Angshuman Hazarika

IIM Ranchi
angshuman.hazarika@iimranchi.ac.in

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 Sale of Goods Act, 1930
Applicable to whole of India

Section 4(1) of the Sale of Goods Act defines a contract of sale of goods as,

A contract, whereby, the seller transfers or agrees to transfer the property in

goods to buyer for a price.

Section 4(2) of the Act clarifies that: A contract of sale may be absolute or
conditional.

Key elements for a contract of sale are:

1. Two persons: A buyer and a seller (A sale cannot be made by the seller to
himself)
2. A transfer or agreement to transfer
3. Movable goods Contract of Sale
4. For a price (which must be money)
5. General property (Goods owned)
6. Can be absolute or conditional

Sale Agreement to Sell

 What is a sale or an agreement to sale?

• Section 4(3) Sale of Goods Act defines sale as,

“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.”

Other key term: “Agreement to sell” (Section 4(3))

“Where under 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.”

The process for conversion of an agreement to sale to a sale is also provided under
Section 4(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.”
 Point of Difference Sale Agreement to Sell
Nature of Contract Executed Contract Executory Contract
Transfer of ownership Immediate At a future time
Creation of right Jus-in-rem. Right on Jus-in-personam. Right
goods against the whole against the person for
world fulfilling the contract
Remedies for breach of Right of the seller to sue The seller has the right
the contract for price of goods, lien only to damages for the
and stoppage performance of the
contract
Risk of loss Borne by the buyer Borne by the seller
Right of resale Buyer is the owner. Seller The seller may deal with
cannot resale under the goods in a manner he
normal circumstances deems fit, but the buyer
even with possession of may sue him for a
the goods. breach of contract
 Modes of making a contract of sale
Section 5(1) of the Act:
A contract of sale is made by an offer to buy or sell goods for a price and the
acceptance of such offer. The contract may provide for the immediate delivery of
the goods or immediate payment of the price or both, or for the delivery or
payment by instalments, or that the delivery or payment or both shall be
postponed.

Elements:

1. Offer to buy or sale goods

2. Acceptance of the offer
3. Consideration (the Price)

Other key aspects as laid down in Section 5(2):

1. Contract may be in writing or by word of mouth (wholly or partly)

2. May also be implied from the conduct of the parties
 Definition of goods and future goods

Section 2(7) of the Act:

“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;

Exclusion: Currency, actionable claims, Sale & Purchase of Immovable Property

and Work Contract/ Contract of Service
Immovable property is covered under Transfer of Property Act.

Case: Union of India v. Central India Machinery Manufacturing Co. AIR 1977
SC 1537 – Distinction between a sale of goods and a work contract.
 Classification of
Goods
With explanations

Existing Goods Future goods Contingent Goods

Section 6 Section 2(6) Section 6(2)
Goods which are Acquisition
physically in existence at Goods to be manufactured or depends on
the time of entering the produced or acquired by the happening or not
contract of sale seller after making the happening of a
contract of sale particular event

Specific Goods Ascertained Unascertained or

S. 2 (14) Goods generic goods

Goods identified and

agreed upon at the time Specific goods that Goods that have not been
a contract of sale is become identified and agreed upon
made at the time of sale and they
ascertained after are defined only by
the contract description, they may form
part of a lot

Case Law: Badri Prasad v. State of MP, 1969 SCR (2) 380- Trees as
goods not ascertained
 Specific incidents related to the status of the goods

Section 7- Goods perishing before the contract

The contract is void. Reason – Impossibility of performance

Section 8- Goods perishing before sale but after agreement to sale

If before the ownership passes to the buyer- the agreement is void

If after ownership or title passed to buyer- it is his responsibility
 Price and Price Fixing

• Section 2(10) defines price as:

The money consideration for a sale of goods

Mode of fixing of the price stated under Section 9 and 10 of the Act:

(a) As stated in the contract

(b) To be fixed at a later time in a manner agreed by the parties
(c) In the course of the dealings (percentage based commission or
like)
(d) Reasonable price paid by the buyer (depends on facts of the case)
(e) Through a valuer (a third party appointed by the buyer and seller)
If the valuer cannot make a valuation, the agreement is avoided. But if buyer has
already received the goods, he has to pay a reasonable price.
 Stipulations, Condition and Warranty

Stipulation- A qualification that is attached to a contract

Section 12(1): A stipulation in a contract of sale with reference to goods

which are the subject thereof may be a condition or a warranty.

Stipulation

Conditions Warranties
 Stipulations, Condition and Warranty

• Condition (Section 12(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.

• Warranty (Section 12(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.

.
Point of Difference Condition Warranty
Type of stipulation Essential to the main Collateral to main
purpose purpose of the contract
Breach Repudiation of the Claim for damages only
contract and also can
claim damages
Treatment under S.13 Breach of condition as Breach of warranty
breach of warranty cannot be treated as
breach of condition

Conditions and warranties can be express or implied.

Express terms are written into the contract.
Implied Conditions and Warranties (Sec. 14 to 17)
Condition Warranty
Condition as to Title Quiet possession
Condition as to Description Free from any undeclared charge or
encumbrance to a third party
Condition as to Sample, Sample and Through usage of trade (fit for use)
description

Condition as to Quality or Fitness Disclose dangerous nature of goods

Condition as to Merchantability
Through usage of trade
Condition as to Wholesomeness

Case Law: Antony Thomas v A. Mani, AIR 1960 Ker 176

 Doctrine of Caveat emptor and exceptions to the rule

• Means ‘buyer beware’

Case Law: Goddard v Hobbs (1878) 4 App. Cas. 13

Exceptions:
• Communication regarding requirement for fitness for buyer’s
purpose (Sec. 16(1))
• If sold by description, implied that goods will be of a
merchantable quality (Sec.16(2)).
• Usage of trade (Sec. 16(3)).
• Consent obtained by fraud- defect is concealed and cannot be
discovered by reasonable application of skill and judgment
and examination
 Ascertainment of Goods and Passing of Property

• Ascertainment of goods is required for transfer of property of the goods

(Sec. 18)

• When parties intend to transfer the property and it can be ascertained

from the conduct of parties or circumstances of the case, the property
can be transferred (Section 19(1) and (2)).

• The rules for ascertaining the conduct of the parties are provided as
follows (S. 20 to 24)-
– If the specific goods are in a deliverable state, property is transferred immediately
when contract is made
– In case the specific goods are yet to be put in deliverable state, the property is
transferred only when goods are in deliverable state and buyer has notice
– If specific goods are in a deliverable state, but price is yet to be ascertained, the
property is transferred only the property is transferred only when price is ascertained
and buyer has notice
– For unascertained goods, transfer of property takes place only upon ascertainment
– Goods on approval, when buyer signifies approval or times is passed.

Case Law: Hooghly Chisurah Municipalty v. Spence Ltd., AIR 1978 Cal 49
 Significance of Transfer of Property

Significance Situation
Ownership Passes from seller to buyer
Risk Risk passes to buyer
Suit for price Seller can sue for payment of unpaid
price
Insolvency Official Receiver can take over
possession of the transferred goods
 Delivery of the goods

• Sec. 31- It is the duty to 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.

Delivery: voluntary transfer of possession from one person to another; (Section

2(2))
Symbolic
(Passing of
documents or
keys)
Actual
Constructive
(Handed over to (Third party-
buyer or bailee on behalf
authorized of buyer)
agent)

Delivery
 Rules and principles governing the delivery of the goods

Act of Delivery Delivery of goods sold may be made by doing anything

(S. 33) which the parties agree shall be treated as delivery or which
has the effect of putting the goods in the possession of the
buyer or of any person authorised to hold them on his
behalf.
Part delivery If a part of a whole purchase, ownership of entire purchase
(S. 34) transferred. If part is separate from whole, only part
transferred
Buyer must Seller not bound to deliver unless buyer applies (unless
apply (S. 35) stated in the contract)
Place and time • Goods delivered where they are at time of sale or
of delivery (S. agreement to sale unless specified in the contract
36(1), (2)) • If goods are not in existence, then they are considered
delivered at place of manufacture
• Seller must send goods at the reasonable time,
otherwise it is deemed ineffectual
• Cost of putting goods in a deliverable condition rests with
the seller
 Delivery of • Less delivery may be rejected, if accepted only to be
wrong quantity paid contract rate
(S. 37) • Excess quantity may be rejected (or whole delivery may
be rejected), if accepted to be paid at contract rate
• If goods are mixed with other products, he may reject the
rest or reject the whole delivery
• Subject to special agreement or usage of trade
Instalment • Not bound to accept instalment delivery
delivery • In case of instalment delivery, and an instalment is
(S. 38) missed or defective (seller) or refusal of receipt (buyer),
there is no obligation to accept remaining goods (buyer)
or deliver remaining goods (seller)
• Whole contract cannot be treated as repudiated, can be
treated on a case to case basis
Delivery to Delivery of goods to wharfinger or carrier to be deemed as
wharfinger or delivery to buyer
carrier (S. 39) Seller to make contract with wharfinger on behalf of the
buyer for safe transit as required for the goods.
Seller to intimate buyer of the requirement to insure goods
during transit at sea.
 Rights of a buyer
• Right to receive delivery as per the contract (S. 31 and 32)
• Right to reject goods when not as per contracted quantity (S. 37)
• Right to repudiate contract when not instalment delivery (S. 38(1))
• Right to examine goods before delivery (S. 41)

Duties of a buyer
• Accept the goods (S. 31)
• Apply for delivery of goods (S. 35)
• Accept instalment delivery when asked for (S. 38(2))
• Right to examine goods before delivery (S. 41)
• Accept risk of deterioration in transportation (S. 40)
• Inform seller in case he rejects delivery of goods (S. 43)
• Take delivery (S. 44)
 Rights of an Unpaid Seller Lien (S. 47-49)

When property has passed to Stoppage in

the buyer (S. 46(1)) transit (S. 50-52)

Resale (S. 54)

Against the goods

Withhold delivery
When property has not
passed to the buyer (S.
46(2))
Stoppage in
Rights of an transit
unpaid seller
Suit for price (S.
55)

Suit for damages

(S. 56) Case Law: PSNS
Against the buyer Ambalavana Chettiar
Repudiation of &Co. v Express
contract before
due date (S. 60) Newspapers, AIR 1968
SC 741 (Sections 18 and
Interest and 54(2)).
special damages
(S. 61)
Remedies for a breach of contract which can
be claimed against-

Topic Seller Buyer

Delivery Damages for non- Damages for non-
delivery acceptance
Price For recovery of price For price
paid
Repudiating Contract Damages for rescinding For repudiating contract
the contract or for non- before due date
delivery
Warranty For a breach of warranty
Suit for specific For the same goods
performance (ascertained goods)
 Sale of goods through an auction
In an auction sale, the sale is complete when the auctioneer announces its
completion by the fall of the hammer or in other customary manner; and,
until such announcement is made, any bidder may retract his bid (Section
64(2));

• The seller may also bid for products at an auction if such rights are
reserved, but abuse of such a system through pretended bidding or
through bidding by a secret person when it is not expressly mentioned,
it would be illegal.

• An auction may have a reserve price

• A sale is voidable at the option of the buyer, if there was pretended

bidding to raise the price.