SALE OF GOODS ACT

Section 4 (1) defines a contract of sale as a contract whereby the seller agrees to transfer the property/
goods to the buyer for a fixed price. Clause (2) provides that such a contract of sale may be absolute
or conditional. A contract of sale is different from an agreement to sell under Section 4 (3).

Essentials of Contract of Sale:-

1 There should be a contract between 2 parties i.e., buyer and seller

2 The subject matter of the contract should be goods
3 There should be a transfer of property from seller to buyer
4 Both the parties to the contract should have entered into the contract with free consent
5 The consideration in the contract would be the goods to the buyer, and to the seller, it shall be
the price of the goods.

GOODS: -

Section 2 (7) defines provides goods to mean every kind of moveable property other than the
actionable claims and money. Therefore, the definition of goods includes: -

• Moveable Property- As defined under Section 2 (36) of the General Clauses Act refers to the
property of every description except the immovable property, which is defined under Clause
(26) to include land, benefits arising out of the land, things attached to earth or permanently
fastened to earth, intellectual property right, growing crops, water, electricity, etc.
• Stock and shares
• Growing crops, grass, and things attached to or forming part of land that can be severed and
has been agreed to be severed.

Goods can be classified into: -

A. Existing Goods
Section 6 (1) defines existing goods as goods that form the subject of the contract of sale and
exist at the time of entering into the contract. They can be of 2 types: -
1. Specific Goods: Section 2(14) states it is the exact identified existing goods that
become the subject matter of the contract of sale.
2. Unascertained Goods: It refers to goods that are not identified and agreed upon at the
time of contract. However, Section 18 provides that the property in goods shall not
pass to the buyer until and unless the goods are ascertained.
B. Future Goods
Section 2(6) provides that it refers to goods to be manufactured, produced or acquired by the
seller after making the contract of sale. Further, a contract of sale of future goods is an
agreement to sell.
C. Contingent Goods
Section 6(2) defines contingent goods as goods, the acquisition of which depends upon the
happening or non-happening of a contingency or contingent event.

Effect of Goods Perishing:-

I. Perishing before making of contract: the contract of sale becomes void ab initio as it is
considered as a mistake on the part of both the parties as per Section 7.
II. Perishing before sale but after agreement to sell: As per Section 8 the contract in such case is
valid initially and becomes void after goods are perished.
CONDITIONS AND WARRANTIES:-

The Sale of Goods Act plays a crucial role in safeguarding the rights of both buyers and sellers, ensuring
fair and transparent transactions in the marketplace. The major aspects of the Act are:-

i. Conditions, which are considered to be the backbone of any commercial transaction, it is a

vital element that if breached can alter the very essence of the contract and its intended
outcomes.
ii. Warranties are assurances that stand as a testament to the quality and durability of goods.

Conditions:-

As per Section 12 (2), a condition is a stipulation essential to the main purpose of the contract, the
breach of which gives rise to the right to treat the contract as repudiated.

The essential features of conditions are:-

o It is essential to the main purpose of the contract thereby forming a foundation

o It gives the aggrieved party a right to terminate the contract, reject the goods & recover prices
in case of any breach.

It can be of 2 types:-

Expressed Conditions which can be oral or written and is expressly incorporated in the contract

Implied Conditions are automatically incorporated due to the conduct/behavior of the parties to the
contract and can be of the following forms:-

1. Condition as to title/ownership- Section 14

The seller needs to have rightful ownership of the goods to be eligible to sell them. If the seller
has no title, then the buyer can refuse to accept the goods.
Rowland v. Divall, the party bought a 2nd hand motor car from the former and paid for same.
After 6 months, he was deprived of it as the seller had no title to sell. It was held that the
aggrieved party was entitled to recover the money from him.
2. Condition as to sale by description- Section 15
The goods sold must conform to the description given by the seller and if that is not the case
then the buyer can refuse to accept the goods.
3. Condition as to quality/fitness- Section 16
The buyer can reject the goods if the goods sold are below the standard quality or not
according to the quality standards demanded by him.
4. Condition as to sale by sample- Section 17
As per the statutory provision it includes that there is an implied condition that:-
• Bulk corresponds to sample quality
• Buyer has the opportunity of comparing the bulk with the sample
• Goods free from defects that would otherwise, render them unmerchantable

Nichols v. Godis, the seller has a biz of selling refined groundnut oil, and the delivered oil
was a mixture of groundnut oil and another oil that was against the sample oil. It was held
that the seller was liable to refund amount and pay the damages.
Warranties:-

Acc to Section 12 (3) 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 a right to reject & treat contract repudiated. Since,
a warranty is not essential to the contract, even in case of breach of it, the main contract can be
completed.

It can be of 2 types:-

Expressed warranties which is expressly incorporated/ mentioned by parties in contract which can be
either written or oral.

Implied warranties are automatically incorporated due to the conduct/ behavior of the parties to the
contract and can be of the following forms:-

1) Warranty as to undisturbed possession- Section 14

It implies that the buyer of goods shall enjoy uninterrupted possession of goods. And if
disturbed at any point, he can sue the seller for breach of warranty
2) Warranty as to freedom from encumbrance- Section 14
It states that goods shall be free from any charge or encumbrance that is in favor of any 3rd
party not known to the buyer.
3) Warranty to disclose the dangerous nature of goods sold
If the goods sold are inherently dangerous or likely to be so and the buyer is not aware of the
fact, the seller must warn the buyer of probable danger. And in case of breach of this warranty,
the seller will be liable.

NEMO DAT QUOD NON HABET:-

It is based on a logic that only the rightful of goods has the authority to sell because when a
non-owner enters into a sale agreement then it makes the sale invalid because a non-owner
should not be able to transfer a title he/she does not even own.
Bishopsgate Motor Finance Corpn Ltd v. Transport Brakes Ltd, motor cars were regularly sold in the
Maidstone market by auctioneers and, on occasion, if the reserve price of a car was not reached at
auction, the vendor of that car would sell it in the market by private treaty. B., not a trader in the
market, so sold a motor car in the market by private treaty. Lord Denning J established two main
principles to be followed. 1. The protection of property: Because no one can a give a title better than
what they possess. 2. The protection of commercial transactions: The person who acts in good faith
and for value should get a good title.

Section 27 of the Act states that when a person who is not the real owner of a property sells the
property without getting the authority from the owner to do so, the sale will be void.

J Ashhurst on the principle behind the section observed that wherever one of 2 innocent persons must
suffer by acts of 3rd, he who has enabled such 3rd person to occasion the loss must sustain it.

National Employers Mutual General Insurance Association Ltd v. Jones, the car belonging to Jones was
stolen and sold 4 times. Jones was the fifth buyer of his own stolen car wherein the 4 th person stated
that he had the rightful ownership since he brought it with the consent of the previous seller. The court
held that a thief cannot be a rightful seller since he has no title to be transferred. Thus, the sale of the
stolen car from the very beginning was unlawful and there is no transfer of title that took place thus,
the title is still with Jones only.

Life Insurance Corporation vs United Bank of India Ltd, the High Court held that while an actionable
claim is transferrable, it can only be transferred by the person who owns the property on which the
claim is based. This decision of the court is based on the principle that a non-owner does not have
certain rights and thus cannot over-exceed on the powers. Things they do not possess they have no
rights over it.

Exceptions to the Rule of “Nemo Dat Quod Non Habet”

o Sale by Estoppel- Section 27 provides that transfer of title can take place when the owner of
the goods, by his conduct, is precluded from denying the seller’s authority to sell. This is
because the act of the owner itself is the cause for the buyer to believe that the seller has the
authority to sell and thus, the owner should not be able to deny such authority later on.
Estoppel upon the owner can be created if the owner was present at the time of such sales,
has assisted in the sale process, or induced the buyer, or even if the owner has allowed such
sale to take place.
KM Mohambaram v. Ram Narayan Brahmin, The owner on whose name the bus was
registered and who owned a ‘G’ permit had hired a agent to put the bus on hire. He left a letter
with the agent which requested the DM to provide the ‘G’ permit to the agent. The agent
changed the letter and addressed it to the DSP requesting him to register on the agent’s name.
Post which the agent sold that bus. Here, the owner was unable to win the lawsuit against the
agent on the ground that he was negligent in leaving the documents with the agent and thus,
the agent got the rightful authority and title of the bus.
o Sale by Mercantile Agent- The proviso of Section 27 states that a seller who is a mercantile
agent in possession of the goods with the owner’s consent in his ordinary course of business
makes the sale to a buyer who acts in good faith and who has no notice that the agent has no
authority to sell. Such a sale by a mercantile agent is sufficient to transfer to the title.
Staff Motors Guarantee Ltd v. British Wagon Ltd, the court observed that a sale by a
mercantile agent can be validated only if the goods were entrusted to the person as per the
capacity of a mercantile agent only and not any other capacity.
o Sale by Joint Owner- Section 28 provides that the sale can be done by the joint owner of the
good who with permission of co-owners has the sole possession to a buyer who acts in good
faith and without the notice that the seller has no authority to sell.
o Sale by Person in Possession under Voidable Contract- Section 29 provides that the sale by the
seller who has the possession of goods under a voidable contract which has not been
rescinded at the time of sale, to a buyer who acts in good faith without notice about the seller’s
defect of title.
o Resale by Unpaid Seller- Section 54(3) provides that “where an unpaid seller who has exercised
his right of lien or stoppage in transit re-sells the goods, the buyer acquires a good title thereto
as against the original buyer, notwithstanding that no notice of re-sale has been given to the
original buyer”.
RIGHTS OF UNPAID SELLER:-

Section 2(13) of the Act defines a seller as a person who sells or agrees to sell goods.

Section 45 of the Act defines unpaid seller as the seller of goods to whom

▪ The whole price has not been paid or tendered

▪ A conditional payment made in the form of a Bill of Exchange or Negotiable Instruments was
dishonored.

The features of an unpaid seller are:-

➢ Goods sold on cash basis

➢ Seller is unpaid either wholly or partly
➢ Price not paid even post the expiration of the period
➢ Seller must not refuse payment
➢ Price paid through negotiable instruments was dishonored

Non-payment for the price of commodity is unfair to the seller of ther goods, section 46 of the Act
guarantees certain rights to an unpaid seller which is available as ‘jus in rem’ and ‘jus in personam’

The rights of an unpaid seller are:-

I. Against the goods

1 Right of Possession/Lien
It refers to the right to retain possession of goods until full price is paid. Section 47
states the right of lien is operative if:-
❖ Sale was on cash basis
❖ Goods sold on credit, but term of credit has expired
❖ Buyer becomes insolvent
Section 48 stipulates that when partial delivery has taken place, the right to lien can
be exercised on the remainder, however, when an agreement to waive lien exists then
the same cannot be violated by the unpaid seller
Section 49 states that an unpaid seller loses his lien when:
▪ He has waived his right
▪ Buyer of goods has lawfully obtained possession
▪ Delivers the bailee of the goods without reserving the right to lien
Grice v. Richardson, the seller delivered a portion of 3 tea parcels but was unpaid for
the remaining portion. He was allowed to retain goods until price was paid
Edujulee v. Café John Bros, the court held that once the goods are delivered, the
unpaid seller can no longer exercise his right of lien and the same cannot be revived
by the seller again by getting possession of the goods.
2 Stoppage in Transit
Section 50 stipulates that when the buyer becomes insolvent, the unpaid seller has a
right to stop the delivery of goods to the buyer that were already in transit.
Great Indian Peninsula v. Hanmandas, the seller consigned goods through railways to
be delivered to the buyer. The goods reached the station and goods were unloaded by
the buyer, and before the train left the station, a letter was sent to the railways to stop
 the delivery. The court held that delivery had already taken place to the buyer so no
right to stoppage in transit.
Litt v. Cowley, even after the receipt of notice was given to stop the delivery of goods,
it was carried to the buyer. The court held that the insolvent buyer is bound to deliver
the goods back to the seller or they should pay the damages.
3 Right of Re-sale
Section 54 states that an unpaid seller is considered to be the owner of goods until he
is not paid by the buyer and can thus resell the goods under the following situations:-
• When goods are perishable in nature
• When the contract of sale expressly guarantees the right to re-sell in case of
non-payment
RV Ward v. Bignall, a sale of 2 cars took place but the seller was unpaid despite
reasonable notice and thus, tried to re-sell. He successfully sold 1 car and claimed
compensation for the other. The court held that once the seller resells the goods the
contract is rescinded and he cannot claim money but he can ask for advertising
expenses and a shortfall of the price of the car sold.
II. Against the buyer
a. Suit for price
Section 55 states that the unpaid seller can sue the buyer when the buyer neglects or
refuses to pay for goods.
b. Damages for non-acceptance
Section 56 provides that the unpaid seller can sue the buyer for damages when the
buyer refuses to accept the goods and pay for the same as per the contract.
c. Specific performance
Section 58 states that the seller may sue the buyer for specific performance of the
buyer’s breach of contract just like the Specific Relief Act
d. Suit for interest and special damages
Section 61 provides the unpaid seller can recover the interest on the price of good but
the interest on the price should be reasonable. The seller can also sue the buyer for
special damages which both parties were aware of at the time of contract into which
they entered into.