Notes of Sale of Goods Act

The Sale of Goods Act, 1930

(15th March, 1930)

Contents
The Sale of Goods Act, 1930 ................................................................................................................... 1
Introduction ........................................................................................................................................ 3
Meaning .............................................................................................................................................. 3
1. ESSENTIALS OF CONTRACT OF SALE: .............................................................................................. 3
1 Two Parties:.................................................................................................................................. 3
2. Transfer the ownership ............................................................................................................... 3
3. Contract must necessarily be 'goods'. ........................................................................................ 3
4. Consideration is Price.................................................................................................................. 3
5. Absolute or conditional ............................................................................................................... 3
6. All other essentials of a valid contract ........................................................................................ 3
2. Sale & Agreement ........................................................................................................................... 4
Sale: ................................................................................................................................................. 4
Agreement to sell:........................................................................................................................... 4
Difference between Sale and Agreement to Sell ................................................................................ 4
Goods .................................................................................................................................................. 5
Meaning .......................................................................................................................................... 5
3. CLASSIFICATION OF GOODS ............................................................................................................ 5
4. Conditions and Warranty ................................................................................................................ 6
Conditions ....................................................................................................................................... 6
warranties ....................................................................................................................................... 6
DISTINCTION BETWEEN 'CONDITION' AND 'WARRANTY' ................................................................... 7
Example-.......................................................................................................................................... 7
EXPRESS AND IMPLIED CONDITIONS AND WARRANTIES ................................................................... 8
IMPLIED CONDITIONS ..................................................................................................................... 8
Sale by sample ................................................................................................................................ 8
IMPLIED WARRANTIES ........................................................................................................................ 9
5. DOCTRINE OF caveat emptor .......................................................................................................... 9
Meaning .......................................................................................................................................... 9
Exceptions : ..................................................................................................................................... 9
Concealment of Defects .................................................................................................................. 9

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Aware of the Purpose ..................................................................................................................... 9

Sale by Description.......................................................................................................................... 9
6. 3 stages in performance of contract ............................................................................................... 9
Transfer of Property ...................................................................................................................... 10
Transfer of Possession .................................................................................................................. 10
Passing the risk.............................................................................................................................. 10
7. Why the property has to be passed .............................................................................................. 10
Risk follows Ownership(sec 26) .................................................................................................... 10
Action against 3rd Party ................................................................................................................. 10
Event of insolvency: ...................................................................................................................... 11
Sue for price (by seller) ................................................................................................................. 11
8. Primary rules to transfer the Property.......................................................................................... 11
Intention of the parties: ................................................................................................................ 11
Goods must be ascertained .......................................................................................................... 11
Specific goods................................................................................................................................ 11
Passing the property at the time of contract ................................................................................ 11
Passing the property delayed beyond the date of contract ......................................................... 11
9. Types of Delivery ........................................................................................................................... 11
Actual Delivery :- ........................................................................................................................... 12
Symbolic Delivery:-........................................................................................................................ 12
Constructive delivery:- .................................................................................................................. 12
Rules as to delivery ........................................................................................................................... 12
10. Unpaid Seller ............................................................................................................................... 13
Unpaid Seller (45 (1)(2) ................................................................................................................. 13
Rights of unpaid seller....................................................................................................................... 13
1. Rights against goods ................................................................................................................. 13
2. Rights Against the Buyer Personally ......................................................................................... 13

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 Notes of Sale of Goods Act

Introduction -The Sale of Goods Act:

The sale of goods Act was a part of the Indian contract Act before 1930. Later It was
separated into a special Act in the year 1930. It came in to force on 15th July 1930. It is an
Act to define and amend the law relating to the sale of goods

Meaning of Contract of sale of goods:

A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the
property in goods to the buyer for price".

1. ESSENTIALS OF CONTRACT OF SALE:

There are certain things which are mandatory to make a contract as a valid contract of sale.
Those things are called as Essentials of valid Contract of Sale. If any of the essential points is
missing then it won’t be considered as valid contract of sale as per Sale of goods Act.
Following are the essentials of a contract of sale:

1 Two Parties:
There must be at least two parties in a contract of sale namely the seller and the buyer.
When the contract is entered with the consent of both the parties then only it is considered as
contract of sale.

2. Transfer the ownership

The parties must enter into a contract with an intention to Transfer or Agreement to
transfer the ownership of goods. The seller must be ready to transfer the
ownership/property/title in the name of the buyer.

3. Contract must necessarily be 'goods'.

The subject matter of the contract must necessarily be 'goods' only. Contract of sale of goods
is confined only to goods. Hence any contract with regards to services will not be under the
purview of this contract.

4. Consideration is Price
In case of contract of sale of goods, the Act states that the consideration can be Price only.
If the parties exchange the goods, where the consideration will be goods then that won’t be
considered as valid contact of sale.

5. Absolute or conditional
The contract of sale can be absolute or conditional. The sale must be absolute where there
must be no doubts among the parties. The parties can also include certain conditions in the
contract which needs to be met by the parties before performing the contract.
6. All other essentials of a valid contract must be present.

Apart from the above discussed points all the 9 points of essentials of valid contract is also
applicable for contract of sale of goods also. ( Discuss all the 9 points in detail).

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2. Sale & Agreement

Sale:
Sale takes place when there is a transfer of property in goods from the seller to the buyer
immediately at the end of contract. A sale is an executed contract.
• It must be noted here that the payment of price is immaterial to the transfer of
property in goods.
Ex -
A sells his Yamaha Motor Bicycle to B for Rs. 10,000. It is a sale since the ownership of the
motorcycle has been transferred from A to B.

Agreement to sell:
• It is a contract of sale where the transfer of property in goods is to take place at a
future date or subject to some condition thereafter to be fulfilled.
Ex-
On 1st March 1998, A agreed to sell his car to B for Rs. 80,000. It was agreed between
themselves that the ownership of the car will transfer to B on 31st March 1998 when the car is
gets registered in B`s name. It is an agreement to sell and it will become sale on 31st March
when the car is registered in the name of B.

Difference between Sale and Agreement to Sell

Particulars Sale Agreement to sell
Nature of A sale is an executed contract. An Agreement to sell is an
Contract executory contract.
A sale is for Specific and contingent An agreement to sell is for
Type of Goods
goods future and contingent goods
In an agreement to sell, in case
In a sale, since the property has passed to of breach, the seller can only
In case of
the buyer, the seller can sue the buyer for sue for damages, unless the
Breach
the price of the goods. price was payable at a stated
date.
Transfer of Property Transfer immediately from
Transfer will take place in near
Property seller to buyer
future or subject to conditions
In case of loss of goods, the loss will fall
The loss in this case shall be
on the buyer, even though the goods are borne by the seller, even
In case of loss of in the possession of the seller. It is
though the goods are in the
goods because 'Risk' is associated with possession of the buyer.
ownership.
In these circumstances, the
In case buyer pays the price and the seller
buyer cannot claim the goods
Seller becomes thereafter becomes an insolvent, the
but only a rateable dividend for
insolvent buyer can claim the goods from the
the money paid.
Official Receiver or Assignee

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If the buyer becomes an insolvent

without paying the price, the ownership In these circumstances, the
Buyer Becomes having passed to the buyer, the seller seller can refuse to deliver the
Insolvent shall have to deliver the goods to the goods to the Official Assignee
Official Assignee or Receiver except or Receiver
where he has a lien over the goods.
If the seller sells to other
Resell The seller cannot resell. If so the person person the new buyer gets
new buyer will not get title possession and old buyer can
only claim for damages
Rights Just in Rem to buyer ( against the whole Just in Personam (only against
World) seller only for damages)

Goods
Meaning
'Goods' means every kind of moveable property 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.
Thus, goods include every kind of moveable property other than actionable claim or money.
Example - goodwill, copyright, trademark, patents, water, gas, and electricity are all goods
and may be the subject matter of a contract of sale

3. CLASSIFICATION OF GOODS

Goods may be classified into:

1. Existing Goods - Existing goods are those, which are owned or possessed by the seller at the time
of the contract. Instances of sale of goods possessed but not owned by the sellers fire sales by
agents and pledges.

Existing goods may be either:

(a) Specific and Ascertained - goods identified and agreed upon at the time a contract of sale
is made; or

(b) Generic and Unascertained - goods indicated by description and not specifically identified.

2. Future Goods - Future goods" means goods to be manufactured or produced or acquired by the
seller after making the contract of sale.

3. Contingent Goods - Contingent goods are the goods the acquisition of which by the seller
depends upon a contingency which may or may not happen. Contingent goods are a part of future
goods.

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Goods

Existing
Future Goods
Goods

Ascertined Unascertained Contingent

Goods Goods Goods

4. Conditions and Warranty

The representations will be made by the seller and buyer usually at the time of sale. In that
some becomes a part of contract. Those representations are called stipulations these
stipulations can be condition or warranty.

Conditions
In a contract of sale, parties make certain stipulations, i.e., agree to certain terms. Some of
them may be intended by the parties to be of a fundamental nature, e.g., quality of the goods
to be supplied. The stipulation essential to the main purpose of the contract, the breach of
which gives rise to a right to treat the contract as repudiated. Such stipulations are known as
`Conditions`.

warranties
In contrast, some may be intended by the parties to be binding, but of a subsidiary or inferior
character, e.g., time of payment. Thus, 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. Here the stipulations are known as `warranties'.

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• The stipulation essential to the main purpose of the

contract
• breach of which gives rise to a right to treat the
Conditiions contract as repudiated

• stipulation collateral to the main purpose of the

contract
• the breach of which gives rise to a claim for damages
Warranties but not to a right to reject the goods

DISTINCTION BETWEEN 'CONDITION' AND 'WARRANTY'

Let us try to differentiate Condition and warranty with the help of an Example. In the given case is
considered in two situations and one place it is condition where as in other place it is a warranty.

Example-
A man buys a particular horse, which is warranted quiet to ride and drive. If the horse turns
out to be vicious, the buyer's only remedy is to claim damages.
But if instead of buying a particular horse, a man asks a dealer to supply him with a quiet
horse and the horse turns out to be vicious, the stipulation is a condition and the buyer can
reject the horse, or keep the horse and claim damages.
Particulars Condition Warranty
Stipulation A condition is a stipulation (in a warranty is a stipulation, which is
contract), which is essential to the only collateral or subsidiary to the
main purpose of the contract. main purpose of the contract.

In case of A breach of condition gives the
Breach aggrieved party a right to sue for
damages as well as the right to
repudiate the contract.
How it can be A breach of condition may be
treated treated as a breach of warranty in
certain circumstances.
A breach of warranty gives only the
right to sue for damages. The contract
cannot be repudiated.
A breach of warranty cannot be
treated as a breach of condition

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EXPRESS AND IMPLIED CONDITIONS AND WARRANTIES

Conditions and Warranties may be either express or implied

• They are said to be "express" when the

Express condition &
terms of the contract expressly provide
warranty
for them

• They are said to be "implied" when the

Implied condition & law deems their existence in the
warranty contract even without their actually
having been put in the contract.

IMPLIED CONDITIONS
The following are the implied conditions

(1) Condition as to Title

(2) Sale by Description

(3) Condition as to Quality or Fitness (medical shop)

(4) Merchantable Quality

(5) Condition as to wholesome (eatables should be fit for human)

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.

In a sale by sample, the following are the implied conditions:

1. The bulk shall correspond with the sample in quality;

2. That the buyer shall have a reasonable opportunity of comparing the bulk with the sample;
and

That the goods shall be free from any defects rendering them unmerchantable, which would not be
apparent on reasonable examination of the sample.

Ex. Certain shoes were sold by sample for the French Army. The shoes were found to contain paper
not discoverable by ordinary inspection

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IMPLIED WARRANTIES
There are two implied warranties. These are:

1. Warranty of Quiet Possession

2. The goods are free from any charge or burden of 3rd party

Example –
A purchased a second hand typewriter from B. A used it for sometime and also spend some money
on its repairs. The typewriter turned out to be stolen one and as such A had to return it to the true
owner. It was held that A could recover damages from B amounting to the price paid and the cost of
repair

5. DOCTRINE OF caveat emptor

Meaning
Caveat Emptor is a fundamental principle of the law of sale of goods. It means "Caution Buyer", i.e.
"Let the buyer beware".

In other words, it is not the seller's duty to point out defects of his own goods. The buyer must
inspect the goods to find out if they will suit his purpose.

Exceptions :
Below discussed are the Exceptions of the rules for Caveat Emptor. In some situations the seller
cannot get exempted from the rule under Caveat Emptor. In certain cases even though it is said that
let the buyer be aware, but the seller is also responsible. Below discussed are the exemptions in
which the seller will be held responsible

False Representation
Where the seller makes a false representation and buyer relies on that representation. The rule of
"Caveat Emptor" will not apply and the buyer will be entitled to the goods according to that
representation.

Concealment of Defects
Where the seller actively conceals a defect in the goods, so that on a reasonable examination the
same could not be discovered, In this situation the seller cannot claim that it is the duty of the buyer
to examine the goods before purchase. Here Caveat Emptor will not be applicable.

Aware of the Purpose

Where the buyer makes known to the seller the purpose for which he is buying the goods, and the
seller happens to be a person whose business is to sell goods of that description, then there is an
implied condition that the goods shall be reasonably fit for such purpose. The rule of Caveat Emptor
will not apply.

Sale by Description
In case of sale by description, there is implied condition as to their being of merchantable quality.
i.e., the rule of Caveat Emptor will be applicable.

6. 3 stages in performance of contract

In case of Contract of Sale of goods, the sale can be said to be performed that is the contract will be
considered as performed only if the below discussed three stages are performed. That is if the

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parties intend to perform the contract of sale of goods then they have complete the below discussed
3 steps.

Transfer of Transfer of Passing of

property Possession Risk

Transfer of Property
In case of sale of goods the word property stands for ownership. The first step of sale of goods is to
transfer the ownership from the buyer to the seller. An agreement to sell will be converted to sale
only when the ownership is transferred. In the same way the sale starts and ends with the transfer
of property.

Transfer of Possession
Possession means physical holding out of goods. Once the ownership is transferred from the seller
to the buyer the possession must also be transferred. The seller must physically hand over the goods
to the buyer. In some cases the possession will be transferred before the transfer of ownership also.

Passing the risk

In case of sale it is also essential to pass the risk from the seller to the buyer. If the risk is not passed
to the buyer then in case of any damage to the goods the seller will be held responsible. Generally
the risk will be passed along with ownership.

7. Why the property has to be passed

Risk follows Ownership(sec 26)
It is always said that the risk lies with the one who owns the goods. It is immaterial whether the
price is paid or not, Possession is handed over or not. The only thing that matters is the ownership.

Action against 3rd Party

The action against the third party can only taken by the person who owns the goods. Till the time
the ownership is not transferred to the buyer, even though he possess the goods, Even though he

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 Notes of Sale of Goods Act

paid the amount, he cannot claim for damages happened to the goods, through a third party, in his
own name.

Event of insolvency:
In case of insolvency of either of the party, it will affect the contract. Once the ownership is
transferred then the buyer can be free even if the seller becomes insolvent thereafter.

Sue for price (by seller)

The seller can sue for the price from the buyer only after he transfer the ownership to the buyer.
Unless the ownership is been transferred the seller cannot claim for the same from the buyer. He
will also be termed as unpaid seller only after the ownership is transferred.

8. Primary rules to transfer the Property

Intention of the parties:
The primary rule to transfer the ownership of the goods is the intention of the parties to transfer the
ownership of the goods.

Goods must be ascertained

if it is unascertained goods no ownership can be transferred untill the goods become
ascertained.(sec 18)
Ascertained goods must be specific goods in which the ownership can be transferred in two
terms

Specific goods
In case of specific goods the ownership can be transferred in two types.

Passing the property at the time of contract

If the goods are of specific in nature and it is as per the demand of the buyer, no alterations are
needed then the ownership can be transferred immediately.

Passing the property delayed beyond the date of contract

Goods not in deliverable state (sec 21)
price is to be ascertained (sec 22)
Goods sent on approval

9. Types of Delivery
The delivery of the goods can be done in any of the following Method.

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Types of
Delivery

Actual Symbolic Constructive

Delivery Delivery Delivery

Actual Delivery :- when the goods are been actually delivered. A Purchased 100 bags of
sugar from B . B made the delivery to A
Symbolic Delivery:- Where some symbol of the real possession is handed over : Eg. A
Purchased 100 bags of sugar from B which B has stored in a warehouse. Inspite of giving the
sugar bags B has given the warehouse key.
Constructive delivery:- when a 3rd party who holds the possession of the of the goods accepts
to hold the goods on behalf of buyer also . Eg A stores the sugar in B,s ware house. Latter on
A sold the goods to C. Now B acknowledge that he will hold the sugar on behalf of C

Rules as to delivery
a) Payment and delivery to be concurrent(sec32)
b) Mode of delivery (sec 33)
c) Effect of part Delivery( 34)
d) Buyer to apply for delivery (35)
e) Place of Delivery (36(1))
f) Time of Delivery ( 36 (2))
g) Delivery of goods which are in possession of 3rd Party ( sec 36 (3))
h) Expenses of delivery (36(5))
i) Delivery of wrong Quantity ( 37 )
if seller delivers short or excess goods without intention the buyer is not allowed to
reject the goods.

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even if the buyer rejects the whole goods still the contract is not cancelled the seller
can again tender the quty as per contract and buyer is bound to accept the same.
j) Delivery by Installments ( sec 38)
Unless and otherwise accepted in contract the buyer need not accept the goods in
installments.

10. Unpaid Seller

Unpaid Seller (45 (1)(2)
a) The seller must have transferred the ownership to the buyer.
b) is a seller when he is not paid whole price
c) when the bill of exchange or cheque issued by buyer becomes dishonoured
d) if the goods are sold on credit then he is not an unpaid seller until the due date has
come and buyer had not paid him.

Rights of unpaid seller

The unpaid seller basically has two kinds of rights. One is being right against the goods and other
being the right against the buyer. Both the rights are been discussed clearly.

1. Rights against goods

An unpaid seller has the following rights against the goods:
(a) Lien on the goods: right to retain the possession of goods until paid
(b) A right of stoppage in transit: once the seller starts the process of delivery. He can stop
it before it reaches the buyer and hold till paid
(c) A right of re-sale:
The seller can go for resale only s
• when the goods are perishable nature
• when the contract is so.

2. Rights Against the Buyer Personally

An unpaid seller, besides his rights against goods, has the following rights against the buyer
personally:
(i) Right to sue for the price(sec 55(1))
(ii) the right to sue the buyer for damages for non-acceptance.(56)
(iii) Repudiation of contract: (60)
if the buyer cancels before due date then the seller can either wait till due date for buyer
to accept or can consider the contract as cancelled and claim the buyer for damages.

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