Sale of Goods Act,1930

Course content
1.Formulations of contracts of sale
2.Goods and their classifications
3.Price
4.Conditions and warranties
5.Transfer of property in goods
6.Performance of the contract of sales
7. Unpaid seller and his rights
8.Sale by auctions
9.Hire purchase agreements

Formulations of contracts of sale

Definition of Sale

Section 4 of the Sales of Goods Act, 1930 defines a sale of

goods as a “contract of sale whereby the seller transfers or
agrees to transfer the property in goods to the buyer for a
price”. A contract of sale is made by an offer to buy or sell goods for a
price and the acceptance of such offer by the other party. The contract
may be oral or in writing. A contract of sale may be absolute or
conditional.

The term ‘contract of sale’ includes both a sale and an agreement to

sell.

Where under a contract sale of property in the goods is transferred from

the seller to the buyer, the contract is called Sale.
Where the transfer of property in the goods is to take place at a future
time or subject to some conditions to be fulfilled, the contract is called
agreement to sell.

Delivery- transfer of possession of goods from one party to another as

per the terms of contact of sale of goods. Goods are said to be in a
deliverable state when they are in such a conditions that the buyer
would, under the contract, be bound to take the delivery of the goods.

Essentials of a Contract of sale

1) Two parties, the buyer and the seller. The contract of sale is made by
an offer to buy or sell goods for a price by a party and acceptance by
the other party.

2) Subject matter of contract must be goods only.

3) Object of the contract of sale must be transfer of property in goods.

Property means ownership. In the contact of sale of goods, the
ownership of goods is transferred from the seller to the buyer.

4) Consideration for sale of goods must be price expressed in monetary

terms or it can be a combination of partly in money and partly in
another “goods”.

5) A contracts of sale may be in writing or verbal or a combination.

6) Contract of sale includes actual sale as well as agreement to sale.

7) A contract of sale can be absolute or conditional.

8) All the essential elements of a valid contract must be present in the

contract of sale.

1) Two parties: A sale has to be bilateral because the goods have to

pass from one person to another. There must be a buyer – a person
who buys or agrees to buy the goods and a seller – a person who sells
or agrees to sell goods. The seller and the buyer must be different
persons.
A part owner can sell to another part owner. A partner may, therefore,
sell to his firm or a firm may sell to a partner. But if joint owners
distribute property among themselves as per mutual agreement, it is not
‘sale’. A person cannot be the seller of his own goods as well as the
buyers of them.

However, when a bankrupt person’s goods are sold under an execution

of decree, the person may buy back his own goods from his trustee.

2) Subject matter to be goods: 

Goods-Means every kind of movable property other than actionable

claims and money; and includes stock and share, growing crops, grass
and things attached to or forming part of the land which are agreed to
be severed before the sale or under the contract of sale.

Money cannot be sold because money means legal tender and not the
old coins which can be sold and purchased as goods.

Actionable claims are things that a person cannot make use of, but
which can be claimed by him by means of legal action such as a debt.
lottery tickets are goods and not actionable claims they fall in the
category of goods.

Sale of immovable property is not covered under this Act. As

per Section 3 of the Transfer of Property Act, 1882, ‘immovable
property’ does not include standing timber, growing crops or grass. They
are considered movable property and thus goods. Standing timber is
taken as movable property while trees are immovable property.

Things like goodwill, copyright, trademark, patents, water, gas,

electricity are all goods. Electricity (can be transmitted, transferred,
delivered, stored, possessed) are considered as movable property. The
electric energy like any other movable object can be purchased and
sold. Sugarcane supplied to a sugar factory is goods within the meaning
of Section 2(7) of the Act
3) Transfer of ownership of Goods: There must be transfer of
ownership or an agreement to transfer the ownership of goods from the
seller to the buyer – not the transfer of mere possession or limited
interest as in the case of pledge, lease or hire purchase agreement). If
goods remain in possession of seller after sale transaction is over, the
‘possession’ is with seller, but ‘ownership’ is with buyer. The Act uses
the term ‘general property’ implying that sale involves total ownership
and not a specific right limited by conditions.

Delivery of goods refers to a voluntary transfer of possession of goods

from one person to another. A contract may provide for the immediate
delivery of the goods or immediate payment of the price or both.
Alternatively, the delivery or payment may be made by instalments or be
postponed.

4) Consideration is Price: The consideration in a contract of sale has

to be price i.e., money. If goods are offered as the consideration for
goods, it will not amount to sale. It will be barter. If there is no
consideration, it will be called gift. But where the goods are sold for
definite sum and the price is paid partly in kind and partly in cash, the
transaction is a sale.

Consideration is an essential for a valid contract as per the Indian

Contract Act, 1872. It is the duty of a buyer who has received and
appropriated the goods to pay a reasonable price. According to Section
2(10)  ‘price’ means the money consideration for the sale of goods. If the
price is not fixed, the contract is void ab initio.

5) Essential elements of a valid contract:  All the essentials of a

valid contract must be present. viz., competent parties, free consent,
legal object and so on. The transfer of possession and ownership under
the Act has to be voluntary and not be tainted with fraud or duress.

Time:  Any stipulation with respect to time is not deemed to be of

essence to a contract of sale unless a different intention appears from
the terms of the contract.
Formalities of a contract of sale: 

Section 5  of the Act specifically provides for the following three steps or
formalities in a contract of sale:

1) Offer and Acceptance: A contract of sale is made by an offer to buy

or sell the goods for a price and acceptance of such offer.

2) Delivery and Payment: It is not necessary that the payment for the
goods to the seller and delivery of goods to the buyer must be
simultaneous. They can be made at different times or in instalments –
as per the contract.

3) Express or Implied:  The contract can be in writing, oral or implied. It

can also be partly oral and partly written.

Examples of contract of sale -

1.A goes to a shop and buys a fridge against payment of Rs 12000/-.

The shopkeeper makes the document for transfer of ownership to A and
promises to deliver the fridge to A’s residence next day.

2.A goes to a shop to buys a fridge and finds an offer of exchange for
the old fridge. The fridge at A’s residence was valued at Rs 4000/-. As
per the exchange offer A paid Rs 8000/- and got a new fridge whose
price was Rs 12000/-.

3. A goes to a shop to buys a fridge and finds an offer for payment in

instalments without any down payment. A paid the first instalment and
the fridge was delivered to A’s residence next day.
4.A booked a residential flat from a promoter which stipulates that 50%
of the price to be paid upfront and balance 50% before taking the
possession of the flat.

SALE & AGREEMENT TO SELL

A contract of sale is a generic term and includes both an actual sale and
an agreement to sell. Section 4 provides that if the property in goods is
transferred from the seller to the buyer under a contract, the contract is
called a sale.

Where the transfer of the property in the goods will take place at a
future time or is subject to some condition which has to be fulfilled, the
contract is called an agreement to sell. Such an agreement to sell
becomes a sale when the prescribed time lapses or the conditions are
fulfilled.

Sale Agreement to sell

Nature of It is an executed contract It is an executory contract

contract

Sale Agreement to sell

Transfer of The property in the goods
property sold passes to the buyer at
the time of contract. It passes
immediately.
Nature of It creates a right in rem – a
rights right to enjoy the goods
against the whole world
including the seller.
Right to resell Seller cannot resell the goods
even if he is in possession of
the goods
The property passes when it
becomes sale on the expiry of
prescribed time or the fulfilment of
certain conditions. It takes place at a
future time or subject to fulfilment
of conditions.
It creates a right in personam– right
against the seller.
Seller can resell since the ownership
is with him. But it will be a breach of
contract.
Transfer of The transfer of risk takes There is no transfer of risk of loss of
risk place immediately. It is goods as ownership is not
related to ownership and transferred. The loss will be borne
when ownership is by the seller even though the goods
transferred, the risk also are in possession of the buyer.
passes to the person. If there
is loss of goods, it will fall on
the buyer even though the
goods maybe in the
possession of the seller.
Right of seller Since the property has passed The seller can only sue for damages,
in case of to the buyer, the seller can unless the price was payable at a
breach sue the buyer for price of the particular date.
goods.

Right of buyer He can sue the seller for He can sue the seller for damages
in case of damages. He can also sue the only.
breach third party who bought those
goods for the goods.

Insolvency of He can claim the goods from He cannot claim the goods but only
seller in the Official assignee or a rateable dividend for the money
possession of Receiver. paid.
goods
Insolvency of The seller has to deliver the The seller can refuse to deliver the
buyer before goods to the Official assignee goods to the Official Assignee or
paying the except where he has a lien Receiver.
price over the property.

Goods and their classifications

Goods can be classified as under

(a) Existing Goods-Goods which are in existence, owned by the seller

and in possession of the seller.

 Specific goods- which are identified and agreed upon at the time
of contract of sale is made. Example- in case of sale of one horse
out of 25 horses, goods will be considered as specified if one
horse is selected before the contract of sale is made
  Ascertain Goods-Ascertain goods are identified after the contract
of sale is made. Example- if 25 chairs are to be procured for an
office out of a lot of 100 chairs of same design and quality, goods
are said to be ascertained when 25 particular chairs are selected
after the contract of sale is made.

 Unascertained Goods – till such time 25 chairs are selected, in the

above example, goods are said to be unascertained.

(b) Future Goods-Goods not in possession of the seller at the time of

making contract but which will be manufactured, produced or acquired
by the seller after the contract of sale is made. Example- A agrees to
buy from B all the mangoes which will be produced in the garden of B
next year.

(c) Contingent Goods -goods which will be acquired by the seller

depending upon the contingency which may or may not happen.

Price/considerations

Section 9  lays down how the price may be fixed in a contract of sale:

1. a) It can be fixed by the contract itself (price expressly stated in

the contract) or

2. b) It can be fixed in a manner provided by the contract, such as

appointment of a valuer; or

3. c) It can be determined by the course of dealings between the

parties; or

4. d) If the price is not capable of being fixed in any of the ways

mentioned ways, the buyer is bound to pay reasonable price. What
is a reasonable price is a question of fact dependent on the
circumstances of each particular case. It is not necessary that
reasonable price should be equal to the market price.
Section 10  makes it clear that if the third party appointed under the
agreement to fix the price cannot or does not make such valuation, then
the agreement to sell goods will become void. If the third party is
prevented in his valuation due to the buyer or the seller, the party not at
fault can file a suit for damages against the party in fault.

Terms of payment- time frame for payments, initial payment, progress

payment, payment on delivery, etc.

Earnest money and security deposit/bank guarantee for performance

Mode of payment- cheque, Draft, Letter of credit, RTGS, cash, etc.

Sale distinguished from other transactions

1. Sale and Hire purchase arrangement
2. Sale and bailment
3. Sale and gift
4. Sale and work contract
5. Sale and Mortgage
6. Sale and barter

SALE & HIRE PURCHASE AGREEMENT

A Hire purchase agreement is an agreement for hire of goods where the
person who hires the goods has an option to purchase the goods at the
end. The possession of the goods is delivered to such a hirer and he has
to pay via instalments. The property in the goods passes to the hirer on
the payment of the last instalments. The Hire purchase agreements are
treated as bailment and the parties have the same rights as a bailor and
bailee. The hirer has a right to terminate the agreement at any time
before the property passes.

Basis of
Contract of Sale Hire Purchase Agreement
distinction
A contract of sale is governed They are governed by Hire
Law
by the Sale of Goods Act, 1930. Purchase Act, 1972
 It is an agreement to hire and an
Nature of It may be written, oral or
agreement to sell. It has to be in
contract implied.
writing.
Possession may or may not be
Possession Possession passes immediately
transferred immediately.

It transferred only when the

Transfer of The ownership of goods is
option to purchase is exercised
ownership transferred immediately.
and the last payment is made.

The hirer is a bailee, and not the

The buyer becomes the full owner until he pays all the
Buyer
owner of the goods instalments of the price in full or
exercises the option to purchase.

Basis of
Contract of Sale Hire Purchase Agreement
distinction
The buyer can transfer a good
The hirer cannot transfer a good
Transfer to third title to third parties because
title to a third party as ownership
parties ownership of goods has been
has not been transferred.
transferred.

The seller can sue for price but The hire vendor has a right to
Right to
he cannot repossess the goods. repossess the goods if the hirer
repossess
defaults in the payments.

In a sale, there is no option to The hirer can terminate the

Right to
the buyer to return the goods agreement before the ownership
terminate
bought. is transferred.

In case of sale of taxable Even if taxable goods are hired,

Sales Tax
goods, sales tax is levied. sales tax is not levied.

SALE OF GOODS & WORK AND LABOUR

 
A contract of sale of goods is one in which some goods are sold or are
to be sold for a price. It requires the delivery of goods. But there are
transactions where there is a contract of exercise of skill and labour, and
the delivery of goods is subsidiary. These are the contracts for work or
labour or the contracts for service. It is the intention of the parties that
creates the difference – whether only delivery of goods is intended or
exercise of skill and labour with regard to the goods has to be delivered.
Example: A commissions B to paint his portrait and supplies him with
the material to paint. It is a contract for work and labour and not a
contract of sale because the substance of the contract is the artist’s skill
and not the delivery of the material.
Example: A bought a portrait painted by B, a famous artist. It is a
contract of sale and not a contract for work and labour because the
substance of the work is the delivery of the portrait.
Where gold is given to a goldsmith for preparing ornament, it is a
contract of work and labour. When a photographer takes a photograph,
develops the negative and does other photographic work and then
supplies the prints to his client, the contract is one of skill and labour
and not that of sale of goods.
Sale and Barter: A sale is always for a price but in case of barter, the
transfer of ownership of goods is in return for other goods – there is not
price paid.

Conditions and warranties

Contract for sale of goods contains many conditions such as
 Nature and quality of goods
 Delivery period, mode of delivery,
 Price, terms and mode of payment
 Guarantee/warranty for the goods
 Stipulated performance

A condition is a stipulated essential to the main purpose of the

contract, breach of which gives rise to a right to treat the contract as
repudiated.

A warranty is a stipulation collateral to the main purpose of the

contract, the breach of which gives rise to only claim for the
damages/defects, but does not give rights to reject the goods and treat
the contract as repudiated.

Conditions Warranty
Essential to the main purpose of Collateral to the main purpose of
the contract
Breach of conditions gives right to
the buyer to repudiate the
contract.
Under certain circumstances
conditions can be treated as
warranty
the contract.
Breach of warranty entitles the
aggrieved party to claim for the
damages.
Warranty can never be treated as
condition