Goods Act, 1930, a person has sold some goods and has not got the
whole price and if the transaction is done through negotiable instruments like cheque, bill of exchange and
a promissory note, then the person can be said as an unpaid seller.

Sec-45. “Unpaid seller” defined—

(1) The seller of goods is deemed to be an “unpaid seller” within the meaning of this Act—
(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 the dishonour of the instrument
or otherwise.

(2) In this Chapter, 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 a consignor or agent who has
himself paid, or is directly responsible for, the price.

Illustration- If A is a seller and he delivers the goods to B and transfers the possession, and if B hasn’t paid
the sum, then A becomes an unpaid seller.

Section 46
Right against the goods
(1) Where the property in goods has passed to the buyer;
 Right to a lien which means the seller has the right on the possession over the goods.
 Right to stoppage in transit which means the seller can call up the carrier transporter and tell not to
deliver the goods.
 Right to resale means the seller can again sell the goods as he has the possession of the goods.

(2) Where the property in goods has not passed to the buyer, the unpaid seller has, in addition to his
other remedies, a right of withholding delivery similar to and co-extensive with his rights of lien and
stoppage in transit where the property has passed to the buyer.

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:

a. He sells the goods without any stipulation for credit

b. The goods are sold on credit but the credit term has expired.
c. 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:
a. 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.
b. When the buyer or his agent obtain possession of the goods lawfully.
c. 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.
When is lien lost? - As soon as the possession is misplaced, the lien is also misplaced.

Rights of Stoppage of Goods in Transit

The right of stoppage in transit method is the right of stopping the transit of the goods even if they may be
with a carrier for the cause of transmission to the buyer; resuming the ownership of the customer and
retaining possession until they made the payment of the good.
Hence, this right is an extension of the right of lien because it entitles the seller to regain ownership even if
the seller has parted with the possession of the products.

When can this right be exercised? (Section 50)

1. The purchaser becomes insolvent - Section 2(8) a person is said to be “insolvent” who has ceased
to pay his debts in the ordinary course of business, or cannot pay his debts as they become due,
whether he has committed an act of insolvency or not;

2. The products are within the route of transit - This means that goods should be neither with the
seller nor with the buyer nor with their agent. The product has to be within the custody of a carrier
as an intermediary. At that time, the carrier needs not to be either a seller’s agent or customer’s
agent. Because, if he is the seller’s agent then the products are still in the arms of seller in the eye of
regulation and consequently there may be no transit, and if he is the customer’s agent, the
consumer gets transport in the attention of law and hence query of stoppage does now not rise up.

Duration of Transit (Section 51)

(1) 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.
Some scenarios of the transit ending:
(2) The buyer or his agent obtain delivery before the goods reach the destination. In such cases, the
transit ends once the delivery is obtained.
(3) Once the goods reach the destination and the carrier of bailee informs the buyer or his agent that
he holds the goods, then the transit ends.
(4) If the buyer refuses the goods and even the seller refuses to take them back the transit is not at an
end.
(5) In some cases, goods are delivered to a ship chartered by the buyer. Depending on the case, it is
determined that if the master is functioning as an agent or carrier of the goods.
(6) If the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent, the
transit ends.
(7) If a part-delivery of the goods has been made and the unpaid seller stops the remaining goods in
transit, then the transit ends for those goods. This is provided that there is no agreement to give up
the possession of all the goods.

How Stoppage is Affected (Section 52)

There are two ways of stopping the transit of goods:
1. The seller takes actual possession of the goods
2. If the goods are in the possession of a carrier or other bailee, then the seller gives a notice of stoppage to
him. On receiving the notice, the carrier or bailee must re-deliver the goods to the seller. The seller bears
the expenses of the re-delivery.
Effect of Stoppage
Even if the unpaid seller exercises his right of stoppage in transit, the contract stays valid. The buyer can ask
for delivery of the goods after making the payment.
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:

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:
(2) Goods are perishable in nature: In such cases, the seller does not have to inform the buyer of his
intention of resale.
(2) 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.
(3) 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.
(4) 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.