Sale of Goods

INTRODUCTION
Earlier legal provisions relating to contract of sale were contained or included inthe Indian
Contract Act 1872. Later a new Act known as The Sale of Goods Act 1930' was passed. This act
does not deal with the property governed by Transfer of Property Act of I882. Sale of Goods Act
deals with the sale of movable property or g00ds.
MEANING AND DEFINITIONOF SALE
Itis acontract by which the ownership inmovable goods or property is transferred from the
seller to the buyer.
Section 4()of the Sale of Goods Act of 1930 defines contract of sale as, "Acontract of sale
of goods is a contract whereby the seller transfers or agrees to transfer the property inthe goods
to the buyer for a price".
It is a contract to transfer ownership or property in the goods. It includes an actual sale as
well as an agreement to sell.
Contract of sale is an executed contract. Agreement to sellis an executory contract. In case
of executorycontract the transfer of property in goods is totake place at a future date.
ESSENTIALS OF A CONTRACT OF SALE
1. Twoparties or plurality: There must be two parties. One must be the buyer and anothe
must be the seller. They must be different parties. They must be competent to enter into a
Contract.

Eg.: Apartnership firm was dissolved. Its assets were distributed among the partners. It
was not a sale because the partners were the joint ownersof the asset. They could not be
both buyer as well as seller.
k Goods: There must be some goods, the ownership of which is to be transferred from the
seller to the buyer. Goods must be movable. Transfer of immovable property does not fall
under this Act.
 Eg.: A agreed to buy a hay stack from B lying on B's land. A was given the liberty to come
on B's land and to take away the hay stack. Here the hay stack is the goods. I is a sale.
3. Price or consideration: The consideration for the contract of sale must be money. When
goods are exchanged for goods. it is not asale. I is called barter system.
4. Transfer of property: Property means ownership. There must be transfer of ownership in
the goods from the seller to the buyer.
5. Essential elements of a valid contract: A contract of sale, like any other contract, must
have all the essentual elements of a val1d contract.
6. Sale and agreement to sell: The term 'contract of sale' is a generic term. It includes both
'sale' and 'agreement lo sell.
CONDITION AND WARRANTY
Meaning of Condition: Condition is a stipulation in a contract of sale with reference to
goxis. It s a stipulation, which is essential to the main purpose of the contract. Its non-fulfilment
defeats the very purpose of the contract.
Definition: It is defined as "a stipulation essential to the main purpose of the contract, the
breach of which gives the aggrieved party a right to repudiate the contract". (Section 12 |2).
Eg.: Aconsulted B. a car dealer and purchased a car suitable for touring purpose. Later on
the car turned out to be unfit for the touring purpose. Awanted to reject the car and demanded the
refund of the price. l was held that Awas entitled to reject the car and to have refund of the price.
In this case suitability of the car for touring purpose was a condition. Its non-fulfilment defeated the
very purpOse for which A bought the car (Baldry V/s Marshall).
What is the meaning of warranty?
Meaning of Warranty: -Awarranty is a guarantee given by the seller to the buyer about the
quality. fitness and performance of the product. It is an assurance provided by the manufacturer to
Ihe customer that the said facts about the goods are true and at its best. Awarranty is an additional
condition and a written guarantee that is collateral (security ) for the main purpose of the contract.
Awarranty is a surety given by the seller regarding the state of the product.
The effect of a breach of warranty is that the aggrieved party cannot reject the entire
contract, however, can claim for damages. Unlike a breach of condition, in breach of warranty, the
buyer cannot reject the goods. A warranty is a stipulation which is collateral tothe main purpose of
the contract. If there is a breach of warranty, the affected party can only claim damages and has
no right to reject the contract.
Warranty
"A warranty is aa stipulation, which is collateral to the main purpose of the contract, the
breach of which gives the aggrieved party a right to sue for damages only, and not to repudiate the
contract (Section l2|3)."
It is not of such vital importance as a condition. Non-fulfilment of awarranty givesrise toa
claim for damages but not a right to reject the goods and treat the contract as repudiated.
Eg.:Awanted to buy a healthy horse from B, ahorse dealer. Bsold him a healthy horse and
told that the particular horse can also run at a speed of 40 km/hr. Abuys the horse. Later on Afinds
that the horse can run at a speed of 2Okm/hr. There is abreach of warranty here because the
stipulationmade by the seller forms only a collateral one. Thus Acannot reject the horse.
RULES REGARDING DELIVERY
1. Delivery according to contract: According to Section 31. the seller is bound to deliver the
goods under the contract. The contract mayprovide about the time, place, and the manner of
delivery of the goods, the seller is bound to observe the same.
2. Time of delivery: Sec 36 (2) -The transfer of goods happens in time. The contract oI
delivery has terms, e.g.. forthwith, as soon as possible directly, immediately, reasonable time,
etc depending on your order yougets the supply of cement: as you have a particular schedule
that is agreed upon. If the contract between the parties does not provide anything different.
then according to Section 32, the delivery of the goods and the payment of the price are
current conditions, which means that the seller shall be prepare and willing to deliver the
goods to the buyer in reciprocity for the price. and the buyer shall be prepare and willing to
pay the price in exchange for the delivery of the goods.
In Vishnu Sugar Mills Ltd. v. Food Corporation of India, the respondent, i.e., Food
Corporation of India purchased some levy sugar' from the petitioner, i.e., Vishnu Sagar Mills
under a statute that requires the compulsory sale of sugar at certain rates. The said Corporation
had always been paying against the deliveries, but then it unilaterally changed the procedure
of payment for the sugar purchased. The new procedure was a bit complex and involved a
considerable delay in the payment after the sugar got delivered. In a writ petition by the
petitioner. it was held by the Full Bench of the Patna High Court that where there is a
compulsory sale of sugar under a Statute, and there is no agreement regarding the time/
deliveryof the goods, then there should be concurrent tender of price against the delivery, as
envisaged under Section 32 of the Sale of Goods Act, 1932. Therefore, the difference procedure
adopted by the Food Corporation of India was illegal and hence, quashed.
3. Buyer's duty to apply for delivery: 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. According to Section 35 of the Sale of Goods Act.
1930, the buyer is bound to apply for the delivery of the goods before the seller can be
expected to deliver them. The application for delivery must have been properly made. Such
an application for delivery by the buyer is required both in the ready and future goods. Also.
the buyer's demand delivery is subject to any express contract between the parties.
4.
Place of Delivery: Sec 36 - 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
specificd 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). The parties to
the contract are free to decide about the place of the delivery of the goods and construe the
agreement for the samne. If the contract does not indicate the place of delivery, like in the
case of a sale, the place of delivery is the place where the goods are at the time of sale. In
an agreement to sell, the place of delivery is the place where the goods are at the time of
agreement to sell. In the case of future goods which are yet to be manufactured or produced,
the place of delivery is the place at which they are manufactured or delivered.
5. Expenses of delivery: Sec 36 (5) - Seller pays till it is made deliverable; buyer pays for
obtaining delivery unless there is a specificagreement about delivery. Example: Your company
forwards coal as an export with the agreement of FOB, that is, you pay until it is put on
board: it implies that the buyer will pay for rest. According to Section 36(5), the incidental
expenses of putting the goods in a deliverable state shall be borne by the seller unless otherwise
agreed that means if the goods are not in a deliverable state at the time of the contract, then
the buyer is bound under the contract to take their delivery, the expenses of putting them in
a deliverable state must be borne by the seller. If such expenses have been borne by the
buyer, then he or she can, later on, recover them from the seller
6 Part delivery of goods - Sec 34 -Goods being delivered as part of the
whole: if the part i
severed from the whole then the transter is not of the whole but only partial. It may be
agreed between the parties that the property in the goods would pass when the goods are
delivered. However, sometimes only a part of the goods is delivered and hence. a question
arises- Does the property only in the part of the goods which have been delivered or that in
the whole of the goods, pass fromn the seller to the buyer. According to
section 34, the
circumslances which the delivery had been made have to be looked into and the position.
in
areconained in that section, is as under:
Delivery of part of the goods, in the progress of the delivery of the whole. has the same
effect, to pass the property in such goods, as a delivery of the whole.
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7. Goods in the possession of the third party - Sec 36 (3) - 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. In other words, According to Section 36(3) of the Sale of Goods Act 1930,
if at the time of delivery the goods are in possession of a third party then there will be no
delivery unless and until the third party tells the buyer that the goods are being held on his
behalf. This section would not create any impact on the transfer of title of the goods.
8. Delivery of goods in wrong quantity or of different description: Sec 34 - 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 youget 50bags of cement instead of 100.
Excess delivery: the delivered quantity is more than ordered .Example: Excess
delivery is when you get 120 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 Seller
must deliver the good following the terms of the contract. This includes the duty to
deliver goods of the same quality, in the requisite quantity, and accordance with their
description given in the contract. Section 37 covers the cases where the performance
is not according to the contract. These are:
 by installments js no.
9. Delivery of goods by installments: Sec 38 -delivery of goods
considered as a proper delivery and the buyer is not bound to accept the goods delivered to
him by installments unless otherwise agreed. The pattern of delivery shall be determined by
the contract. According toSection 38(), it is expected that the seller shall deliver the gond:
in one lot and the buyer shall not be bound to accept the delivery in installments. If, however
the parties so agree, the delivery of the goods may be made by installments. Also, under
Section 38(2). we have to look at the terms of the contract and the circumstances of the case
before deciding whether it amounts to the breach of the whole of the contract or abreach of
the part only. Two factors have to be kept in mind, firstly, the quantitative proportion which
the breach bears to the whole contract and. secondly, the degree of probability of the repetion
of the breach.

In Moti Lal v. The Netha Cooperative Spinning Mills Ltd, there was a contract for
supplying 500 bales of cotton of a certain variety. The first installment of 50 bales was
supplied and accepted but the buyers rejected the second installment of 50 bales as they
were adulterated with waste cotton mix and the cotton was of inferior quality and
asked the
seller not to supply further goods. It was held that the buyer was justified in
whole contract. Moreover. the sellers were not entitled to claim any
repudiating the
damages, as they did nol
tender any further installmentswithin the contract period but agreed to the
contract made by the buyer.
repudiation of the
10. Deliverv to Carrier or Wharfinger : Sec 39 - 1The
seller is
contract todeliver goods to the carrier- surface, sea, or air authorized or obliged as per the
transporter: there may also exIst
11. Risk where goods are delivered at a distant place: According to Section 40 of the Act.
even if the seller undertakes to be liable for the loss or damage to the goods during transit,
such loss does not include loss which is caused by deterioration in the goods necessarily
incident to the course of transit. In Bull v. Robinson, the seller sent hoop iron from
Staffordshire. the place of its manufacture, to Liverpool. The iron was clean and bright when
it was despatched but became rusted before it reached its destination. It was held that the
seller was not responsible for such deterioration.
In the case of perishable goods which are consigned to a distant place, the rule is that they
should not only be merchantable when despatched by the seller but also that they are in a
condition that they remain merchantable during transit and for a reasonable time thereafter.
In Beer v. Walker, the rabbits when dispatched from London were sound but unfit for
human consumption when they reached Brighton. It was held that the buyer was entitled to
reject the rabbits.
 Rights of an unpaid seller: Rights of an unpaid seller may be classified into
two categories:
Rights against goods.
Rights against buyer personally.
Rights against goods:
1. Right of lien.
2. Right against goods in transit.
3. Right of resale.
I. Right of lien (Sections 47 to 49): Lien is a right to retain possession of goods until
the payment of price. Unpaid seller gets the right to lien where:
i. The goods have been sold without any stipulation as to credit.
Ii. The goods have been sold on credit and the term of credit has expired.
III. The buyer becomes insolvent.

Rules regarding lien

Unpaid seller should be in possession of the goods.
The possession of the goods by the seller must not expressly exclude the right to lien.
He can exercise lien only for the price and not for any other charges.
Where there is a part delivery of goods, lien can be exercised for the remainder.
2. Right against goods in transit (Sections 50 to 52): It is available -
When the buyer becomes insolvent.
When the goods are in transit.
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 The right of stoppage in transit is available only for the price of the goods,.
Il can
exercised so long as the goods are in transit. Duration of transit is the be
the commencement and end of transit. period between
Rules relating to transit
1.
I1 the buyer rejects the goOds and the carrier possesses the goods, transit does
come to an end.

1 the goods are delivered to a chartered ship which acts as

an agent of the buver
transit comes to an end as soon as the goods are delivered to the ship.
.
I1 the goods are delivered in parts, the seller can stop the remainder of goods.
Loss of right of stoppage in transit (Termination of right)
i.
Interruption by the buyer: If the buyer takes delivery of goods before the goods
arrive at the appointed destination., transit comes to an end.
ii. Carrier's acknowledgment to the buyer: Transit comes to an end when the carrier
informs the buyer that the goods are received at the appointed destination and he is
holding the goods on buyer's behalf.
3. Right of resale (Section 54):
The unpaid seller can resell the goods under the following
circumstances:
i. The goods areof
perishable nature.
i. The seller has given a notice to the buyer of his
intention to resell.
i. Where the seller reserves the right of resale.
II. Rights of unpaid seller against the buyer personally
1. Suit for price
2. Suit for interest

3. Suit for damages for

non-acceplance
4. Repudiation of contract before the due date
5. Auction sale

1. Suit for price (Section 55): Where the buyer

Sue him for the price of the goods. refuses to pay for the goods. theseller imay
The seller can sue the buyer for
damages for no
acceptance. That means if the buyer repudiates the contract before the date
seller can sue for damages for the breach. of delivery t
 Ceit for interest (Seciion ): IT here Sa proviSIOn in he
the buyer even lor interest.
agreement, the seller can sue
Suit for damages for non-acceptance (Seetion 56):
3.
ar refuses toaccept and pay for the goods, the Where the buyer wronglully neglects
seller isentitled to sue the buyer for damages
for non-acceptance.

Repudiation of contract belore the due date (Section 60):

Where the buyer repudiates
the contract before the date of delivery, the
seller may treat the contract as subsisting and
Nait tillthe date of delivery or he may treat the contract as
for the breach.
rescinded and sue for damages
Auction sale: An unpaid seller has a right to sell the goods in an auction sale. A sale by
auction is apublic sale whereby different intending buyers try to out-bid cach
other. The
goods are sold to the highest bidder. The auctioneer who sells the goods by
agent of the seller.
auction is an

The usualprocedure of an auction sale is as follows:

The proposed auction is duly advertised.
) On the appointed day and time the buyers assemble.
iü) The auctioneer puts different lots and invites bids.
IN) The auction goes in favour of the highest bidder.
V) Every bid is treated as an offer.
vi) Highest bidconstitutes the offer.
V) The fall of hammer constitutes the acceptance of theoffer by the auctioneer.

TRANSFER OF OWNERSHIP OF THE PROPERTY

The term property in the goods may be defined as the legal ownership of the goods. On the
paing of the property to the buyer, he becomes the owner of the goods. The buyer acquires allthe
rights held bythe seller.
AContract of sale means the transfer of ownership of goods from a seller to a buyer.

Significance of transfer of ownership

Risk passes with the ownership: Sometimes, the goods are lost or destroyed due to theft.
goods.
suffer the loss of the
t , carhquakes, etc. In such cases, it is the owner who has to
the seller who has to bear the risk
us, betore the ownership of the goods is transferred, it is
for the loss of the ggoods. After the transfer of ownership, it is the buyer who has to bear the
risk for the loss of the goods.
85
RULES FORTHE TRANSFER OF PROPERTY (SEC 18-24)
Ihese rules are contained in Section 18 to Section 24 of the Sale
of Goods Act, 1930.

The general rule is that the transfer of ownership depends upon the intention of both the
parties. Where the intention of parties is not clear the following rules are followed:
I. Transfer of ownership of specific goods or ascertained goods.
II. Transfer of ownership of unascertained goods or future goods.
III. Transfer of ownership on 'sale or return'.
I. Transfer of ownership of specific goods or ascertained goods (Sections 20- 22): In
case of sale of specific goods. the rules relating tothe transfer of ownership are:
1. The ownership is transferred at the time of making the contract: The general rule, in
case of specific goods, is that the ownership of the goods is transferred from the seller to the
buyer at the time of making the contract. This rule is contained inSection 20 of theSale of
Goods Act. Theanalysis of this section reveals that the ownership is transferred at the time
of the contract only if all the following conditions are fulfilled:
1. The sale must be of specific goods.
The goods must be in a deliverable state.
86
 contract of sale must be unconditional.
ii. The
Specific goods: Specific goods are those, which are identified and agreed upon at the time of
contract offsale. i.e. the goods whose identity and individuality have already becen established at
.he time of making the contract of sale. These goods are also called the ascertained goods.
# Deliverable state: The goods are said to be in a deliverable state when they are in
such a state that the buyer would, under the contract, be bound to take delivery ol
them (Section 2(3). In other words, the goods are in a deliverable state when they are
acceptable to the buyer and he can take delivery immediately, Eg.: if the seller has to
paint the car to make it acceptable to the buyer. it is not in a deliverable state until it is
painted.
ii. Unconditional contract of sale: The term unconditional contract of sale means the
contract in which no condition is imposed regarding the transfer of ownership of the goods.
transferred
And if the intention of the parties is that the ownership of the goods should be
only when certain conditions are fulfilled, the contract will be conditional.
transferred
On the fulfilment of all the above three conditions, the ownership of the goods is
payment of the
from the seller to the buyer. It may be noted that itmakes no difference if the
price or the delivery of the goods or both are postponed.
other time: In case of sale of specific
2. The ownership may also be transferred at some
soon as the contract of sale is
goods, the general rule is that the ownership is transíerred as
However. the rule is applicable only if all the conditions for the immediate transfer of
made.
(as mentioned above) are satisfied. If any of these conditions is not satisfied then
oWnership
ownership will not be transferred at the time of contract of sale, Eg.: when the goods are
Ihe In
deliverable state, or the seller has to do some act in connection with the goods.
not in a
cases, the rules contained in Sections 21 and 22 of the Sale of Goods Act shall apply,
Such
which may be discussed under the following sub-heads:
be put in a deliverable state by the seller: Sometimes, the
Waere the goods are to do some act
deliverable state at the time of contract, and the seller has to
s000S are not in a the
deliverable state. In such cases, the ownership is transferred as soon as
O put them in a buyer comes to know about the act of
deliverable state and the
las Pulthe goods in a of the Sale of Goods Act. The analysis of this
section 21
seler. This rule is contained in in a deliverable state. by
some act
goods are lo be put
section reveals that wherethe specific buyer on the fulfilment of the following
transferred to the
eller, the ownership is
conditions: goods into a deliverablestate,
and
i When putting the
the seller has done his act of deliverable state.
into a
L that the goods have been put
When the buyer Comes to know
87
 The seller may be required to do certain acts to put the goods into a deliverable state. Eg.: packing
Iiling the goods in containers, collecting the goods, separaung or loading the goods e
Similarly, where the seller undertakes to put the goods on rail or any other means
shall remain with the seller till the goods are loaded. On
transportation, the ownership shall
of the g00ds, the ownership passes to the buyer.
loading
b) Where the goods are to be weighed or measured by the seller to ascertain th.
price: Sometimes, the seller has to do some act (eg. toweigh or to measure the goods) for
the purpose of ascertaining their price. In such cases, the ownership is transferred to the
buyer as soon as the seller has done such act and the buyer comes to know about this act of
the seller. This rule is contained in Section 22 of the Sale of Goods Act. The analySis of this
section reveals that where the specific goods are in a deliverable state and the seller has to
do some act for the purpose of ascertaining their price, the ownership is transferred to the
buyer on the fulfilment of the following conditions:
1.
The seller should have done his act of ascertaining the price of the goods, and
The buyer should come to know that the price has been ascertained by seller's act.
The seller may be required to do certain acts for the purpose of ascertaining the price of the
goods, Eg.: toweigh the goods, measure the goods or to test the goods, etc.
Eg.: A Sold some quantity of wheat to B at the rate of Rs. 10 per kg. However, A had to
weigh the wheat in order to know the price of the entire quantity of wheat sold to B. In this
case, the ownership of the wheat shall transfer toB as soon as the A weighs the wheat and
B comes to know about the same.
II. Transfer of ownership of unascertained goods or future goods (Sections 18 and 23):
The property in thegoods does not pass to the buyer until the goods are
ascertained.
The ownership is transferred to the buyer on the fulfilment of the following conditions:
1. When the goods are ascertained, and
2. When the goods are appropriated to the contract.
1, Ascertainmnent of goods: The term ascertainment' may be defined as the
process Dy
whichthe goods lo be delivered under thecontract are identified and set apart. It is a unilateral
act of the seller alone to identify and set apart the goods. It may be noted that the ownership
is not transferred merely by the
ascertainment of the goods. After ascertaining the goOU
there must be appropriation of the same to the contract.
2. Appropriation of goods to the contract: The term 'appropriation' may be defined as u
process by which the goods lo be delivered under the contract are identified and set
apa
with the mutual consent of the seller as well as buyer. It is a seller and the
88
bilateral act of the
 Transfer of ownership on "sale or return' (Sale on approval basis): It is the sale
where the buyer may return the goods within a reasonable time if the goods do not serve his
purpose or object. This is also known as `Sale on approval' basis.In case of sale on approval.
the ownership is transferred to the buyer when he accepts the goods. It may be noted that
the seller cannot ask for the return of the goods. He can only recover the price of the goods
if the goods are not returned within a reasonable time.This rule is contained in Section 24 of
the Sale of Goods Act.

The analysis of this section reveals that in case of sale on approval, the ownership is transferred
to the buyer in any of the following three ways:
1. By acceptance of the goods by the buyer.
2. By adoption of the transaction.
3. By failure to return the goods within a reasonable time.
inform the seller accordingly.
Ii Acceptance of goods: The buyer may accept the goods and ownership is transferred to
seller, the
When the buyer gives his acceptance (approval) to the
the buyer.
transaction:The buyer may adopt the transaction by doing some act in respect
ki2. Adoptionof adopted the goods.
goods. When the buyer does some act, which shows that he has
of the implied acceptance.
to him on the act of adoption. It is known as
Ihe ownership is transferred goods as his own Eg. sells or pledges
deals with the
generally takes place when the buyer
the goods to a third person.
transferred to the buyer when he fails
3, ownership is also
alure to return the goods: The also amounts to implied acceptance
matter of fact, this
Telurn the goods to the seller. As a following two sub-heads:
discussed under the
go0ds. This point may be