UNIT-2

The Sale of Goods Act 1930

Contracts of sale are those contracts that act as proof of the transfer of ownership of any
object from one person to another in exchange for a price. The Sale of Goods Act 1930
was a law enacted in colonial, pre-Independence India for the benefit of merchants in
India. The act relates to contracts for the sale of goods for all the states of India except for
Jammu & Kashmir.

Definition:

According to Section 4(1) of Sale of Goods Act, 1930 ‘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’.
Elements of the Sales of Goods Act India 1930:

Two Parties:

A buyer is a person who is willing to or has agreed to buy a good.

A seller is a person who is willing to or has agreed to sell a good.

Goods:
The primary purpose of establishing a buyer and a seller is so that there is an agreement about the good
which is supposed to be for sale. These goods need to be clearly defined in the sale contract as per the
Sales of Good Act.

Price:
A sale is defined by the exchange of ownership of a good between two parties at a specific price, and thus
it is a critical element of the Sale of Goods Act India.

Transfer of General Property:

The transfer of general property is differentiated from the transfer of specific property. General property
refers to any property owned by a seller, whereas specific property refers to the property the seller is
transferring the ownership of to someone else through a sales contract. The Sale of Goods Act 1930 looks
only at the transfer of general property.
Conditions and Warranties :

A stipulation (a condition or requirement that is specified or demanded as part of an agreement) in a contract of

sale with reference to goods may be a condition or a warranty.

The condition is a fundamental precondition on the basis of which the whole contract is based upon, if the seller
fails to fulfil a condition, the buyer has the option to repudiate(reject) the contract or refuse to accept the goods.
If the buyer has already paid, he can recover the prices and also claim the damages for the breach of the contract.

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
Implied Conditions and Warranties:
In every contract of sale, there are certain expressed and implied conditions and
warranties. The term implied conditions means conditions which can be inferred from or
guessed from the context of the contract. Following are the implied conditions:

1. Conditions as to Title
In the case of sale, seller has a right to sell the goods. The buyer can assume that the seller
has a right to sell the goods.

eg. ‘R’ purchased a motorcar from ‘D’ and used it for 4 months. Later after six months, true
owner came and proved that he is a true owner. In this case, ‘R’ has to return the car to the
true owner and claim the full price paid by him from ‘D’.

2. Conditions as to Description
In a contract of sale by description, there is an implied condition that goods supplied
should agree with the descriptions made by the seller.

eg. ‘A’ has bought a machinery from ‘B’ who described it to be just one year old. After
buying the machinery and using it for a month, ‘A’ came to know that it is very old
machinery. In this case, ‘A’ can return the machinery to ‘B’ on the ground that machinery is
not as per the description i.e. not recent one.
4. Conditions as to Quality or Fitness

(i) The buyer has made known to the seller the particular purpose for which he needs the goods

(ii) The buyer relies on the seller’s skill or judgement and

(iii) The goods are of a description which is in course of the seller’s business to supply

eg. ‘A’ bought set of false teeth from a dentist. The set did not fit into A’s mouth. Held that he could reject the set as the
purpose for which it was bought was known to the dentist.

5. Conditions as to Merchantability (it is guaranteed to work as claimed).

If goods are bought by description and the seller is a dealer in goods of that description, the implied condition is that
goods must be of merchantable quality.

Eg. “A watch that will not keep time, a pen that will not write and tobacco which will not smoke, cannot be regarded as
merchantable under such names.”

6. Condition as to Wholesomeness:
In the case of eatables, the goods must be wholesome besides being merchantable.
eg. ‘F’ bought milk from ‘A’, a dairy owner. The milk was contaminated with germs of typhoid fever. F’s wife on taking
the milk became infected and died of it. ‘A’ was held liable in damages.
Implied Warranties:

(i)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.

(ii) Warranty as to freedom from Encumbrances (Encumbrance means a lien or claim on property. It is a burden
or claim over a property that is binding on the property. An encumbrance can affect the clarity of a good title, or
diminish the value of property. However, it will not prevent transfer of title.):

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.
(iii) Warranty in the case of Dangerous Goods:

Where the seller knows that the goods he is selling are dangerous or likely to be dangerous to the
buyer and the buyer is ignorant of the danger, the seller should warn the buyer of the probable danger,
otherwise he will be liable to compensate the buyer in case of any injury.

eg. ‘C’ bought from ‘A’ a tin of disinfectant powder. ‘A’ knew that the lid of the tine was defective and
that if it was opened without special care, it might be dangerous. Yet ‘A’ did not warn ‘C’. ‘C’ opened
the tine in the usual way where upon the powder flew into her eyes, causing injury. Held that ‘A’ was
liable in damage to ‘C’ as he should warned ‘C’ of the probable danger.

Transfer of Property: (Sections 18 to 25)

“Transfer of property” means an act by which a living person conveys property, in present or in future,
to one or more other living persons, or to himself and one or more other living persons; and “to
transfer property” is to perform such act.
1)Transfer of Property in Specific Goods:
In case of the sale of specific goods, the rules relating to the transfer of ownership are contained in
Sections 20-22 of the Sales of Goods Act which may be discussed as under:

i)Ownership is transferred at the time of making contract

The ownership is transferred immediately at the time of making the contract.
Example: A sold to B, 100 bales of cotton lying in his warehouse. Before the bales could be identified
and separated, all the bales were destroyed on the fire. Here, the seller is liable for damage because the
ownership is not transferred.

ii)Ownership is transferred when goods are put in a deliverable state

If the goods are not ready in the deliverable state at the time of making the contract of sale, the
ownership of goods is transferred after the formation of the contract of sale.

Example: A certain quantity of oil was purchased by A. The oil was to be filled in tins. B filled up some of
the tins and informed A to take the delivery. In the meantime, a fire destroyed the entire quantity of oil.
Held, A will bear the loss of the oil which was filled in the tins and the seller must bear the loss of the
balance.
iii)Ownership is transferred when goods in the deliverable state put to weighted or measured
to ascertained price:
If the goods are not weighed or measured at the time of making a contract of sale, the
ownership of the goods is transferred after the formation of the contract of sale .
Example: A sold 10 Kg of sugar. The sugar was to be weighted. Before the sugar was weighted,
it was carried away by the flood. Held, the ownership of the sugar was left with the seller and it
did not pass to the buyer.

2.)Transfer of Property in ascertained Goods

The goods are not transferred to the buyer until and unless they are ascertained.
Example: You buy 100 bags of cement and pay for it and take it away; you promise to take
another 100, but you have not ascertained unconditionally, that is, you may take them if you
need—there is no contract for the next 100 bags.

Transfer of Property in Sale on approval

When the goods are delivered to the buyer on approval basis, from the moment of approval or
‘on sale or return,’ or on other similar terms, the goods transferred to the ownership of the
buyer.
Example: A bookseller sends a consignment of books to the library; the librarian approves
some and keeps them and sends back the rest.
Transfer of Property When Right of Disposal is Reserved
The object of reserving the right of disposal of goods is to secure that the price is paid before the
property passes to the buyer.

For example, under the VPP (Value Pre Paid) system the ownership passes to the buyer when the price
is paid against the delivery of goods, till then the seller retains control over the goods.

Performance of a Contract:
It is the duty of the seller to deliver the goods and of the buyer to accept and pay for them, in
accordance with the terms of the contract of sale.
– Sec. 31, The Sale of Goods Act, 1930

The performance of a contract is a simple transaction where the seller delivers the goods and the buyer
pays. If there is something more complex, then this is stated in the contract as special terms.
Delivery of Goods:
The rules regarding the delivery of goods are contained in Sec. 33 to Sec. 39 of the Sale of Goods Act,
which may be grouped as under:
Delivery of goods may be defined as a voluntary transfer of possession of goods from the seller to the
buyer.
1)Actual Delivery
The goods are handed over by the seller to the buyer or to his authorized agent; it has the effect of
putting the goods in the possession of the buyer: Sec. 33.
Example: Amar sold 10 tins of oil to Akbar and delivered the same to him. In this case, there is the
actual delivery of oil from Amar to Akbar.

2)Constructive or Delivery by Attornment

A third party (bailee) who is in possession of the goods of the seller at the time of sale acknowledges
to the buyer that he holds the goods on his behalf: Sec. 36(3).
Example: A sells to B 10 bags of wheat lying in C’s godown. A gives an order to C, asking him to transfer
the goods to B. C assents to such order and transfer the goods in his books to B. this is delivery by
attornment.

3)Symbolic Delivery:
The goods are too bulky and unwieldy such as large machinery, where a symbolic passing of
documents or keys and the like demonstrate the transfer of goods.
Rules for Delivery of Goods:

Part delivery of goods – Sec 34

Apply for delivery of goods – Sec 35
Place for the delivery of goods – Sec 36
Time for the delivery of goods – Sec 36 (2)
Goods in the possession of the third party – Sec 36 (3)
Cost of delivery of goods – Sec 36 (5)
Delivery of wrong quantity – Sec 34
Delivery of goods by instalments – Sec 38
Delivery to carrier or wharfinger– Sec 39
1)Part delivery of goods:
Goods being delivered as part of the whole; if the part is severed from the whole then the transfer is not of the whole but only
partial.
Example
(a) Whole: You buy 100 bags of cement, and you are at the moment delivered only ten—but you are the owner of the whole.
(b) Partial: You want only 100 bags of cement, but you pay only for ten and take ten; the rest of the 90 bags are not part of the
sale of goods.

2)Buyer to apply for delivery of goods

Unless the buyer places his demand there is no sale of goods, unless there is a contract to that effect. It is a logical impossibility
to supply you something that you have not asked for.
Example
(a) Suddenly there arrives a truck with 100 bags of cement to your doorstep. You only wonder who placed the order.

3)Place for the delivery of goods

The place for the delivery of goods may be specified in the contract itself. And where the place is so specified, the goods must
be delivered at the specified place during the business hours and on a working day.
Where there is no specific agreement as to the place of delivery, it shall be determined as per Sec. 36(1)
4)Time of delivery
The transfer of goods happens in time The contract of delivery has terms, e.g., forthwith, as soon as possible directly,
immediately, reasonable time,* etc.
Depending on your order you get the supply of cement: as you have a particular schedule that is agreed upon.

5)Goods in the possession of the third party

Sometimes, at the time of sale, the goods are in the possession of a third person. In such cases, the effective delivery
takes place only when such a person acknowledges to the buyer, that he holds the goods on his (buyer’s) behalf.

6)Cost of delivery of goods

Seller pays till it is made deliverable; buyer pays for obtaining delivery unless there is a specific agreement about
delivery and reception.
Example: Your company forwards coal as an export with the agreement of Free On Board, that is, you pay until it is
put on board; it implies that the buyer will pay for rest of its journey by sea or air as the case may be.

7)Delivery of wrong quantity of goods

Seller is liable to deliver agreed quantity.
Wrong quantity is of three kinds:
Short delivery: quantity delivered less than what is agreed.
Example: Short delivery is when you get 50 bags of cement instead of 100.
Excess delivery: the delivered quantity overshoots the order.

Example: Excess delivery is when you get more than 100 bags of cement while your order is just for 100.

Delivery of mixed goods: apart from the goods of contracted description other types too are included in the delivery.

Example: Mixed delivery is when along with your order for conventional cement of 100 bags, you get also white cement,
waterproofing cement, etc.

8)Delivery of goods by installments:

As a matter of fact, the delivery of goods by instalments is not considered as a proper delivery and the buyer is not
bound to accept the goods delivered to him by instalments unless otherwise agreed. The pattern of delivery shall be
determined by the contract.
Example: If your cement supplier who supplies your total purchase of thousand bags of cement in ten instalments, and
then becomes erratic in supply or sends defective goods, does not follow the agreed schedule, etc., which tantamount
to a repudiation of the contract, then you may stop the instalments.

9)Delivery to carrier or wharfinger:

The seller is authorised or obliged as per the contract to deliver goods to the carrier—surface, sea, or air transporter;
there may also exist a third person— wharfinger, for the safe custody goods.
Example: Your iron ore is loaded on board of a sea carrier by the seller and is also insured for its safety. If it is lost before
its boarding, the seller has the right to sue the insurance company.
Rights of Unpaid Seller:

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
conditions on which it was received has not been fulfilled by reason of the dishonour of the instrument or
otherwise.
– Sec. 45(1), The Sale of Goods Act, 1930

Who is unpaid seller?

The seller to whom the full price of the goods sold has not been paid the price is known as an unpaid seller.
A seller of goods is deemed to be unpaid in the following cases:

The price must be due but not paid.

A negotiable instrument like cheque and bill of exchange was received but the same has been dishonoured.

The seller who has obtained a decree for the price of the goods will also be an unpaid seller if the decree
has not been satisfied.

When the seller has been paid a large amount but a small portion of the payment remains to be paid.

When the price has been paid but some other expenses which were payable to the seller has not been paid.

The seller must have an immediate right of action for the price.

Example: A sells goods worth Rs 1,00,000 to B on the credit of six months. After six months, B did not pay the
price. A shall be regarded as an unpaid seller.
Rights of an unpaid seller against the goods
In some cases after the sale of goods the seller continues to have possession of the sold goods.
At such times, an unpaid seller has certain rights against the goods.
These can be further studied under two heads;

Property has passed to the buyer

When the ownership of goods is transferred to the buyer, there are three rights of an unpaid
seller. These are:
Right of Lien – [Sections 47-49]
Right of stoppage in transit – [Sections 50-52]
Right of Re-sale

Property has not passed

When the ownership of goods is not transferred to the buyer, there are two rights of an unpaid
seller. These are:
Withhold Delivery
Stoppage in transit
Rights of unpaid seller against the buyer:

An unpaid seller has the following rights against the defaulting buyer:

Suit for damages for non-delivery – [Sec. 56]

Suit for price – [Sec. 55]

Suit for specific performance

Suit for breach of warranty

Suit for damages for repudiation of contract before due date – [Sect. 60]

Suit for interest – [Sec. 61]

Right of Lien:

The Right of Lien means, the right to retain the possession of the goods until the charges
or the full price has been paid.

“According to Section 47, the unpaid seller can exercise a lien, only when the following
conditions are satisfied:
i)Where the goods have been sold without stipulation as to credit; or
ii)Where the goods have been sold on credit but the term of credit has expired; or
iii)When the buyer has become insolvent.”

Right of Stoppage in Transit:

The right of stoppage in transit is a right to regain the possession.
The right of stoppage in transit can be exercised if the goods are in transit and the buyer
has become insolvent in the meantime.
Conditions: unpaid Seller + possession of goods with carrier (independent) +
insolvent buyer.
Duration of transit (Section 51)

The goods are stopped to be in transit in the following situations:

As Seller’s Agent: In this case, the seller has a lien on the goods, so question of
right of stoppage in transit does not arise.

As Buyer’s Agent: In this case, the seller cannot exercise the right of stoppage in
transit.

In an Independent Capacity: In this case, sit from the time they are delivered to a
carrier for the purpose of transmission to the buyer, until the buyer or his agent
takes their delivery.
Right of Resale:
Section 54 indicates that “the unpaid seller has the right of resale.“
When the seller uses his right of lien or stoppage in transit, the contract continues to
remain in force and the buyer can claim delivery of goods by paying for the goods.

The seller has the right to resell the goods in the following case:

Where the goods are of perishable and will lose value in a short time:

the unpaid seller can resell the goods, in such a situation where buyer fails to pay the price
within a reasonable time.

Where the unpaid seller has used his right of lien or of stoppage in transit and gives
notice to the buyer of his decision to resell the goods:

the unpaid seller may, if the buyer does not pay or tender the price within a reasonable
time, resell the goods
Right to withhold Delivery of Goods:

The right to withhold the delivery of goods means the seller refuses to deliver the goods to the buyer.

Rights of unpaid seller against the buyer

The buyer has the following remedies against the seller:

Suit for damages for non-delivery

When the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for
non-delivery. This is in addition to the buyer’s right to recover the price, if already paid, in case of non-delivery.

Suit for price

Where the buyer has paid the price and the goods are not delivered to him, he can recover the amount paid.

Suit for specific performance

When the goods are specific or ascertained, a buyer may sue the seller for specific performance of the contract and compel him
to deliver the same goods.
The court orders for specific performance only when the goods are specific or ascertained and an order for damages would not
be an adequate remedy.
Suit for breach of warranty:

Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat the
breach of condition as breach of warranty, the buyer cannot reject the goods.

Suit for interest:

The buyer may recover such interest or special damages, as may be recoverable by law. He may also
recover the money paid where the consideration for the payment of it has failed.

Auction Sale/ Sale by auction:

An auction sale is the sale of goods through a bidding process and is covered under the Sale of Goods
Act, 1930. The process of sale by auction involves the selling of any goods and property of value, in a
public gathering where buyers make a bid for the purchase and the sale is made to the highest bidder.
Different Types of Auction Sales:

Private Auction: This is an auction sale where the seller and buyers are known to each other.

Advertisement Auction: In this type of auction, the seller publishes a notice in newspapers or online about
the product he wishes to sell through auction.

Sealed Bid Auction: In this type of auction, potential buyers send their bids to the seller in sealed envelopes.
The highest bidder wins the product at the end of the bidding process.

Live Auction: This is an auction sale where bidders participate live either by attending physically or
participating through phone or the internet.

Sale in lots: Auction Sale where the items are sold in lots or batches.

First Lot Auction: In this type of auction, each lot is sold to the highest bidder at a time.

Second Lot Auction: This type of Auction allows for batching of goods into two parts and then offering these
as individual lots to potential buyers interested in acquiring them during an auction sale process.

Auction Sale of Unsold Lots: In this kind of Auction, the seller offers only those lots that he has not been able
to sell in first or second lot auctions to interested bidders during an auction sale process.
Rules of Auction Sales Are:

Sale Completion: It is one of the most important Auction Sale rules that the seller must
complete the sale once a bid has been accepted. In case, he is unable to do so for any reason, he
must inform all potential buyers of this before the Auction commences and also refund their
money

Auctioneer: The Auctioneer conducts the Auction Sale by announcing each product being put up
for bidding and calling for bids from interested buyers.

Reserve Price: This is the minimum price at which the seller is willing to sell a particular item in
an auction sale. If no bidder meets or exceeds this price, then the item goes unsold.

Bidding Increments: In most auctions, there are predetermined bidding increments that
determine how much a can increase her/his bid amount.

Auction Closing Time: The Auction Sale must have a definite ending time so that all interested
buyers are aware of when the bidding process will end.
Section 64 of the Sale of Goods Act states the rules applicable in case of an auction sale.

Sale of Goods in Lots

When the auction involves the sale of goods in different lots, each lot of goods are covered under a
separate contract of sale.

Sale Completion
An auction sale is deemed to be complete when the auctioneer says so. The same can be done by the fall
of the hammer or any other means used to signify the completion of the sale. The bidder can withdraw
the bid anytime before the completion of the sale is declared.

The Right to Bid Reserved for the Seller

The seller can reserve his right to bid at the auction but he must expressly reserve this right. He can
appoint an agent to bid on his behalf.

Notification of the Right to Bid by the Seller

If the seller has not expressly reserved his right to bid and has not been informed about the same, he or
his agent is not authorized to bid at the auction. The auctioneer is not entitled to accept any bids made by
the seller or his agent if the buyer has not expressed his intent to do so. Any sale that is in contradiction to
this rule will be deemed unlawful and fraudulent by the buyer.
Reserve Price
The goods for sale at the auction may be subject to a reserve price or an upset price. The
auctioneer cannot sell goods below this price.

Pretend Bidding by the Seller or His Agent

In case the seller or his agent pretends to bid for the goods purposely to raise the bid price of
the goods, the buyer of the goods has the right to treat the sale as void.

No Credit Sale
The property in an auction cannot be sold on credit or as per his will by the auctioneer. The
auctioneer can accept a bill of exchange in an auction sale but only if it has been allowed by the
seller.