SALE OF GOODS ACT, 1930

‘SALE’ AND ‘AGREEMENT TO SELL’

According to Sec.4 of the Act, 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 a price.
A contract of sale may be by absolute sale or conditional sale.
The contract of sale comprises two things namely, (1) Sale and (2) Agreement to sell.
SALE Seller transfers the goods immediately to the buyer.
AGREEMENT TO SELL The transfer of the goods is to take place at a future date subject to some
conditions thereafter to be fulfilled.

ESSENTIALS OF A CONTRACT OF SALE

1 A valid contract 2 Two parties 3 The subject matter of the contract is sale of goods
4 Transfer of goods 5 Monetary consideration

‘SALE’ AND ‘AGREEMENT TO SELL’- Differentiating Features

No FEATURES SALE AGREEMENT TO SELL
01 Nature of contract Executed Executory
02 Subject matter Existing Goods Future / Contingent Goods
03 Transfer of property, At the time of Contract When the conditions to the contract
takes place………. are fulfilled.
04 Nature of Right RIGHT IN REM RIGHT IN PERSONAM
The owner gets an absolute right The contracting parties are alone
over the property, which is concerned about the agreement to
recognized by the whole world sell. The world at large is not at all
concerned with it.
05 In case of Breach of (1) Buyer. (1) Buyer
contract, remedy is (2) The Goods ( for claiming the damages)
available against… (If the goods are in the
possession of the seller)
06 Who should bear the loss on lost goods, IF the goods are held by …………..
(a) Seller BUYER SELLER
(b) Buyer BUYER NA
07 Right of Re-Sale of goods, When the goods are held by……………
(a) Seller Available to Unpaid Seller Available to seller
(b) Buyer Available Not applicable
08 Insolvency of Seller The Buyer being the owner of the If the buyer already paid the
goods can recover the goods from amount, the buyer can get a ratable
the official receiver of the seller. dividend. No recourse against the
goods.
09 Insolvency of Buyer The seller shall deliver the goods to The seller is not bound to part with
the official receiver of the buyer. the goods.
CONDITIONS AND WARRANTIES: Definitions:
REPRESENTATIONS When forming a contract, a party may make a statement with a view to
induce the other party to enter in to a contract. Such statements when made
before entering in to a contract are called as representations
PUFF A representation by way of mere expression of an opinion or commendation
by the seller is known as Puff.
STIPULATION A representation which is an integral part of a contract is called stipulation.
CONDITION A stipulation which is essential to main purpose of the contract is called
condition. These are mentioned in the contract in clear terms.
WARRANTY A stipulation, which is collateral to the main contract, is called Warranty.
These are deemed to have been included in a contract by the presumption of
law, unless the parties agreed to the contrary.

DIFFERENCES BETWEEN THE CONDITIONS AND WARRANTIES

Differentiating Feature CONDITIONS WARRANTIES
1 Nature of the stipulation, to the main purpose of Essential Collateral
the contract
2 The Breach entitles the injured party to…
Repudiation/ cancellation of the Contract Yes No
Refuse the goods Yes No
Recover the price ( If already paid) Yes No
Recovery of Damages NA YES
3 Time Conditions have to be Warranty comes
fulfilled before the after the contract of
contract of sale has sale has been made.
been made

TYPES OF CONDITIONS AND WARRANTIES

1. EXPRESSED CONDITIONS AND WARRANTIES
2. IMPLIED CONDITIONS AND WARRANTIES
IMPLIED CONDITIONS
Sl.N IMPLIED EXPLANATION
o CONDITIONS
(With respect to)
Normally, it is presumed that, the seller has a right to
01 TITLE sell the goods, unless otherwise expressed in the
contract.
When a buyer informs the seller, the purpose for which
he intends to purchase the goods, the seller should sell
QUALITY or
02 such goods, which would reasonably serve the purpose
FITNESS
of the purchaser. This condition does not apply in case
of patented goods.
Merchantability denotes the standard quality, condition,
salability of a specific commodity.
The seller shall ensure that the goods are free from
03
MERCHANTABILITY latent defects. The state of goods sold should be in such
a position that, they are fit for resale under the
description by which they are known.
 The seller must provide the goods ordered with a
Sale of goods by specific description by the buyer. He should not supply
04
DESCRIPTION some other goods, even though they are superior to
those ordered by the buyer.
When a contract of sale is made by showing a sample,
the following conditions are implied.
1. The supply made shall correspond to the sample,
Sale of goods by in quality.
05
SAMPLE 2. The buyer shall have a reasonable opportunity
for a comparing the bulk supplied with the
sample.
3. The goods are merchantable.
Sale of goods by In a sale by description and sample, the goods supplied
06 DESCRIPTION & to the buyer, shall correspond with the sample and as
SAMPLE well as description.

IMPLIED WARRANTIES
Sl.No IMPLIED EXPLANATION
WARRNTIES
01 QUIET POSSESSION The buyer shall have the possession and enjoyment of the goods sold
to him, without any disturbance by the seller or any other person
02 FREEDOM FROM The goods sold are free from any encumbrances other than those, if
ENCUMBRANCES any, mentioned in the sale agreement.
03 DISCLOSURE OF The seller would warn the buyer, about the latent qualities of the
THE GOODS hazardous goods sole by him, when he is aware that the buyer is
ignorant of such fact.
04 CUSTOM AND As per the custom and usage of trade, the seller shall to annex the
USAGE OF TRADE contract of sale, a warranty as to the fitness of an item for a particular
purpose.

CAVEAT EMPTOR: (LET BUYER BE WARE)

The maxim “Caveat Emptor” means that “let Buyer beware”. As per the Roman law, it is not the duty of the
seller to sell goods to the buyer for a specific purpose, unless such purpose is made known to the seller. It is
there fore the duty of the buyer to satisfy him about the quality of the goods and their fitness for a particular
purpose.
Sec.16 of Sale of Goods Act, 1930, states that, “Subject to the provisions of the Act or any other law for
the time being in force, there is no implied warranty or condition, as to the quality or fitness for any particular
purpose of goods supplied under a contract of sale.”

EXCEPTIONS TO THE RULE: “Caveat Emptor”, does not apply in the following cases.
1) Conditions as to the quality or fitness of goods.
2) Conditions as to the merchantability of goods.
3) Implied warranties by customs, usage of trade.
4) Fraudulent Sale.

WHO IS UNPAID SELLER.

A seller of goods will be deemed as unpaid, when
1) The whole of the price has not been paid or tendered.
 2) The negotiable instrument (Cheque / Bill of exchange / Promissory note.) tendered towards the sale
consideration was dishonored on the due presentation.

RIGHTS OF AN UNPAID SELLER

Rights of Unpaid Seller Against Buyer

When the buyer of goods does not pay his dues to the seller, the seller becomes an unpaid seller. And now
the seller has certain rights against the buyer. Such rights are the seller remedies against the breach of
contract by the buyer. Such rights of the unpaid seller are additional to the rights against the goods he sold.

1] Suit for Price

Under the contract of sale if the property of the goods is already passed but he refuses to pay for the goods
the seller becomes an unpaid seller. In such a case. the seller can sue the buyer for wrongfully refusing to
pay him his due.

But say the sales contract says that the price will be paid at a later date irrespective of the delivery of goods,.
And on such a day the if the buyer refuses to pay, the unpaid seller may sue for the price of these goods. The
actual delivery of the goods is not of importance according to the law.

2] Suit for Damages for Non-Acceptance

If the buyer wrongfully refuses or neglects to accept and pay the unpaid seller, the seller can sue the buyer
for damages caused due to his non-acceptance of goods. Since the buyer refused to buy the goods without
any just cause, the seller may face certain damages.

The measure of such damages is decided by the Section 73 of the Indian Contract Act 1872, which deals
with damages and penalties. Take for example the case of seller A. He agrees to sell to B 100 liters of milk
for a decided price. On the day, B refuses to accept the goods for no justifiable reason. A is not able to find
another buyer and the milk goes bad. In such a case, A can sue B for damages.

3] Repudiation of Contract before Due Date

If the buyer repudiates the contract before the delivery date of the goods the seller can still sue for damages.
Such a contract is considered as a rescinded contract, and so the seller can sue for breach of contract. This is
covered in the Indian Contract Act and is known as Anticipatory Breach of Contract.

4] Suit for Interest

If there is a specific agreement between the parties the seller can sue for the interest amount due to him from
the buyer. This is when both parties have specifically agreed on the interest rate to be paid to seller from the
date on which the payment becomes due.

Rights of Lien

1. Seller’s Lien (Section 47)

According to subsection (1) of Section 47 of the Sale of Goods Act, 1930, an unpaid seller, who is in
possession of the goods can retain their possession until payment.
 2. Right of Stoppage in Transit
This right is an extension to the right of lien. The right of stoppage in transit means that an unpaid seller has
the right to stop the goods while they are in transit. He can regain possession, and retain them till he receives
the full price.

If an unpaid seller has parted with the possession of the goods and the buyer becomes insolvent, then the
seller can ask the carrier to return the goods back. This is subject to the provisions of the Act.

3. Right of Resale (Section 54)

The right of resale is an important right for an unpaid seller. If he does not have this right, then the right of
lien and stoppage won’t make sense. An unpaid seller can exercise his right of resale

4. Right to withhold the delivery