Chanderprabhu Jain College of Higher Studies

&
School of Law
An ISO 9001:2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University & Bar Council of India)

E-Notes
Class : BBA (G) Semester-III

Paper Code : BBA (G)-201

Subject : Business Law

Faculty Name : Ms. Akansha Singh

UNIT- II

SALE OF GOODS ACT 1930

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 Section 4 of the Sales of Goods Act, 1930
defines a sale of goods as a contract of sale where by the seller transfers or agrees to
transfer the property in goods to the buyer for price. The term contract of sale
‘includes both a sale and an agreement to sell’.

Essential Elements of Contract of Sale

1. Seller and Buyer
There must be a seller as well as a buyer. ‘Buyer means a person who buys or
agrees to buy goods [Section 29{10}]. ‘Seller means a person who sells or agrees to
sell goods [Section 29(13)].

2. Goods
There must be some Goods , means every kind of movable property other than
actionable claims and money includes stock and shares, growing crops, grass and

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 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001:2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University & Bar Council of India)

things attached to or forming part of the land which are agreed to be severed before
sale or under the contract of sale[Section 2(7)]
3. Transfer of Property
Property means the general property in goods, and not merely a special property
[Section 2(11)].General property in goods means ownership of the goods. Special
property in goods means possession of goods. Thus, there must be either a transfer
of ownership of goods or an agreement to transfer the ownership of goods. The
ownership may transfer either immediately on completion of sale or sometime in
future in agreement to sell.

4. Price

There must be a price. Price here means the money consideration for a sale of
goods [Section 2(10)].When the consideration is only goods, it amounts to a
‘barter’ and not sale. When there is no consideration, it amounts to gift and not
sale.

5. Essential Elements of a Valid Contract

In addition to the aforesaid specific essential elements, all the essential elements of
a valid contract as specified under Section 10 of Indian Contract Act, 1872 must
also be present since a contract of sale is a special type of a contract.

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 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001:2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University & Bar Council of India)

Meaning of Goods

In Section 61, good includes all personal chattels but excludes all the services or
chooses in action or money. Products of the soil are generally sold with a view to
severance and though they may sometimes be of the nature of land for the purpose
of the Law of Property (Miscellaneous Provisions) Act 1989, they are usually
goods within the meaning of the Act of 1979. Nor would crops sold with the land
on which they are growing because they are not in such a case to be ‘severed
before sale or under the contract of sale’ as section 61 requires. Goods may be:

Existing goods: goods actually in existence when the contract is made. They may
be either specific or unascertained in the sense that they have yet to be
appropriated to the contract (section 5(1)).

Future goods, goods yet to be acquired or manufactured or grown by the seller

(section 5(1)) as in Sainsbury V Street. Where the seller agreed to dell to the
buyers a crop of some 275 tons of barley to be grown by him on his farm.

Specific goods, goods identified and agreed upon at the time the contract of sale is
made (section 61(1)). The sale of a raincoat at a market stall.

Conditions and Warranties

A stipulation in a contract of sale with reference to goods which are the subject
thereof may be a condition or a warranty. [Section 12(1)]. 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. [Section 12(2)]. A warranty is a

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 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001:2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University & Bar Council of India)
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 treat the
contract as repudiated. [Section 12(3)]. Whether a stipulation in a contract of sale
is a condition or a warranty depends in each case on the construction of the
contract. A stipulation may be a condition, though called a warranty in the
contract. [Section 12(4)].

I) Condition as to Title -- In every contract of sale, unless the circumstances of

the contract are such as to show a different intention, there is an implied condition
on the part of the seller, that :

a. In case of a sale, he has a right to sell the goods, and

b. In case of an agreement to sell, he will have a right to sell the goods at the time
when the property is to pass.
The words 'right to sell' contemplate not only that the seller has the title to
what he purports to sell, but also that the seller has the right to pass the
property. If the seller's title turns out to be defective, the buyer may reject the
goods.

II) Condition as to Description -- In a contract of sale by description, there is an

implied condition that the goods shall correspond with the description. The term '
sale by description' includes the following situation;

a. Where the buyer has not seen the goods and buys them relying on the
description given by the seller.

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 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001:2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University & Bar Council of India)
b. Where the buyer has seen the goods but he relies not on what he has seen but
what was stated to him and the deviation of the goods from the description is
not apparent.

c. Packing of goods may sometimes be a part of the description. Where the

goods do not conform to be method of packing described (by the buyer or
the seller) in the contract, the buyer can reject the goods.

III) Condition as to Quality or Fitness -- Where the buyer, expressly or by

implication, makes known the seller the particular purpose for which goods are
required, so as to show that the buyer relies on the seller's skill or judgment and the
goods are of a description which it is in the course of the seller's business to supply
(whether or not as the manufacturer of producer), there is an implied condition that
the goods shall be reasonably fit for such purpose. In other words, this condition of
fitness shall apply, if:

a. The buyer makes known to the seller the particular purpose for which the
goods are required,

b. The buyer relies on the seller's skill or judgment,

c. The goods are of a description which he sellers ordinarily supplies in the

course of his business, and

d. The goods supplied are not reasonably fit for the buyer's purpose.

IV) Condition as to Merchantability -- Where the goods are bought by

description from a seller, who deals in goods of that description (whether or not as
the manufacturer or producer) there is an implied condition that the goods shall be
of merchantable quality.

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 Chanderprabhu Jain College of Higher Studies
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School of Law
An ISO 9001:2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University & Bar Council of India)
Merchantable quality ordinarily means that the goods should be such as would be
commercially saleable under the description by which they are known in the
market at their full value.

V) Condition as to Wholesomeness -- In case of sale of eatable provisions and

foodstuff, there is another implied condition that the goods shall be wholesome.
Thus, the provisions or foodstuff must not only correspond to their description, but
must also be merchantable and wholesome. By 'wholesomeness' it means that
goods must be for human consumption.

VI) Condition Implied by Custom or Trade Usage: An implied warranty or

condition as to quality or fitness for a particular purpose may be annexed by the
usage of trade. In certain sale contracts, the purpose for which the goods are
purchased may be implied from the conduct of the parties or from the nature or
description of the goods. In such cases, the parties enter into the contract with
reference to those known usage. For instance, if a person buys a perambulator or a
medicine the purpose for which it is purchased is implied from the thing itself; the
buyer need not disclose the purpose to the seller.

VII) Conditions in a Sale by Sample: A contract of sale is a contract for sale by

sample where there is a term in the contract, express or implied to that effect.
Usually, a sale by sample is implied when a sample is shown and the parties intend
that the goods should be of his kind and quality as the sample is.

VIII) Conditions in a Sale by Sample as well as by Description: A vast majority

of cases where samples are shown, are sales by sample as well as by description. In

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 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001:2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University & Bar Council of India)
a contract for sale by sample as well as by description, the goods supplied must
correspond both with the sample as well as with the description.

Implied Warranties

A condition becomes a warranty when -

a) The buyer waives the conditions or opts to treat the breach of the condition as a
breach of warranty; or

b) The buyer accepts the goods or a part thereof, or is not in a position to reject the
goods.

i. Implied Warranty of Quiet Possession -- In every contract of sale, unless

there is a contrary intention, there is implied warranties that the buyer's shall
have and enjoy quiet possession of the goods. If the buyer's right to
possession and enjoyment of the goods is in any way disturbed as
consequences of the seller's defective title, the buyer may sue the seller for
damages for breach of this warranty.

ii. Implied Warranty of Freedom from Encumbrances -- The buyer is

entitled to a further warranty that the goods shall be free from any charge or
encumbrance in favor of any third party not declared or known to buyer
before or at the time when the contract is made. If the buyer is required to
discharge the amount of the encumbrance it shall be a breach of this
warranty and the buyer shall be entitled to damages for the same.

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 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001:2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University & Bar Council of India)

Transfer of Property in Goods

The property in the goods is said, to be transferred from the seller to the buyer
when the latter acquires the proprietary rights over the goods and the obligations
linked thereto. 'Property in Goods' which means the ownership of goods, is
different from ' possession of goods' which means the physical custody or control
of the goods.

The transfer of property in the goods from the seller to the buyer is the essence of a
contract of sale. Therefore the moment when the property in goods passes from the
seller to the buyer is significant for following reasons:

a. Ownership -- The moment the property in goods passes, the seller ceases to
be their owner and the buyer acquires the ownership. The buyer can exercise
the proprietary rights over the goods. For example, the buyer may sue the
seller for non-delivery of the goods or when the seller has resold the goods,
etc.

b. Risk follows ownership -- The general rule is that the risk follows the
ownership, irrespective of whether the delivery has been made or not. If the
goods are damaged or destroyed, the loss shall be borne by the person who
was the owner of the goods at the time of damage or destruction. Thus the
risk of loss prima facie is in the person in whom the property is.

c. Action Against Third parties -- When the goods are in any way damaged
or destroyed by the action of third parties, it is only the owner of the goods
who can take action against them.

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 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001:2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University & Bar Council of India)
d. Suit for Price - The seller can sue the buyer for the price, unless otherwise
agreed, only after the goods have become the property of the buyer.

e. Insolvency - In the event of insolvency of either the seller or the buyer, the
question whether the goods can be taken over by the Official Receiver or
Assignee, will depend on whether the property in goods is with the party
who has become insolvent.

Essentials for Transfer of Property -- The two essentials requirements for

transfer of property in the goods are:

Goods must be ascertained: Unless the goods are ascertained, they (or the
property therein) cannot pass from the seller to the buyer. Thus, where there
is a contract for the sale of unascertained goods, no property in the goods is
transferred to the buyer unless and until the goods are ascertained.

Intention to PASS Property in Goods must be there: In a sale of specific or

ascertained goods the property in them is transferred to the buyer at such time as
the parties to the contract intend it to be regard shall be had to the terms of the
contract, the conduct of the parties and the circumstances of the case.

Unpaid seller and his rights

Meaning of an Unpaid Seller [Sec 45(1) (2)]

The seller of goods is deemed to be an ‘unpaid seller’-

When the whole of the price has not been paid or tendered

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 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001:2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University & Bar Council of India)
When a bill of exchange or other negotiable instrument (such as cheque) has been
received as conditional payment, and it has been dishonored [Section 45(1)].

The term ‘seller ‘includes any person who is in the position of a seller(for instance,
an agent of the seller to whom the bill of lading has been endorsed, or a consignor
or agent who has himself paid, or is directly responsible for the price) [Section 45
(2)]

Rights of an Unpaid Seller [Section 46-52, 54-56, 60-61]

The rights of an unpaid seller can broadly be classified under the following two
categories:

1. Rights against Goods

2. Rights against Buyer

What are the Rights of Unpaid Seller against Goods?

When goods are in existence and title has not gone to buyer, Unpaid Seller can
exercise the rights against goods. These rights are categorized into three types.
They are as follows.

Right of lien

Right of stoppage in transit

Right to Re-Sell

 Right of lien

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 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001:2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University & Bar Council of India)
Right to retain goods by unpaid seller till amount is recovered is called right of
lien. If unpaid seller wants to exercise right of lien, he has to fulfill the following
conditions.

He must be unpaid seller

There should be no credit terms in the Contract of Sale.

After completion of credit period, right of lien can be exercised.

The unpaid seller should have obtained those goods lawfully.

Amount must be due on those goods only against which right of lien is decided.

 Right of stoppage in transit

Unpaid Seller has right to stop the goods in the transit itself. To exercise this right
the following conditions are to be fulfilled.

He must be unpaid seller.

Buyer must be insolvent.

There should be no credit terms in the Contract of Sale. After expiry of Credit
period, this right can be exercised.

Amount must be due on those goods only against which this right is desired.

At times the transport company may refuse to deliver the goods to buyer due to any
reason. Then the goods are said to be in transit. At times, the buyer may retain the
goods at the transport company. Then the goods are said to be not in transit.

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 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001:2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University & Bar Council of India)

 Right to re-sale

The unpaid seller can re-sell the goods for non-payment of price by buyer. He can
exercise this right when the goods are of perishable nature while doing so it is
beneficiary to the seller to give a notice to buyer with regard to resale. If such
notice is given seller can claim loss. If any on resale from the buyer. On the other
hand if there is profit on resale the former buyer cannot claim that profit. If notice
is not given the seller has to face adverse consequence. If there is any loss on re-
sale, that loss cannot be recovered from buyer. But in case of profit, seller has
responsibility to pay that amount of profit to buyer.

What are the Rights of Unpaid Seller against Buyer?

At times it becomes inevitable choice to exercise rights on buyer for non-payment

of price. The unpaid seller can file suits against the buyer as explained below.

Right to sue for price

It is fundamental right of buyer to file a suit for recovery of unpaid price. In the
case of sale. Suit will be made for price balance, but not for compensation.

Right to sue to interest

If the buyer makes unreasonable delay for making payment, the seller has right to
claim interest also.

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 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001:2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University & Bar Council of India)

Right to sue for compensation

When an agreement to sell is breached, the seller can see only for compensation for
the breach of Contract. Under such circumstances he cannot sue for price.

Right to Sue for anticipatory contract

When an agreement to sell is breached by buyer before date of performance. It is

called anticipatory breach. Then also seller can sue for compensation.

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