Sale of Goods Act 1930

I. Buyer And Seller

As per the sec 2(1) of the Act, a buyer is someone who buys or has agreed to buy goods.
Since a sale constitutes a contract between two parties, a buyer is one of the parties to the
contract.
The Act defines seller in sec 2(13). A seller is someone who sells or has agreed to sell
goods. For a sales contract to come into existence, both the buyers and seller must be
defined by the Act. These two terms represent the two parties of a sales contract.

Definition and essentials of a Contract of Sale of Goods Act

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 the buyer for a
price.”
Essential Features of a Contract of Sale:
• Two Parties: A contract of sale involves two parties, namely the seller (the person who
transfers or agrees to transfer the ownership of goods) and the buyer (the person who
buys or agrees to buy the goods).

• Goods: The subject matter of the contract must be existing or future goods. Goods refer
to movable property, excluding actionable claims, money, and immovable property.

• Transfer of Ownership: The contract must involve the transfer or agreement to

transfer the ownership of goods from the seller to the buyer.

• Price: There must be a price agreed upon by the parties. The consideration for the
goods is usually in monetary terms, but it can also be in the form of barter or exchange.

• Consent: The contract must be entered into by the free consent of both parties, without
any coercion, fraud, undue influence, or mistake.

• Legal Capacity: The parties involved in the contract must have the legal capacity to
enter into a contract. They should not be disqualified by law, such as minors or persons
of unsound mind.
Distinction between Sale and Agreement to Sale
Kinds of Goods

1. Existing Goods

Existing goods are those owned or possessed by the seller at the time of contract of sale.
Goods possessed even refer to sale by agents or by pledgers.

Existing goods may be either

(i) Specific Goods

(ii) Ascertained Goods

(iii) Generic or Unascertained Goods

(i) Specific Goods

Specific goods denote goods identified and agreed upon at the time of contract of sale. For
eg. if a buyer selects a particular variety of saree after examining several other sarees, the
selected one denotes specific goods.

(ii) Ascertained Goods

The term ‘ascertained goods’ is also used as similar in meaning to specific goods. But this
term may even refer to goods which become ascertained subsequent to the formation of
the contract.

(iii) Unascertained or Generic Goods

These are goods which are not identified and agreed upon at the time of contract of sale.
For eg. A wants to buy a car from a showroom where different models at different prices
have been displayed. All these displayed models represents unascertained goods.

2. Future Goods

These are goods which a seller does not possess at the time of contract of sale but which
will be manufactured or produced or acquired by him after entering into the contract of sale
agreement. Eg. ‘A’ contractor agrees to supply 100 bags of rice to ‘B’ for giving marriage
feast. It is a case of future goods. Similarly where the bus company agrees to buy spare
parts from a particular supplier, it is an example of future contract. Future goods
represents unascertained goods.

3. Contingent Goods

Contingent goods are the goods, the acquisition of which by the seller depends upon a
contingency (an event which may or may not happen). Contingent goods are a part of
future goods. Eg.‘A’ agrees to sell a particular painting work, provided he gets from ‘C’. In
this case, the painting work represents contingent goods. Similarly a rice merchant agrees
to supply 10 bags of basmathi rice from Pakistan if he get supplies. In this case, basmathi
rice representing contingent goods may or may not be available to the rice merchant.

Price Of Goods

Meaning[Section 2(10)]

Price means the money consideration for a sale of goods. Modes of determining Price
[Section 9(1)]

There are three modes of determining the price as under:

• It may be fixed by the contract or

• It may be left to be fixed in an agreed manner

• It may be determined by the course of dealing between the parties. Thus, the price
need not necessarily be fixed at the time of sale.

Consequences of not determining the Price in any of the Mode [Section 9(2)]

Where the price is not determined in accordance with Section 9(1),the buyer must pay
seller a reasonable price.What is a reasonable price is a question of fact dependent on the
circumstances of each particular case.It may be noted that a reasonable price need not be
market price.
 Conditions and Warranties

Meaning of stipulation

"A stipulation in a contract of sale of goods may be a condition or warranty."

All the stipulations in a contract of sale are not of equal importance. Some of them are
essential the main purpose of the contract which are called "conditions and some are
collateral to the main purpose of the contract which are called “warranties"

Definition of Condition

"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.”

Essentials of a Condition

1. It is essential to the main purpose of the contract.

2. The non fulfillment of condition causes irreparable damage to the aggrieved party
which would defeat the very purpose for which the contract is made.
3. The breach of a condition gives a right to the aggrieved party to rescind the contract
and recover the damages for breach of condition.

Example : Ram goes to a horse-trader and says that he wants to buy a horse that can run
at 40 km an hour. The trader gives him a horse and says that the horse will run as per
Ram's requirement. Here, the horse being fast enough to run 40 km/hour is the essential
condition of the contract. If the horse is not that fast a runner as Ram had stipulated and
does only 20 km in an hour can not only file a suit for damages against the trader but
also repudiate the contract.

Definition of Warranty
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 not to
treat the contract as repudiated.

Essentials of a Warranty

1. It is collateral to the main purpose of the contract.

2. The breach of warranty causes damage to the aggrieved party and does not defeat the
main purpose of the contract.
3. The aggrieved party can only claim the damages for breach of warranty but cannot
repudiate the contract.

Example : Hari goes to a horse-trader and says that he wants to buy a good horse. The
trader offer him a horse and says that it can run at 40 km an hour. Hari buys the horse.
Later, he comes to know that the horse can only run 30 km in an hour. Here the
commitment of the trader is only a warranty and is not an essential condition of the
contract. Non-fulfillment of a warranty only entitles the buyer to receive damages from the
seller, not to repudiate the contract.

When Breach of Conditions is to be treated as Breach of Warranty

Section 13 deals with cases where a breach of condition is to be treated as a breach of
warranty, as a consequence of which he buyer loses his right to rescind the contract and
has to be content with a claim for damages only. These cases are as follows:

1. Voluntary waiver by buyer - Although on a breach of condition by the seller, the buyer
has a right to treat the contract as repudiated and reject the goods, but he is not bound
to do so. He may instead elect to waive the condition, I.e, to treat the breach of
condition as a breach of warranty and accept the goods and sue the seller for
damages for breach of warranty.
2. Acceptance of goods by buyer - When the buyer has accepted the goods and
subsequently he comes to know of the breach of condition, he cannot reject them, but
can only maintain an action for damages.

Implied conditions

1. Condition as to title - In every contract of sale, the first implied condition is that the
seller has a right to sell the goods (either because he is the owner or the agent of the
owner). So , if the sellers title turns out to be defective, the buyer is entitled to reject the
goods and recover the price. Here , the buyer cannot retain the goods by electing to
treat the breach of this condition as breach of warranty. He must return the goods to
the true owner. However, he can recover the price from the seller because of total
failure of consideration.
2. Condition in a sale by description – Where there is a contract of sale of goods by
description, there is an implied condition that the goods shall correspond with the
description. If seller delivers goods which do not match the description, buyer can
reject or return those goods. The description of goods could be in terms of qualities,
characteristics, brand, trademark, type of packing, grade etc.eg. Dhampur sugar,
basmati rice, tulsi flavoured tea leaves etc,
3. Condition in a sale by sample - Whenever goods are to supplied according to the
sample agreed upon, the implied conditions are-
• that the bulk shall correspond with the sample in quality,
• that the buyer shall have a reasonable opportunity of comparing the bulk with the
sample,
• that the goods shall be free from any latent defect i.e. defect which is not discoverable
on plain examination of the sample
4. Condition in a sale by sample as well as description - When goods are sold by
sample as well as by description, there is an implied condition that the bulk of the goods
supplied shall correspond both with sample and description. If they correspond with only
sample and not description or vice versa, the buyer is entitled to reject the goods.

5. Condition as to fitness - There is an implied condition on part of the seller that the
goods supplied by him shall be fit for the purpose for which buyer wants them if
• Buyer has expressly or impliedly told the particular purpose for which he needs
goods
• Buyer relies on seller’s skill and judgement
• The seller, in ordinary course of business, deals in goods of that description

6. Condition as to merchantability –There is an implied condition on part of the seller

that the goods provided by him would be of merchantable quality( i.e. ordinarily acceptable
and saleable in that condition) if the following conditions are satisfied-
• there is sale of goods by description
• the seller is a dealer in goods of that description
• the buyer must not have opportunity to examine the goods or that there is some latent
defect in the goods

7. Condition as to wholesomeness -There is an implied condition on part of the seller

that in a contract for sale of eatables and provisions, the goods must not only be
merchantable and as per description but must also be wholesome i.e. free from any defect
which renders them unfit for human consumption.

Implied Warranty

1. Warranty of quiet possession - In every contract of sale there is an implied warranty

on part of the seller that the buyer shall have and enjoy quiet possession of goods . If
the buyer’s quiet possession is in any way disturbed by a person having title superior
than that of the seller, the buyer can claim damages from the seller. This warranty is an
extension of the implied condition as to title.
2. Warranty of freedom from encumbrances - There is another implied warranty on
part of the seller that the goods shall be free from any charge/encumbrance in favour
of any third party unknown to the buyer before or at the time of contract. If later it is
found that goods are subject to a charge and buyer has to discharge the same, there is
breach of this warranty and buyer is entitled to claim damages.
3. Warranty of disclosing the dangerous nature of goods to the ignorant buyer -
The third warranty on the part of the seller is that incase he sells goods of dangerous
nature, he will warn the buyer of the probable danger otherwise if any injury occurs to
the buyer on using it, buyer can claim compensation from seller.

Doctrine of Caveat Emptor

The maxim of caveat emptor means “ let the buyer beware” i.e. it is the duty of the buyer to
be careful while purchasing goods he requires and in the absence of any inquiry from the
buyer, the seller is not bound to disclose every defect in the goods he is aware of. The
buyer must examine the goods carefully and if the goods he buys turn out to be defective
or do not serve his purpose, he must curse himself for his bad choice and cannot hold the
seller liable.
EXCEPTIONS – The situations where the Doctrine of Caveat Emptor does not apply i.e.
buyer is not at fault
• Where seller makes a mis-representation and buyer relies on it. Doctrine of caveat
emptor doesn’t apply here. The contract is voidable at the option of buyer
• Where seller commits a fraud/actively conceals a defect which buyer cannot detect.
Caveat Emptor doesn’t apply. So buyer can rescind contract + claim damages for fraud.
• Where goods are purchased by description and they don’t correspond with description.
• Where goods are bought by sample and they don’t correspond with the sample or buyer
is not given opportunity to examine goods or there is any latent defect in goods.
• Where goods are bought by sample as well as description and they don’t correspond with
both.
• Where goods are purchased by description from seller who deals in such class of goods
and they not of merchantable quality .
• Where the buyer tells the seller the purpose of buying the goods, relies on seller’s skill
and judgement but the goods supplied are not fit for the specified purpose. Here caveat
emptor does not apply and seller is liable .

Rights of an Unpaid Seller

Who is unpaid seller?

He is the seller to whom:-
1. Whole of the price is not paid
2. Conditional payment
Bill of exchange/ promissory note/ cheque has been received by seller but it dishonours.
Till the time bill of exchange/ promissory note/ cheque is with the seller so, till that time he
is only called as seller but when any of the mentioned instruments dishonours then after
this seller is called unpaid seller.

Features of an unpaid seller

1. Seller must sell the goods on cash basis and must be unpaid (in cash transactions
payment becomes due instantly)
2. Seller must be unpaid either wholly or party
3. The decided period has expired and the price has not been paid to seller
4. Seller must not refuse to accept the payment
5. Where the price paid through negotiable instrument (bill of exchange/ promissory note/
cheque) and the same has been dishonoured

Example: A sells his bike to B for Rs. 60,000 and receives a cheque for the price. Till this
time seller will only be called as seller. But when subsequently, the cheque is dishonoured
due to insufficiency of funds in B’s bank account, then only A becomes an unpaid seller.
 Rights (Remedies) of Unpaid Seller
(The unpaid seller has the rights/ remedies against goods and buyer both)

Rights of unpaid seller against goods Rights of unpaid seller against buyer
1.Right of possession/ lien 1.Suit for price
2.Right of stoppage of goods in transit 2.Suit for interest and special damages
3.Right of resale 3.Suit for damages for non- acceptance
4.Suit for breach of contract

A. Rights of unpaid seller against goods

1. Right of possession/ lien
If the buyer fails to pay the price within the decided time, then unpaid seller has the right to
keep the goods in his possession and he can refuse to deliver the goods until the due
payment is paid.
When right of possession can be exercised:-
• When goods are sold on cash basis, but payment is unpaid
• When goods have been sold on credit basis and the term of credit has expired
• When the buyer becomes insolvent even within the decided period for payment
• So, far as the goods are in the possession of unpaid seller, he can exercise this right. If
goods are lost/ given up then right of possession/ lien is also lost/ given up

Termination of Right of Possession

• By delivery of goods to the buyer/ his agent
• By delivery of goods to the carrier/ courier company
• By waiver
This means that it’s specifically mentioned in the contract that seller can’t retain the
possession of the goods even if the price has not been paid
• When buyer has obtained the possession of goods lawfully
2. Right of stoppage of goods in transit
If a buyer fails to pay the price within the decided time, then unpaid seller has the right to
stop the goods in transit.
Conditions for stoppage of goods:-
• When seller is unpaid either wholly or partially
• When the buyer becomes insolvent
• Goods must be in the course of transit - This means that goods must not be in the
possession of the seller and have not reached the buyer’s possession as well

Termination of Transit
• By delivery to the buyer/ his agent
• Interception by the buyer (Interception means the act of catching/ receiving)
• When buyer or his agent obtains the delivery of the goods before their arrival at the
appointed destination hence, the transit comes to an end
• Acknowledgement to the buyer by the carrier/ courier company that they are holding the
goods on buyer’s behalf, then also transit comes to an end
• Part delivery of goods
If part of the goods are delivered to the buyer then the transit comes to an end for the
remainder of the goods as well

3. Right of resale
The unpaid seller has the right to resell the goods.
Conditions for resale:
• When goods are of perishable nature - Then unpaid seller can resell them immediately
without the notice to the buyer. But in case of non-perishable items unpaid seller needs
to send notice to the buyer for reselling them
• Where unpaid seller gives the notice to buyer and buyer still don’t pay for it
• Where the right of resale is reserved/ mentioned in the contract

If contract clearly specifies that reselling can’t be done or vice versa

• Buyer becomes insolvent

• Buyer fails to pay the price of the goods

B. Rights of unpaid seller against buyer

1.Suit for price
2.Suit for interest and special damages
Here, suit can be filed for interest and special damages.
Where, interest will be paid on the amount of the deal between seller and buyer on the
choice/ discretion of the court.
3.Suit for damages for non-acceptance
Suit can be filed against the buyer if the buyer wrongfully refuses to accept the goods.
4.Suit for breach of contract

Rights (Remedies) of Buyer against Seller

1.Suit for damages for non-delivery 2.Suit for interest and special damages 3.Suit for
specific performance
4. Suit for breach of contract