6

Unit Objectives
Introduction
Learning Outcomes

6.1 Contract of Sale of Goods

6.2 Definitions of Important Terms
6.3 Essential Elements of Sales Contract
6.4 Difference Between Actual Sale and Agreement to Sell
6.5 Concept of Goods and Its Types
6.6 Ascertainment of Price
6.7 Keywords
6.8 Summary

1
BUSINESS LAWS

After Studying this unit, you will be able to:

• Understand the need for the Sale of Goods Act, besides the Contract Act,
1872.
• Discuss the essential elements of a valid Sales Contract.
• Understand the process for the determination of price.
• Differentiate between actual sale and agreement to sell.

INTRODUCTION

The sale of commodities constitutes one of the important types of contracts under
the Indian law. India is one of the largest economies and also a great country
where adequate checks and measures are done to ensure the safety and
prosperity of its business and commerce community. Here we shall explain The
Sale of Goods Act, 1930, which defines and states terms related to the sale of
goods and the exchange of commodities.

Earlier sale of goods rules and regulations were governed by the Indian Contract
Act, 1872.

But since they were inadequate to meet the complexities of the growing
mercantile transactions, the said sections were repealed (cancelled) and the Sale
of Goods Act, 1930 took birth.

Law relating to sale of goods is a branch of contract law as the general principles
of contracts are applicable to contracts for sale of goods such as offer and its
acceptance, capacity parties, free consent, consideration, and legality of the
object.

The content and assessments of this unit have been developed to achieve the
following learning outcomes:

Relate day to day sale contracts in legal scenarios.

2
 THE SALE OF GOODS ACT 1930 (PART I)

6.1 CONTRACT OF SALE OF GOODS

A contract of sale of goods is a contract whereby there is transfer of property of goods for
a price. Thus, when goods are sold, the property in goods is passed from seller to the
buyer and as a result, the seller ceases to be the owner of goods while the buyer becomes
its owner. It must be remembered that the act is only applicable to the sale of movable
goods and not immovable goods.

The term contract of sale is a generic term and it includes:

• An actual sale.
• An agreement to sell.

6.2 DEFINITIONS OF IMPORTANT TERMS

1. Buyer and Seller: As per the Section 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 Section 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 mustbe
defined by the Act. These two terms represent the two parties of a sales contract.

2. Delivery: The delivery of goods signifies the voluntary transfer of possession from
one person to another. The objective or the end result of any such process, which
results in the goods coming into the possession of the buyer is a delivery process. The
delivery could occur even when the goods are transferred to a person other than the
buyer but who is authorized to hold the goods on behalf of the buyer.

There are various forms of delivery and they are as follows:

• Actual Delivery: If the goods are physically given into the possession of the
buyer, the delivery is an actual delivery.

• Constructive Delivery: The transfer of goods can be done even when the
transfer is affected without a change in the possession or custody of the goods.
For example, a case of the delivery by acknowledgment will be a constructive
delivery. If you pick up a parcel on behalf of your friend and agree to hold on to
it for him, it is a constructive delivery.

• Symbolic Delivery: This kind of delivery involves the delivery of a thing in

token of a transfer of some other thing. For example, the key of the godowns
with the goods in it, when handed over to the buyer will constitute a symbolic
delivery.

3. The Document of Title to Goods: We can say that this includes the bill of lading,
dock-warrant, warehouse keeper's certificate, railway receipt, multi modal transport
document, warrant or order for the delivery of goods and any other document used
in the ordinary course of business as proof of the possession or control of goods or

3
BUSINESS LAWS

authorizing or purporting to authorize, either by endorsement or by delivery, the

possessor of the document to transfer or receive goods thereby represented.

4. Mercantile Agent: Mercantile agent is someone who has authority in the customary
course of business, either to sell or consign goods under the contract on behalf of the
one or both of the parties. Examples include auctioneers, brokers, factors etc.

5. Property: Under the Act, property means 'ownership' or the general property i.e. all
ownership right of the goods. A sale constitutes the transfer of ownership of goods by
the seller to the buyer or an agreement of the same.

6. Insolvent: The Act defines an insolvent person as someone who ceases to pay his
debts in the ordinary course of business or cannot pay his debts as they become due,
whether he has committed an act of insolvency or not.

7. Price: In the Act, price is defined as the money consideration for a sale of goods.

8. Quality of Goods: In Section 2(12) of the Act, the quality of goods is referred to as
their state or condition.

6.3 ESSENTIAL ELEMENTS OF SALES CONTRACT

From the Sale of Goods Act, 1930, we see that certain elements must co-exist for a
contract of sale to be constituted, which are as follows:

1. Two Parties: The contract of sale is essentially between two parties; the seller and the
buyer, as a person cannot buy his own goods. However, a part owner may sell his
share to other part-owner as a partner can always sell to the other partners.

2. Transfer of property: The term 'property' here means ownership. There must be
transfer of property or ownership from the seller to the buyer. Mere transfer of
possession of goods from one person to another without transferring the ownership
is not a sale. Same is the case with the bailment.

3. Goods: Goods means every kind of movable property other than actionable claims
and money. It 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.

Money means currency money in circulation in the country. Obviously, money

cannot be bought or sold, but the old and rare coins not in present circulation can be
termed as goods. Sale and purchase of immovable property is governed by the
provisions of Transfer of Property Act, 1882.

4. Price: The consideration in a contract of sale of goods must be money consideration,

which is called 'price'. So, in order to be a sale, goods must be sold or bought for
money consideration only.

If the goods are exchanged for goods, then it is a barter system and not a contract to
sale. But if goods are sold partly for money and partly in goods, then it is valid.

4
 THE SALE OF GOODS ACT 1930 (PART I)

Example: If X sells a table to Y in return of two chairs, it is a General contract, but not
contract of sale of goods. But if X sells his table to Y for Rs 500/- (or for one chair and Rs
250/-) it is a contract of sale of goods.

5. Includes Sale and Agreement to Sell: Sale implies immediate transfer of ownership
from seller to buyer whereas agreement to sell implies such transfer at some time in
future or subject to fulfillment of some condition.

6. Provisions and Essential Elements of a Contract: The sale of goods act does not lay
down any special formalities to be followed, but it is kind of a general contract and so
all essential elements of contract such as competence of parties, free consent,
consideration, etc. must be present in a contract of sale of goods also. Further, a
contract of sale may be oral or written. It may even be implied from the conduct of the
parties.

5
BUSINESS LAWS

DIFFERENCE BETWEEN ACTUAL SALE AND

6.4 AGREEMENT TO SELL

Actual Sale is a contract of sale, where there is an immediate transfer of property

(ownership) between the seller and the buyer. The contract is completed and executed,
where the responsibility of the seller and the buyer is discharged at the instant of the
contract.

While Agreement to sell is an executory contract in nature and future oriented. The
transfer of property shall transfer in future at the determined future date. It is an
agreement to sell between the seller and the buyer, where either or both the parties are
required to discharge their duties to the contract. The difference between the two
concepts can be clarified further as under:

Actual Sale Agreement to Sell

In agreement to sell, it is executory.
Nature of In actual sale, the contract is
Both parties are yet to perform
Contract executed.
their mutual promises.
In agreement to sell, only contract
Transfer of In actual sale, instant transfer
to sell and conveyance takes place
Ownership [Contract + Conveyance]
later.
In actual sale, ‘just in rem’ In agreement to sell, ‘jus in
Creation of Right means a right on the goods personam’ means a right against a
against the whole world. particular person only.
Type of Goods or
Nature of In actual sale, existing and In agreement to sell, mostly future
Property specific goods. and contingent goods.
Transferred
In actual sale, if a buyer fails to
pay the price or buy, the seller In agreement to sell, if there is a
Consequences of
can sue for the price, even breach of contract by the buyer,
Breach
though the goods are in his the seller can sue for damages only.
possession.
Risk of Loss
[General rule,
unless otherwise
arranged and In agreement to sell, the seller
In actual sale, the loss falls on
agreed, the risk of continues to be the owner of the
the buyer even if the goods
loss or damage to goods, so if destroyed the loss is on
have not reached him.
goods is always the seller.
with the owner of
goods]

6
 THE SALE OF GOODS ACT 1930 (PART I)

In actual sale, the seller cannot

resell because he is no longer In agreement to sell, the seller can
the owner of the goods, but the lawfully resell the goods and the
Right of Resale
first buyer can sue the second original buyer can only sue for the
buyer and recover from the damages of breach.
new buyer.
In actual sale, the seller has the
In agreement to sell, the seller has
Remedies in Case right to sue for the price of
the right only to sue for damages
of Breach of goods and also has the right of
for non-performance of the
Contract lien, stoppage in transit and
contract.
resale.

In actual sale, the seller has to

deliver the goods to the Official
Insolvency of
Receiver (appointed for the In agreement to sell, the seller may
Buyer Before He
property of buyer) and is refuse to deliver the goods unless
Pays for the
treated as other creditors and the price is paid.
Goods
can charge rateable dividend
for the price of goods.

In agreement to sell, if the buyer

Insolvency of
In sale, the buyer has the right has already paid without receiving
Seller if the
to recover, since he is the the goods, he can only claim for a
Buyer Has
owner. rateable dividend and not goods,
Already Paid
since he is not the owner.

7
BUSINESS LAWS

6.5 CONCEPT OF GOODS AND ITS TYPES

“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 the contract of sale will be considered
goods”
As we discussed, shares and stocks are also defined as goods by the Act. The term
actionable claims mean those claims which are eligible to be enforced or initiated by a suit
or legal action. This means that those claims where an action such as recovery by auction,
suit, refunds etc. could be initiated to recover or realize the claim.
Example: We cannot buy Rs. 1000, but can buy something by Rs. 1000.
• Money currently in circulation is not included in the term goods, but rare and old
coins are treated as goods.
• It must also be remembered that only things which are owned and possessed can
be the subject matter of a contract of sale.

Example: Animals in a jungle, birds flying in the sky, fishes in a sea or in a river, etc.
cannot be termed as goods. But goods can be as fishes to be caught in the net, fruits
growing on the tree in the upcoming season.
We say that goods are in a deliverable state when their condition is such that the buyer
would, under the contract, be bound to take delivery of these goods. Goods may be
further understood in the following subtypes:

8
 THE SALE OF GOODS ACT 1930 (PART I)

1. Existing Goods: The goods that are referred to in the contract of sale are termed as
existing goods if they are present (in existence) at the time of the contract. The
existing goods are those goods which are in the legal possession or are owned by the
seller at the time of the formulation of the contract of sale. The existing goods are
further of the following types:
A) Specific Goods: These are those goods that are “identified and agreed upon”
when the contract of sale is formed. For example, you want to sell your mobile
phone online. You put an advertisement with its picture and information. A
buyer agrees to the sale and a contract is formed. The mobile, in this case, is
specific good.
B) Ascertained Goods: This term is used for specific goods which have been
selected from a larger set of goods. For example, you have 500 apples. Out of
these 500 apples, you decide to sell 200 apples. To sell these 200 apples, you will
need to separate them from the 500 (larger set). Thus, you specify 200 apples
from a larger group of unspecified apples. These 200 apples are now the
ascertained goods.
C) Unascertained Goods: These are the goods that have not been specifically
identified but have rather been left to be selected from a larger group. For
example, from your 500 apples, you decide to sell 200 apples, but you do not
specify which ones you want to sell. The seller will have the liberty to choose any
200 apples from the lot. These are thus the unascertained goods.
2. Future Goods: Future goods have been defined as the goods that will either be
manufactured or produced or acquired by the seller at the time the contract of sale
is made. The contract for the sale of future goods will never have the actual sale in
it, it will always be an agreement to sell.
Example: You have an apple farm with apples in it. You agree to sell 1000 apples to a
buyer after the apples ripe. This is a sale that has to occur in the future, but the goods
have been identified already and the agreement made. Such goods are known as
future goods.
3. Contingent Goods: Contingent goods are actually a subtype of future goods in the
sense that in contingent goods the actual sale is to be done in the future. These
goods are part of a sale contract that has some contingency clause in it. For
example, if you sell your apples from your orchard (farm) when the trees are yet to
produce apples, the apples are a contingent good. This sale is dependent on the
condition that the trees are able to produce apples, which may not happen.

9
BUSINESS LAWS

6.6 ASCERTAINMENT OF PRICE

Ascertainment of Price is critical while formulating a contract. It is a very crucial step in a

transaction and can sometimes even determine the nature of the contract. But what does
the law say about the price? How is the price defined in The Sale of Goods Act, 1930? Let us
find out below!
The Sale of Goods Act, 1930 has two sections which discuss the ascertainment of a price.
Ascertainment of price means to specify without ambiguity the price of a commodity.
The Act has two sections that discuss this – Section 9 and 10. Let us see each of these
separately and try to understand what provisions exist herein.

PRICE OF A CONTRACT (SECTION 9)

Section 9 of the Act states, the price in a contract of sale may be fixed by the contract, or it
may be left to be fixed in a manner thereby agreed or it can be determined by the course of
dealing between the parties to the contract.
Where the price is not determined in accordance with the said provisions, the buyer shall
pay the seller a reasonable price. Reasonable price will depend on individual case or
circumstance.
If you look at the first part, the term price has to be defined. Section 2(10) of the Act
defines price as the monetary consideration or value decided for the sale of goods. Thus,
we see that for a price to come into existence, a sale has to come into existence.
Also, from the Section 9(1), we can see that the price in the contract of sale may be
determined or stated by:
i. The contract, i.e. the price is explicitly mentioned or decided within the contract
of sale itself; or
ii. The contract has some clause(s) that has or defines the authority that will
eventually ascertain the price. For example, the contract asks for a valuer to be
appointed for the purpose of the ascertainment of price; or
iii. The price may also be determined by the course of dealings. For example, if the
two parties have a long history of dealing with each other, then the price if not
specified clearly can be ascertained from the previous history of dealings and
prices. Clearly, this portion of the section is only applicable if the parties have a
tradition or history of similar deals.
Similarly, Section 9(2) says that if the price is not determined through either of the
methods discussed in Section 9(1) then the buyer will have to pay the seller a reasonable
price. This price will be decided in accordance with the market value.

10
 THE SALE OF GOODS ACT 1930 (PART I)

Example: If the Government of your State has been purchasing its electricity from a
neighbouring state at a given price. If they enter into a new contract, then the price will
either be:
i. Explicitly mentioned in the contract; or
ii. Fixed by the two parties after due consideration with each other; or
iii. the price will be the same as was traditionally accepted by the two parties.

AGREEMENT TO SELL AT VALUATION (SECTION 10)

Section 9 of the Act discussed what we can call the direct modes of ascertaining the price.
However, there are other modes of price determination that we will define in the Section
10. Let us state the section and then we will move on to the explanation and analysis.
• “Where there is an agreement to sell goods on the terms that the price is to be fixed
by the valuation of a third party and such third party cannot or does not make
such valuation, the agreement is thereby avoided; PROVIDED that, if the goods
or any part thereof have been delivered to and appropriated by, the buyer, he
shall pay a reasonable price, therefore.”

• “Where such third party is prevented from making the valuation by the fault of
the seller or buyer, the party not in fault may maintain a suit for damages against
the party in fault.”
The method of determination or mode of ascertaining the price here is by a third party.
This comes into effect when both the parties have decided to the clause that the price will
be decided by the third party. However, in case the third party is not capable or refuses to
make a proper valuation of the goods to be purchased, then the agreement will be void.
In some cases, the third party may be obstructed by the default of one of the parties. In
such case, the party at fault will be responsible to pay proper compensation in terms of
damages to the other party, provided that the other party is not at fault. Once the goods
have been appropriated and received, the buyer is liable to pay the price thereof.

11
BUSINESS LAWS

6.7 KEYWORDS

• Ascertainment Of Price: Ascertainment of price means to specify without ambiguity the

price of a commodity.

• Constructive Delivery: The transfer of goods can be done even when the transfer is
effected without a change in the possession or custody of the goods

• Actual Sales: means the aggregate cost to QVC of all Products sold and shipped by
QVC in the United States and not returned, during the one year period immediately
preceding the Commencement Date.

6.8 SUMMARY

• Law relating to sale of goods is a branch of Contract law as the general principles
of contracts are applicable to contracts for sale of goods such as offer and its
acceptance, capacity parties, free consent, consideration and legality of the object.
• A contract of sale of goods is a contract whereby there is transfer of property of
goods for a price. Thus, when goods are sold, the property in goods is passed
from seller to the buyer and as a result, the seller ceases to be owner of goods
while the buyer becomes its owner.
• The term 'property' here means the ownership. There must be transfer of
property or ownership from the seller to the buyer. Mere transfer of possession of
goods from one person to another without transferring the ownership is not a
sale.
• 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
the contract of sale.
• The consideration in a contract of sale of goods must be money consideration
which is called 'price'. So in order to be a sale, goods must be sold or bought for
money consideration only.
• Actual Sale is a contract of sale, where there is an immediate transfer of property
(ownership) between the seller and the buyer. The contract is completed and
executed, where the responsibility of the seller and the buyer is discharged at the
instant of the contract.

12
 THE SALE OF GOODS ACT 1930 (PART I)
• While Agreement to sell is an executory contract in nature and future oriented.
The transfer of property shall transfer in future at the determined future date. It is
an agreement to sell between the seller and the buyer, where either or both the
parties are required to discharge their duties to the contract
• The price in a contract of sale may be fixed by the contract, or it may be left to be
fixed in manner thereby agreed or it can be determined by the course of dealing
between the parties to the contract.

13