Module-III

Indian Sales of Goods Act, 1930

 Sale of Goods Act 1930

Sale of Goods Act is an old mercantile law. Sale

of Goods is one of the special types of Contract.
Initially, this was part of Indian Contract Act.
Later these sections in Contract Act were
deleted, and separate Sale of Goods Act was
passed in 1930.
 Contract of Sale
As per Sec.4 of the Act, a contract of sale is where the
seller transfers or agree to transfer the property in goods to
the buyer for price. It includes
Sale: Where the property in goods is immediately
transferred from the seller to the buyer, the contract is
called as a sale.
Agreement to sell: Where the transfer in property is to take
place at a future time or subject to the fulfillment of certain
conditions, the contract is called an agreement to sell.
Essentials of a contract of Sale:
Two parties
Goods
Price
Transfer of Property
Distinction between Sale & Agreement to sell
• Nature/type of contract
• Transfer of property/ownership
• Types of Goods
• Risk of loss
• Consequences of breach
• Right to re-sell
• General and particular property
• Insolvency of buyer
• Insolvency of seller
Sec 5 How Contract of sale is made -
• A contract of sale is made by an offer to buy or sell goods
for a price and the acceptance of such offer. The contract
may provide for the immediate delivery of the goods or
immediate payment of the price or both, or for the
delivery or payment by installments, or that the delivery
or payment or both shall be postponed. [section 5(1)].

• Subject to the provisions of any law for the time being in

force, a contract of sale may be made in writing or by
word of mouth, or partly in writing and partly by word of
mouth or may be implied from the conduct of the parties.
[section 5(2)].

• Thus, credit sale is also a ‘sale’.  - - A verbal contract or

contract by conduct of parties is valid. e.g. putting goods
in basket in super market  or taking food in a hotel.
 Sale distinguished from other contracts
• Hire purchase agreement- In this the property in goods
will pass on to the buyer only when he pays all his
installments. Hirer may return the goods/property any
time and stop paying installments after that.
• Pledge- In pledge goods are delivered only for security
for obtaining debt, which must be returned back on
payment of debt.
• Mortgage- In this only special property in goods is
transferred. The Mortgager continues to be the owner
of property. And moreover it is only for immovable
property.
• Hypothecation Lease- In case of hypothecation the
property continues to be in possession of the debtor.
 Subject matter of Contract of Sale
S-2(7). 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
separated before sale. Trade marks, copyrights,
patents, water, gas, electricity etc. are all treated as
goods for this Act.
Types of Goods:
1) Existing Goods- which are owned/possessed at the
time of contract. They can be of the following types-
Specific or Ascertained
Unascertained
2) Future Goods: To be manufactured, produced or
acquired after making of the contract.
3) Contingent Goods: They are a kind of future goods the
acquisition of which depends on an uncertain
contingency.
Perishable Goods
S-7 In case goods destroyed before contract it is void
(mutual mistake)
S-8 In case goods destroyed before sale but after
agreement to sell without any fault of seller or buyer
agreement becomes void (impossibility of performance)
 Price
• Price - “Price” means the money consideration for a sale of goods.
[section 2(10)]. Consideration is required for any contract. However, in
case of contract of sale of goods, the consideration should be ‘price’ i.e.
money consideration. 
• Sec9. Ascertainment of price.- (1) The price in a contract of sale may be
fixed by the contract or may be left to be fixed in manner thereby agreed or
may be determined by the course of dealing between the parties.
(2) Where the price is not determined in accordance with the foregoing provisions,
the buyer shall pay the seller a reasonable price. What is a reasonable price is
a question of fact dependent on the circumstances of each particular case.
• Sec10. Agreement to sell at valuation.- (1) 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 therefor.(2) 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.
• Sec11. Stipulations as to time.- Unless a different intention appears from the
terms of the contract, stipulations as to time of payment are not deemed to be
of the essence of a contract of sale. Whether any other stipulations as to time
is of the essence of the contract or not depends on the terms of the contract.
 
 Conditions and Warranties
• There are certain stipulations which are
essential for main purpose of the contract of sale
of goods. These go to the root of contract and
non-fulfillment will mean loss of foundation of
contract. These are termed as ‘conditions’.
• Other stipulations, which are not essential are
termed as ‘warranty’. These are collateral to
contract of sale of goods. Contract cannot be
avoided for breach of warranty, but aggrieved
party can claim damages. - - A breach of
condition can be treated as breach of warranty,
but vice versa is not permissible.
 contd
• 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)]( Where a particular
stipulation in contract is a condition or warranty depends on the
interpretation of terms of contract. Mere stating ‘Conditions of
Contract’ in agreement does not mean all stipulations mentioned are
‘conditions’ within meaning of section 12(2))

• A warranty is a 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)].
 When condition to be treated as warranty -
VOLUNTARY WAIVER OF CONDITION
• Where a contract of sale is subject to any condition to be fulfilled by
the seller, the buyer may waive the condition or elect to treat the
breach of the condition as a breach of warranty and not as a ground
for treating the contract as repudiated. [section 13(1)].

ACCEPTANCE OF GOODS BY BUYER

• Where a contract of sale is not severable and the buyer has
accepted the goods or part thereof, the breach of any condition to
be fulfilled by the seller can only be treated as a breach of warranty
and not as a ground for rejecting the goods and treating the contract
as repudiated, unless there is a term of the contract, express or
implied, to that effect. [section 13(2)].

• Nothing in this section shall affect the case of any condition or

warranty fulfillment of which is excused by law by reason of
impossibility or otherwise. [section 13(3)].
 Implied warranties

• Implied warranties of quiet possession

• Implied warranties against encumbrances

• Disclosure of Dangerous Nature of Goods

 Implied conditions
Implied condition as to title
Implied condition under a sale by description-
• goods must correspond with description,
• goods must be of merchantable quality,
• condition of wholesomeness,
• condition for a fitness for a particular purpose-
Priest v. Last Grant
v.Australian Knitting Mills
Implied conditions under Sale by Sample-
• Correspondence with sample
• Buyer's opportunity
• merchantability
Implied conditions under Sale by Sample as well as description
Doctrine of caveat emptor
• The principle termed as ‘caveat emptor’ means ‘buyer be aware’.
Generally, buyer is expected to be careful while purchasing the
goods and seller is not liable for any defects in goods sold by him.
This principle in basic form is embodied in section 16 that subject
to provisions of Sale of Goods Act and any other law, there is no
implied condition or warranty  as to quality or fitness of goods for
any particular purpose. As per section 2(12), “Quality of goods”
includes their state or condition.

• Exceptions
1. False representation by seller
2. Seller actively conceals a defect
3. Buyer relying upon the skill of the seller Priest v. Last ,
4. Goods bought by description
 Transfer of Property
The phrase “transfer of property in goods” means
transfer of ownership of the goods.
Property in goods is different from possession of
goods which means custody over goods. The
moment of time at which property in goods
passes from seller to buyer is very important due
following points:
i) Risk passes with ownership
ii) Action against third parties
iii) Suit for price
iv) Insolvency of buyer or seller
 Rules regarding transfer of property
• In specific or ascertained Goods
When goods are in a deliverable state Sec-20
When goods have to be put in a deliverable state Sec-21
When price of goods is to be ascertained by weighting etc. 22
When goods are delivered on approval Sec-24
• In unascertained or future Goods
Where goods contracted to be sold are not ascertained or
they are future goods the property in goods does not pass
to the buyer unless the goods are ascertained or
unconditionally appropriated to the contract so as to bring
them in deliverable state. The buyer must have notice
thereof.
Sale by non-owners
The general rule of law is that “no one can give that which
one has not got.” It is only the owner of goods, or a person
authorized by him can sell the goods.
Sec-27 provides that where goods are sold by non-owners
(having no authority or consent of the owner) the buyer
acquires no better title than the seller had.
Exceptions to this rule are-
Unauthorized sale by a mercantile agent
Sale by one of several joint owners
By a person in possession under a voidable contract
Title by estoppel
Sale by seller in possession after sale
Sale by buyer in possession after having bought or agreed to buy
Sale by an unpaid seller
Rights of unpaid seller
Who is an unpaid seller….
When the whole of the price has not been paid
Where a bill of exchange or other negotiable instrument
received as conditional payment is dishonoured.
A seller of goods is deemed as unpaid seller on following
conditions-
He must sell goods on cash terms and must be unpaid.
He must be unpaid either wholly or partly.
A bill of exchange or other negotiable instrument was
received but has been dishonoured.
He must not refuse to accept payment when tendered.
Rights of unpaid seller can be divided into two categories-
i) Right against the goods
ii) Right against the buyer personally.
RIGHT AGAINST THE GOODS
1) Right of lien (Sec- 47)
(1) Subject to the provisions of this Act, the unpaid seller of
goods who is in possession of them is entitled to retain
possession of them until payment or tender of the price in the
following cases, namely:-
(a) where the goods have been sold without any stipulation as to
credit;
(b) where the goods have been sold on credit, but the term of
credit has expired;
(c) where the buyer becomes insolvent.
(2) The seller may exercise his right of lien notwithstanding
that he is in possession of the goods as agent or bailee for the
buyer.
In case of part delivery- Where an unpaid seller has made part
delivery of the goods, he may exercise his right of lien on the
remainder, unless such part delivery has been made under
such circumstances as to show an agreement to waive the
lien.
Termination of lien (Sec-49)

The unpaid seller of goods loses his lien

(a) when he delivers the goods to a carrier or other bailee
for the purpose of transmission to the buyer without
reserving the right of disposal of the goods;
(b) when the buyer or his agent lawfully obtains possession
of the goods;
(c) by waiver thereof.
2) RIGHT OF STOPPAGE IN TRANSIT
Right of stoppage in transit (Sec-50)
When the buyer of goods becomes insolvent, the unpaid seller who
has parted with the possession of the goods has the right of stopping
them in transit, that is to say, he may resume possession of the goods
as long as they are in the course of transit, and may retain them until
payment or tender of the price.

Duration of transit (Sec-51)

(1) Goods are deemed to be in course of transit from the time when they
are delivered to a carrier or other bailee for the purpose of
transmission to the buyer, until the buyer or his agent in that behalf
takes delivery of them from such carrier or other bailee.

(2) If, after the arrival of the goods at the appointed destination, the
carrier or other bailee acknowledges to the buyer or his agent that he
holds the goods on his behalf and continues in possession of them as
bailee for the buyer or his agent, the transit is at an end and it is
immaterial that a further destination for the goods may have been
indicated by the buyer.
(3) If the buyer or his agent in that behalf obtains delivery of the
goods before their arrival at the appointed destination, the
transit is at an end

(4) If the goods are rejected by the buyer and the carrier or
other bailee continues in possession of them, the transit is
not deemed to be at an end, even if the seller has refused to
receive them back.

(6) Where the carrier or other bailee wrongfully refuses to

deliver the goods to the buyer or his agent in that behalf, the
transit is deemed to be at an end.

(7) Where part delivery of the goods has been made to the
buyer or his agent in that behalf, the remainder of the goods
may be stopped in transit,
How stoppage in transit is effected (Sec-52)

(1) The unpaid seller may exercise his right of stoppage in transit either
by taking actual possession of the goods, or by giving notice of his
claim to the carrier or other bailee in whose possession the goods
are. Such notice may be given either to the person in actual
possession of the goods or to his principal.

The notice to principal be given on time and in such circumstances,

that he, by the exercise of reasonable diligence, may communicate
it to his servant or agent in time to prevent a delivery to the buyer.

(2) When notice of stoppage in transit is given by the seller to the

carrier or other bailee in possession of the goods, he shall re-deliver
the goods to, or according to the directions of, the seller. The
expenses of such re-delivery shall be borne by the seller.
Effect of sub-sale or pledge by buyer (Sec-53)

(1) The unpaid seller's right of lien or stoppage in transit is not affected
by any sale or other disposition of the goods which the buyer may
have made, unless the seller has assented thereto:
(2) Where the transfer is by way of pledge, the unpaid seller may
require the pledgee to have the amount secured by the pledge
satisfied in the first instance, as far as possible, out of any other
goods or securities of the buyer in the hands of the pledgee and
available against the buyer.

3) Right of Resale (Sec-54)

The unpaid seller has limited right to resell the goods in case of
i) Perishable goods
ii) Where seller has given notice to the buyer to resell and buyer does
not pay the price in reasonable time.
iii) Where the seller has expressly reserved the right in contract in case
buyer should make a default.
RIGHT AGAINST THE BUYER PERSONALLY

1) Suit for price (Sec-55)

(i) Where under a contract of sale the property in the goods has passed
to the buyer and the buyer wrongfully neglects or refuses to pay for
the goods according to the terms of the contract, the seller may sue
him for the price of the goods.
(ii) Where under a contract of sale the price is payable on a day certain
irrespective of delivery and the buyer wrongfully neglects or refuses
to pay such price, the seller may sue him for the price although the
property in the goods has not passed and the goods have not been
appropriated to the contract.
2) Damages for non-acceptance (Sec-56)
Where the buyer wrongfully neglects or refuses to accept and pay
for the goods, the seller may sue him for damages for non-
acceptance.
3) Suit for Interest and special damages (Sec-61)
The seller can charge interest on price when it becomes due and
notify to the buyer.
4) Suit for repudiation of contract (Sec-60)