THE SALE OF GOODS

ACT ,1930
MODULE 3
The law relating to the sale of goods or movables in India is contained in the Sale
of Goods Act, 1930 which came into force on 1st July, 1930.

Contract of sale includes both sale & agreement to sale (future sale ).

Act not deal with immovable property -only movable property -

Sales of movable property deals under transfer of property act .

Under Section 4 (1) of the Sale of Goods Act, 1930, the contract of sale of goods is defined
as follows: “A contract of sale of goods is a contract whereby the seller transfers or agrees
to transfer the property's in goods to the buyer for a price.”

a) Sale:Where the right of ownership in the goods is transferred from the seller to the
buyer, the contract is sale.

b) Agreement to sell:Where under a contract of sale the transfer of 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.
Essentials of a Contract of Sale

1. There must be atleast two parties.

2. The subject matter of the contract must be goods.
3. A price in money should be paid or promised.
4. A transfer of property in goods from seller to buyer must takes place.
5. It must be absolute or conditional.
6. All other essentials of a valid contract must be present.
 SUJECT MATTER OF CONTRACT OF SALE
Goods means every kind of movable property other than autionable claims and money .

The goods which form the subject matter of contract of sale can be of the following types .

Existing goods : these are goods which are identified and agreed upon at the time when the
contract of sale is made. It includes specific goods, ascertained goods , unascertained goods.

a)specific goods: the are goods which are identified and agreed upon time when the contract of
sale is made.

b)ascertained goods : here the identification of goods takes place on later date.

c)Unascertained goods :these are goods which are nor specifically identified and agreed.
Future goods :these are the goods which are to be manufactured or produced or acquired
by the seller after the contract of sale.

Contingent goods : contingent goods , the aqusition of which by the seller depends on a
contingency which may or may not happen .

For eg : X agrees to Y that once he received 100 bags from his present owner , he will sell
it.
Distinction between Sale and Agreement to Sell
Difference between sale & hire purchase

BASIS SALE HIRE PURCHASE

Form Either orally or written Always written.

Transfer of Ownership is transferred as soon as the Ownership is transferred only after the
ownership contract is made. payment of last installemnt .

Buyers status Position of buyer is that of owner Position of buyer is that of bailee.

Termination of Buyer cannot terminate the contract , Hire purchaser can terminate the
contract until he pays the price. contract & return the goods , before
the payment of last installment .

Right to resale Buyer has the right , as he is the owner Cant resell the goods . only title is
transferred not ownership.
DOCUMENT OF TITLE TO GOODS
Document of title of goods is a proof of ownership of goods ,it enables the holder to
receive the goods mentioned or to further transfer such right to another person by
endorsement or delivery.eg : bill of lading , dock warrant railway receipt.

Earnest money :money deposited by the buyer with the seller as a security for due
fulfillment of the contract . as contract is carried through , earnest money counts as a part
payment , & only the balance is required to pay.
CONDITIONS & WARRANTIES
Stipulation

‘Stipulation’ means a requirement or a specified item in an agreement”.breach of condition

gives the aggrieved party right to terminate the contract .

Condition: According to Section 12(2), a condition is a stipulation essential to the main

purpose of the contract, the breach of which gives a right to repudiate the contract.

Stipulation which is collateral to the main purpose of the contract is warranty .breach of
warranty gives rise to the aggrieved party right to claim damages but contract cannot be
terminated .
Eg : bettini .v. gye - musician arrived for rehearsal 2 days before the performance -agreed
6 days before - breach of warranty.
When condition to be treated as warranty
1.Voluntary waiver
City & industrial development crops of maharashtra ltd v/s nagpur steels & alloys pvt ltd
-oversized goods supplied -buyer aware of the fact-accepts that goods and paid partly - amounts to
waiver.
2.by acceptance :
Hardy & co. v/s hillerne & flower - buyer resold the wheat to third party on the same day of
loading - found that wheat was not up to quality - reject the seller's goods - by reselling buyer
accepts the goods - no rejection possible.
IMPLIED CONDITIONS
‘Implied conditions and warranties are those, which the law incorporates into the contract unless
the parties stipulate to the contrary. They may be cancelled, or varied by an express agreement or
by the course of dealing or by usage and custom.

1. Implied condition as to title

2. Sale by description
3. Sale by sample
4. Sale by sample as well as by description.
5. Condition as to quality & fitness
6. Condition as to merchantability
7. Condition as to wholesomeness
1. Implied condition as to title:

In every contract of sale there is an implied condition that

a) In case of sale, the seller has a right to sell the goods, and

b) In case of an agreement to sell, the seller will have the right to sell at the time when
the ownership is to pass from the seller to the buyer.

Defective title -buyer may reject the goods

Rowland .v. divall - sale of stolen car - buyer recover full price from the seller
although he has used the car for several months .
2.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. This rule is based on the principle that “if
you contract to sell peas, you cannot compel the buyer to take beans.”
Lami .v.tucker (1829) - sale of fake pictures of renowned artist - buyer can reject the
goods.
3.Sale by sample:
In the case of contract for the sale of goods by sample, there is an implied condition:
a) that the goods must correspond with the sample in quality;
b) that the buyer must have reasonable opportunity of comparing the bulk with the sample.
c)that the goods must be free from any defect which renders them unmerchantable.
4.Sale by sample as well as description:

Where the goods are sold by sample as well as by description, the implied condition is that
the bulk of the goods supplied must correspond with the sample and the description.

5) Condition as to quality or fitness:

Where the buyer expressly or impliedly, tells the seller the particular purpose for which he
needs the goods and relies on skill or judgement of the seller , there is an implied condition
that the good shall fit for the purpose.

Priest vs Last - a purchased a hot water bottle from the chemist . while bottle was being
used by A,s wife it burst and injured , held that seller is liable for damages.
6.Condition as to merchantability :when goods are bought by description there is an
implied condition that the goods are of merchantable quality.

Merchantable goods means that there is no defect in goods.

7) Condition as to Wholesomeness: This condition applies in the case of provisions and

foodstuffs which must not only be merchantable but also be wholesome and suitable for
consumption.
Implied warranties

● Warranty of quite possession .

● Warranty of freedom from encumbrance.
● Warranty as to disclose dangerous nature of goods.
Doctrine of Caveat Emptor
The term ‘caveat emptor’ is a Latin word which means ‘let the buyer beware’ i.e., a buyer
purchases the goods at his own risk.

The doctrine of caveat emptor means that the seller is not bound to disclose the defects in
the goods, which he is selling. It is the duty of the buyer to satisfy him before buying the
goods that the goods will serve the purpose for which they are being bought.

Old rule - only relevant for goods sold in open market.

Caveat venditor - duty of the seller to be beware and careful before selling the goods.
Exceptions
The doctrine of caveat emptor is, however, subject to the following exceptions:
1) Fitness for buyer’s purpose.
2) Goods purchased under patent or brand name: In case where the goods are
purchased under its patent name or brand name, there is no implied condition that
the goods shall be fit for any particular purpose.
3) Condition as to merchantability : This condition applies (i) where goods are
sold by description, (ii) the seller deals in those goods, and (iii) the buyer has no
opportunity to examine the goods being bought.
4) Good sold by sample as well as description : Where the goods are sold by sample as
well as by description, the doctrine does not apply if the bulk of the goods supplied do not
correspond with the sample and the description.
5) Goods sold by sample : Where the goods are bought by sample the doctrine does not
apply if the bulk does not correspond with the sample.
6) Condition implied by usage or custom of trade: Where trade usage attaches an
implied condition or warranty regarding the quality of fitness of goods for a particular
purpose, the doctrine of caveat emptor does not apply.
7) Goods sold by Misrepresentation: Where the seller sells the goods by making some
misrepresentation or fraud and the buyer relies on it or where the seller knowingly
conceals defects not discoverable on reasonable examination, then the rule of caveat
emptor will not apply
TRANSFER OF PROPERTY IN GOODS
RULES REGARDING TRANSFER OF PROPERTY

These rules determine the time at which the ownership of the goods is transferred from the
seller to the buyer.

1. Transfer of property in case of Specific or Ascertained Goods

2. Transfer of property in case of Unascertained Goods
3. When goods are sold on approval .
 1. Transfer of property in case of unascertained goods

a)Goods must be ascertained : when there is a contract for sale of unascertained goods ,
no property in the goods is transferred to the buyer unless & until the goods are ascertained
.

b) Appropriation of goods to the contract : The term ‘appropriation’ means the process
by which the goods to be delivered under the contract are identified and set apart with the
consent of the seller as well as buyer
2.Transfer of property in case of Specific or Ascertained Goods –
a) When goods are in deliverable state : Where there is an unconditional contract for the sale of specific
goods in a deliverable state, the property in the goods passes to buyer when the contract is made,

b) When goods are not in a deliverable state : Where there is a contract for the sale of specific goods and
the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the
property does not pass until such thing is done and the buyer has notice thereof.

c) When price of goods is to be ascertained:

Ram purchase society vs Madras -seller took the railway receipt in his own name - instructed the banker
not to handover it until the price was paid - goods not passed until the price paid.
3) When goods are sold on approval – When the goods are sent to the buyer on
‘approval’ or on ‘sale or return basis’, the property in the goods will pass from seller to
buyer when any of the following conditions are satisfied:

a) When he accepts the goods;

b) When he adopt the transaction; or

c) When he fails to return the goods

In this case approval or acceptance buyer.

Sale by Non-owners
The general rule is that if a person, who has no right or title to the goods, sold the same,
the buyer, cannot obtain any right or title to the goods which he purchased even though he
may have acted honestly and paid the value for the goods. This is based on the following
important Latin maxim, “Nemo dat quod non habet,” which means that ‘no one can give
what he has not got’.

Section 27 of the Sale of Goods Act also provided that “where goods are sold by a person
who is not the owner thereof and who does not sell them under the authority or with the
consent of the owner, the buyer acquires no better title to the goods than the seller had. . .
Exceptions to the Rule ‘Nemo dat quod non habet’
1) Title by estoppels : When the owner of goods, by his conduct or by statement, wilfully
leads the buyer to believe that the seller has the authority to sell, then he is stopped (i.e.,
prevented) from denying the seller’s authority to sell.

2) Sale by merchantable agent : This exception will apply if the following conditions are
satisfied:

a) The goods must have been sold by a mercantile agent;

b) He must be in possession of the goods or any document of title to the goods with the
consent of the real owner;

c) The sale should be in the ordinary course of business;

d) The buyer must act in good faith

3) Sale by a joint owner (co-owner) : if one of the joint owners of the goods have sole possession of the
goods by the permission of the co-owners , the buyer gets the better title of goods if he acted in good faith.

4) Sale by person in possession under voidable contract : when the seller of goods has obtained
possession of the goods under a voidable contract and he sells those goods before the contract is
repudiated, the buyer of such goods acquires a good title provided the buyer acts in good faith and without
notice of the seller's defect of title.

5) Sale by seller in possession after sale: Where a person, having sold the goods, continues to be in
possession of the goods or of the documents of title, and sells them over again to a buyer, the buyer gets a
better title provided he has acted in good faith and without notice of the previous sale.

6) Sale by buyer in possession after sale : Where by the buyer has bought or agreed to buy the goods,
with the consent of the owner obtains possession of the goods or documents of title to the goods, but the
seller still has some lien or right over the goods, if the buyer sells the goods to a second buyer, who buys
them in good faith, the second buyer gets a better title.
7) Sale by unpaid seller : Where an unpaid seller who is in possession of goods after
having exercised the right of lien or stoppage in transit, resell the goods the buyer gets a
good title there to as against the original buyer.

8) sale under the provisions of other Acts: The following are valid transactions:

a) Sale by finder of lost goods

b) Sale by pawnee or pledgee

c) Sale by an Official Receiver or Assignee in case of insolvency of an individual and

Liquidator of companies.

d) The legal maxim ‘nemo dat quod non habet’ does not apply to negotiable instruments.
PERFORMANCE OF CONTRACT OF SALE

A contract of sale consists of two reciprocal promises:

(i) The seller’s duty to deliver the goods; and

(ii) The buyer’s duty to accept the goods and pay the price.

It may be noted that the delivery of goods and the payment of their price are the concurrent
conditions, i.e., both these conditions should be performed simultaneously.
Delivery of Goods
Section 2 (2) of the Act defines, delivery means “voluntary transfer of possession from
one person to another.”

Modes of Delivery
Delivery of goods may be made in any of the following ways:
a) Actual delivery: Where the goods are physically handed over by the seller to the
buyer, the delivery is said to be actual.
b) Symbolic delivery: Where the goods are bulky and incapable of actual delivery, in such
a case , the control over the goods is transferred by delivery of a symbol.
c) Constructive or Delivery by attornment: Where the goods at the time of sale are in
the possession of a third person, there is no delivery by seller to buyer unless and until
such third person acknowledges to the buyer that he holds the goods on his behalf.
 Rules Regarding Effective Delivery of Goods
1) Delivery and payment are concurrent conditions : The seller shall be ready and
willing to give possession of goods to the buyer in exchange for the price and the buyer
shall be ready and willing to pay the price in exchange for possession of the goods.
2) Delivery may be either actual, symbolic or constructive : The delivery of goods must
have the effect of putting the goods in the possession of buyer or his authorized agent.
3) Effect of part delivery : A delivery of part of the goods, in progress of the delivery of
the whole, has the same effect, of passing the property in such goods, as a delivery of the
whole.
4) Buyer should apply for delivery : Apart from any express contract the seller is not
bound to make delivery until the buyer applies for delivery.
5) Place of delivery : where the place of delivery is stated in the contract the goods must be delivered at the
specified place during the business hours and on a working day.

6) Time for delivery of goods : In a contract of sale , the delivery of goods should be made within a
reasonable time unless a time is fixed in the contract.

7) Effect of goods in possession of a third party : Where the goods at the time of sale are in the
possession of a third person, effective delivery takes place when such person acknowledges to the buyer
that he holds the goods on his behalf. However, if goods are sold by transfer of documents to title, the
consent of third person having possession of the goods is not required.

8) Expenses of delivery : Unless otherwise agreed, the expenses of and incidental to putting the goods into
a deliverable state must be borne by the seller.

9.installment delivery : in the absence of any agreement to the contrary the buyer is not bound to accept
the delivery by installment .
Rights of the Buyer
1.The first right of the buyer is to have delivery of the goods as per contract. He is not bound to take delivery
of the goods where the goods are not in accordance with the contract (Section 37)

2. The buyer has a right to examine the goods which he has not previously examined before he accepts them

3. Unless otherwise agreed the buyer of goods has a right not to accept delivery thereof by instalments.

4. If the goods delivered are defective either in quantity or in quality the buyer has a right to reject the goods.

5. Right against the seller for breach of contract -

i. Suit the seller for non-delivery;

ii. Suit for specific performance;

iii. Suit for breach of warranty;

iv. Repudiation of the contract before due date.

Duties of the buyer
1. To accept the goods and pay for them in exchange of possession.

2.The seller is not bound to deliver the goods to the buyer until the buyer applies for delivery, in the absence
of any contract to the contrary.

3. If the buyer wrongfully refuses to accept delivery, he must pay compensation to the seller.

4. Unless otherwise agreed, the buyer has to take the risk of deterioration of the goods incidental to the
course of transit .

5. It is the duty of the buyer to demand delivery at a reasonable hour .

6. It is his duty to intimate the seller in case he refuses to accept the goods.
Rights of the seller
1.The seller has a right to claim compensation for the loss caused due to buyers neglect or refusal to
take delivery of the goods.

2. If the buyer refuses to pay the price of goods, the seller has a right to sue for the price.

3. The seller has a right to sue for price against contract i.e., where under a contract of sale the price is
payable on a certain day irrespective of delivery and the buyer wrongfully neglects or refuses to pay
such price, the seller may sue him for the price although the property in the goods has not passed and
the goods have not been appropriated to the contract.

4.seller has the right to treat the contract as subsisting .

Duties of the seller
1. It is the duty of the seller to deliver the goods in accordance with the terms of the contract of sale.
2. As delivery and payment are concurrent conditions, the seller shall be ready and willing to give
possession of the goods to the buyer in exchange of the price of the goods.
3. It is the duty of the seller to deliver the goods within a reasonable time.
4. The quality and quantity of the goods should be according to the contract
5. The seller should deliver the goods at the specific place, if the place of delivery is stated in the
contract.
6. The seller should bear the expenses of putting the goods into a deliverable state and also the
incidental expenses, unless otherwise agreed.
7. Give a chance to the buyer to examine the goods for the purpose of ascertaining whether they are in
conformity with the contract.
UNPAID SELLER

According to Sec. 45 of the Sale of Goods Act, the seller of goods is deemed to be an
unpaid seller:

(a) when the whole of the price has not been paid or tendered.

b)a seller who had received the price through a bill of exchange or any other negotiable
instruments , like cheque etc, but which is subsequently dishonoured.
Rights of an Unpaid Seller An unpaid seller has two-fold rights, viz:

I. Right of an Unpaid Seller against the goods; and

II. Rights of an Unpaid Seller against the buyer personally.

Rights of an unpaid seller against the goods
The rights of an unpaid seller against the goods can be discussed under the two heads :

I)When the property in goods has passed from the seller to the buyer.

II)When the property in goods has not passed from the seller to the buyer.
I)When property in goods has transferred from seller to the
buyer
Seller has the following rights against the goods :

1. Right of lien
2. Right of stoppage in transit
3. Right of resale
1.Right of lien
A lien is a right to retain the possession of goods until the payment of price, .this right can
be exercised in the following cases .

● Where the goods have not been sold on credit.

● Where the goods have been sold on credit ,but the time of credit period has expired.
● Where the buyer becomes insolvent.
2. Right of stoppage of goods in transit
The right of stoppage can be. exercised only when the following conditions are satisfied
a) The seller should be an unpaid seller;
b) The buyer must have become insolvent
c) The goods are in transit.
Duration of the transit : the goods are deemed to be transit in the following cases :
● Until the buyer takes delivery of goods.
● Until the buyer rejects the goods.
● Until the carrier holds goods as an independent carrier.
3. Right of resale
● Where the goods are of a perishable nature.
● When the unpaid seller gives notice of his intention to sell
● Where the seller expressly reserves a right of resale in case the buyer makes default.
Right of an unpaid seller against the buyer personally
● Suit for price
● Suit for damages for non -acceptance of delivery.
● Suit for damages for repudiation of the contract.
● Suit for interest or special damages.
Auction sale
An auction sale is a public sale to any person bidding the highest price upon the
terms and conditions previously announced . The auction is made public by
advertising and being open to the public.
The announcers of the auction are called as auctioneers .
The offer price is known as bid.
The person making the bid is known as bidder.
The goods are ultimately sold to the highest bidder.
.
Remedies for breach of contract
Seller remedies

1. Suit for price :when the goods are transferred seller may sue him for the price
.incase if it is not transferred seller can claim damages.
2. Suit for damages for non -acceptance of the goods :
3. Suit for damages for repudiation of the contract.
4. Suit for interest or special damages.
Buyer’s remedies

1. Suit for damages for non-delivery.

2. Suit for specific performance.
3. Suit for breach of warranty.
4. Suit for repudiation of contract before due date.