Sale of Goods Act, 1930

(i) Definition
(ii) Applicability
(iii) Essentials of a Contract of Sale
 A company bought 100 wall clocks from a seller of the brand
Keepers, model AS3200, for gifting it to its distributors. The clocks
were expensive, priced at Rs. 2000 a piece. The clocks were
delivered. The company opened the box and tested out some of the
clocks. The clocks were working fine. However, the clocks looked
tacky and inelegant. The company is upset and wants to return the
clocks and get their money back. Does the company have a remedy
against the seller?

a.
Yes. (’Merchantability’ clause, as these are not good
enough to be gifted)
b.
No. (The reason being ‘buyer beware’)
c.
No. (‘Merchantability’ is a responsibility of the
manufacturer and not the retailer)
d.
Yes. (‘Description’ clause. As the clock is expensive, it is to
be taken as a part of its description that it is elegant)
 A pharmaceutical company bought a machine to fill in capsules with
medicines. The machine was delivered and installed. It was defective from
the beginning and could not be started. The problem was with the engine
and other components. The contract had the following clause:
(12) Warranty: All equipment sold by us is warranted for a period of 6
months from the date of purchase for manufacturing defects. The warranty
is in lieu of all implied or express condition and warranty.
The buyer wants to terminate the contract and return the machine.

• The machine is not of merchantable quality. The buyer has a choice. He can
terminate the contract, return the machine and claim damages. Alternately, he can
avail the warranty of repair.
• ‘Buyer Beware’. Before buying a good, the buyer has to satisfy himself with its
quality. Once delivered, the buyer has no remedy. He should be thankful to the
seller for the warranty extended on the machine.
• It is a condition of every contract that the goods will be of merchantable quality.
The statutory provision cannot be ousted by providing otherwise in the contract.
Thus, the warranty clause cannot prevent the buyer for terminating the contract.
• The warranty clause has replaced the protection given by the law in relation to
merchantability and the right of the buyer to terminate the contract. Thus, the
buyer cannot terminate the contract and return the goods.
 Definition
•It is a contract by which the ownership of movable goods
is transferred from the seller to the buyer. The term
‘contract of sale’ is defined in Section 4(1) of the Sale of
Goods Act as-
•“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”
•Express/ implied. Oral/ written- partly oral and partly
written
•Payment and delivery not necessary while making
contract
 Essentials of a Contract of Sale

(i) All requirements of a valid contract must be fulfilled

(ii) Two Parties –
(iii) Goods
(iv) Transfer of Property
(v) Price
(vi) Includes both a ‘sale’ and ‘agreement to sale’
Goods
The subject matter of a contract of sale of goods is goods.
According to Sec 2(7) “goods means every kind of movable
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 contract of sale.

ACTIONABLE CLAIM – ‘means a claim which can be enforced

through the court of law e.g a debt due from one person to
another is an actionable claim
• Examples of Goods
Goodwill, Trade Mark, Copyright, Patent right, Water, Gas,
Electricity, are all example of good
Classification of Goods
(i) Existing Goods
a. Specific goods
b. Ascertained goods
c. Unascertained/ generic goods
(iv) Future Goods- This is applicable to goods which are
subject matter of the agreement to sale
(v) Contingent Goods

Perishing of goods
before contract- void if goods are ascertained
After ATS but before sale
Sale Vs Agreement to sell
• The ownership is transferred • At some future date
immediately • Executory Contract
• Executed contract • A seller can sue for damages.
• A seller can sue for price. He has all • An agreement to sell takes place in the
the right of unpaid seller case of future goods.
• Sale takes place in the case of • A seller bears the risk.
existing goods usually.
• If seller turns insolvent, buyer can’t recover
• A buyer bears the risk. goods
• If seller turns insolvent, buyer can • If buyer turns insolvent, no need to deliver
receive goods from assignee goods
• If buyer turns insolvent, seller still • Seller can resell
need to deliver the goods
• Seller can’t resell
• Buyer can sue seller and recover from
subsequent buyer except…..
Price

• As fixed by the parties

• In a manner provided in the contract
• To be fixed by Third Party
 Stipulation, Condition & Warranty

A representation which forms part of the contract of sale

and affects the contract, is called a stipulation.

A stipulation which is most important for formation of

the contract of sale is known as a ‘condition’.

A stipulation which is collateral or of least importance for

the formation of the contract of sale, is known as a
‘warranty’.

Eg: Sports Car, vehicle for touring, horse runs @ certain

speed
 Conditions and Warranties
•Express Conditions
•Implied conditions
• Condition as to Title [Sec 14(a)]
• Condition as to Description [Sec 15]
• Condition as to Sample [Sec 17(2)]
• Condition as to Sample as well as Description [Sec 15]
• Condition as to Quality or Fitness for Buyer’s purpose [Section16(1)]-
case of Priest vs Last; refrigerator capable of making ice
• Special cases- Sale of branded goods
• Condition as to Merchantability [Section 16(2)]- Moreli Vs Fitch Gibbons
(1928)
• Condition as to Wholesomeness- Frost vs Aylsbury Dairy (1905);
Chaproniere vs Mason (1905)
Implied Warranties
• Quite possession
• Free from encumbrance
• Disclosure of dangerous nature of goods
• Exceptions
 Condition & Warranties

•Condition is a stipulation •Warranties are subsidiary or

which is essential to the collateral to the main purpose of
main purpose of the the contract.
contract. •It is not of vital importance. The
•It is of vital importance main contract can be completed
•In case of breach of even if warranty is not fulfilled.
condition, the buyer may •In case of breach of warranty, the
put an end to the contract. buyer cannot put an end to the
•A breach of condition may contract. He can only claim
be treated as a breach of damages from the seller.
warranty. •A breach of warranty cannot be
treated as a breach of condition.
Doctrine of Caveat Emptor [Sec 16]

The doctrine of caveat emptor is a fundamental principle of

law of sale of goods. It means ‘Caution Buyer’ i.e. ‘let the
buyer beware’. In other words, it is no part of the seller’s
duty to point out defects in his own goods.
• Exceptions
• Condition as to Quality or Fitness for Buyer’s purpose
• Where the seller makes a false representation or obtains
• consent of the buyer by fraud
• Condition as to Merchantability
• Condition as to Wholesomeness
• Condition implied by the Custom or Trade Usage
 Delivery of goods
• Payment delivery of goods concurrent
• Mode of delivery
• Effect of part delivery
• Place and Time
• Delivery when the goods are in possession of Third party
• Demand of delivery to be treated ineffectual
• Expenses
• Delivery of wrong quality
• Delivery by installments
• Delivery to wharfinger
 Transfer of Property- implications
• Risk follows
• Owner to take action against third party
• Insolvency of seller or buyer
• No transfer until goods are ascertained
• When the goods are in deliverable state…
• When the goods are not in deliverable state
• When the goods are unascertained
• Delivery to carrier in seller’s/ buyer’s name
• Delivery on sale or return bass
• Transfer of title by non-owners
• Estoppel; Mercantile agent; One of the joint owners; voidable contract; seller in
possession after sale; unpaid seller
 Buyer- Rights and Duties
Rights Duties
• Take delivery • Take delivery
• Reject • Pay price
• Repudiate • Apply delivery
• Insurance • Risk of deterioration
• Examine • Intimate seller when goods are
• Sue for rejected
• Damages • Pay damages for
• Price, interest non-acceptance
• Specific performance
• Breach of warranty
 Unpaid seller
Right against goods
• Property in goods not passed
• Withholding delivery
• Stoppage in transit
• Property in goods passed
• Lien
• Stoppage in transit
• resale
Right against buyer
• Sue for price
• Sue for damages
• Sue for interest
• Repudiate
 • A sale contract was for supply of a projector of model WT-3020 of a
particular company. By the time the seller could procure the goods,
the manufacturer had stopped manufacturing the model and come
up with a better model WT- 3030. The new model was better in
several respects than the earlier model. The seller supplied the new
model. The buyer rejected the goods and terminated the contract.
a.
As the seller has supplied the core part of the contract, the seller has met
the condition of the contract. The buyer cannot terminate the contract.

b.
It is an implied condition that the goods would meet the description. As
the seller has not supplied the described goods, the buyer can terminate
the contract.
c.
The buyer cannot terminate the contract so long as the seller does not
claim additional amount for the better quality of goods.

d.
Following the principle of merchantability, as the supplied goods are
better than the described goods, the buyer cannot terminate the
contract.
 • In a business-to-business contract, a company bought an
air-conditioner. The air-conditioner had a defect. The compressor of
the air-conditioner became very hot in a short use. Following this, the
compressor would switch-off. The result was that air-conditioner
could not provide cooling. What are the options available to the
buyer?
The buyer can return the goods and claim damages as merchantability is an implied
condition.

The buyer cannot return the goods but only get it repaired as goods are sold on the
implied condition of the seller making then fit for their ordinary use.

The rule is ‘buyer beware’. As the seller has not given any warranty, the buyer has
neither the right to return the goods nor claim repair. In practices, sellers repair to
maintain their business reputation but this is not required by the law.

The buyer should have protected himself by giving adequate description of the goods
to be purchased. It is an implied warranty that goods would tally with the description.
In the absence of the care taken by the buyer, the ‘buyer beware’ rule applies. The
buyer can neither return the goods not claim damages.
• A customer bought a calculator from a bookstore. On use, the calculator
screen would go blank. The customer replaced the battery but it was of
no help. The calculator was defective. The bookstore refused to replace
the calculator, leave alone take back the calculator and refund the
money. The bookstore said that they were not the manufacturer and
could not be responsible for manufacturing defects. They told the
customer that they would ask the office of the manufacturing company
in the city to attend to him. Does the customer have a claim against the
bookstore?
• The customer has a claim against the bookstore as it is a case of
‘sale by description’.
• The customer has a claim against the bookstore as the sold good is
not fit for its basic purpose.
• The customer has a claim only against the manufacturer as he has
manufactured a good which is not of merchantable quality.
• Under the ‘merchantability clause’, the liabilities of merchants are
limited in bringing to the notice of the manufacturer the defect in
goods. The bookstore has fulfilled its obligations. The customer has
no further rights.
• A customer bought a power saver bulb of a reputed brand from a retailer.
The bulb was a 15 Watt bulb capable of giving illumination equivalent of
a 150 Watt normal bulb. The bulb gave the equivalent illumination.
However, the light was not pale yellow but piercing white. The quality of
light was not soothing. Further, if one where to look at the bulb directly,
it was uncomfortable and irritating to the eyes. The customer is
dissatisfied and wants to return the bulb and get his money.
a.
The bulb has met the basic requirement of providing illumination.
Therefore, the buyer cannot terminate the contract.

b.
As the bulb is of a reputed brand and being traded widely, the bulb is
merchantable. The customer has no remedy.

c.
The buyer has rellied on the skill and judgement of the seller. The seller
must give a bulb which not only gives illumination but is also soothing to
the eyes.
d.
The light being harsh to the eyes is a warranty to the contract. This gives
the right to the buyer to terminate the contract.