Module- II

 Introduction,
 Definitions,
 Formation of the Contract of Sale ( essential
characteristics of a valid contract of sale),
 Goods and their Classification,
 Conditions and Warranties,
 Passing (Transfer) of Property (Ownership) in
Goods,
 Transfer of Title by Non-Owners,
 Performance of Contract of Sale,
 Unpaid Seller and his Rights,
 Sale by Auction



(1) Short title, extent and commencement.—

This Act may be called the Sale of Goods Act,
1930. It extends to the whole of India.
 It shall come into force on the 1st day of

July, 1930.
 (1) “buyer” means a person who buys or
agrees to buy goods;
 (2) “delivery” means voluntary transfer of
possession from one person to another;
 (3)goods are said to be in a “deliverable state”
when they are in such state that the buyer
would under the contract be bound to take
delivery of them;
 (6)“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
the land which are agreed to be severed
before sale or under the contract of sale;
The subject matter of sale of goods contract is the goods and
goods can be classified as :
1. Existing goods : At the time of sales if the goods are
physically in possession with the seller called as existing
goods. These can be of two types :
◦ Ascertained/Specific Goods : The goods which are separately
identified & agreed upon at the time of making the contract.
◦ Unascertained Goods : The goods which are not separately
identified or unascertained at the time of making of the contract.
2.Future goods : The goods which are to be
manufactured or produced or yet to be
acquired by the seller are called as future
goods.
 (7) a person is said to be “insolvent” who
cannot pay his debts as they become due.
 (9)“price” means the money consideration for
a sale of goods;

 (10) “property” means the ownership in goods

 (11)“quality of goods” includes their state or

condition;
 (12)“seller” means a person who sells or
agrees to sell goods;
 MEANING OF CONTRACT OF SALE
 According to Section 4 of the Act, a contract of Sale
means “a contract where the seller transfers or
agrees to transfer the property in goods to the buyer
for price”

 Contract of Sale may be of two types

CONTRACTOF

SALE

SALE AGREEMENT TO SELL

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1. Two parties : There must be at least two parties namely the
buyer and the seller.
2. Goods : The subject matter of sale of goods contract must be
the goods
3.Transfer of property (ownership): Property means
ownership of goods which is transferred from seller to the
buyer for a price.
4. Price : The consideration of this contract
must be only money called the price of
goods.
5. Agreement to sell : It means the transfer of
property from seller to buyer is to take place
at the future time not immediately.
6. Sale : Under a contract of sale the ownership of
goods is immediately transferred at the time of
making the contract.
7. All essentials like offer, acceptance, capacity to
contract, lawful object, free consent etc. must be
present.
 SALE :
• It is a contract where the ownership in the

goods is transferred by seller to the buyer

immediately at the formation of contract
EXAMPLE: A sells the furniture of his house to B
for Rs. 10,00,000.

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AGREEMENT TO SELL :
•It is a contract of sale where the transfer of ownership is
to take place at a future date or subject to some condition
thereafter to be fulfilled.
EXAMPLE: A agreed to buy from B a certain quantity of
nitrate of soda. The ship carrying the nitrate of soda was
yet to arrive to B. This is `an agreement to sell`. In this
case, the ownership of nitrate of soda is to be transferred
in future [Johnson V McDonald (1842)
 An agreement to sell becomes a sale when
the time elapses or the conditions are fulfilled
subject to which the property in the goods
(ownership) is to be transferred.
 The term contract of sale includes both a
sale as well as an agreement to sell.
 (1) A contract of sale is made by an offer to
buy or sell goods for a price and the
acceptance of such offer.
Delivery Payment
 Immediate Immediate
 Immediate Future
 Future Immediate
 Future Future
 A contract of sale of goods involves transfer of
ownership from the seller to the buyer. Transfer of
ownership or property in goods is in fact the main
object of making a contract of sale.

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It is important to know the precise moment of
time at which the property in goods passes from
the seller to the buyer for the following reasons:-

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 1. Risk prima facie passes with ownership: In
case of destruction of or damage to
the goods, it is the owner who has to bear
the loss because the general rule is ‘res
perit domino’ risk follows ownership or
whosoever is the owner must bear the
loss. The payment of the price or
possession of goods is immaterial.
Case:
[Demby Hamilton & Co. Ltd. v. Barden,(1949) All
E R. 435]
‘A’ contracts to purchase 30 tons of apple juice
from ‘B’.
B crushes the apple, puts juice in casks and
keeps them ready for delivery. A , however ,
delays to take the delivery and the juice goes
putrid and has to be thrown away. A is liable to
pay the price

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3. Insolvency of the seller or the buyer: In the
event of insolvency of either the seller or the
buyer, the question whether the Official
Assignee can take over the goods or not
depends on whether the ownership in the
goods has passed from the seller to the
buyer.
Rules Regarding Transfer of
Ownership
 Rule 1: When goods are in a deliverable state (Sec
20)

 Rule2: Goods not in a deliverable state, the

ownership will not pass & the ownership remains
with the seller (Sec.21)

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 Rule 3: When the price of goods is to be
ascertained by weighing, test, measure etc.
the ownership remains with the seller
(Sec.22)

 Rule 4: For unascertained/ ‘future’ goods

the ownership remains with the seller
(Sec.23)
Case:
[Demby Hamilton & Co. Ltd. v. Barden,(1949) All
E R. 435]
‘A’ contracts to purchase 30 tons of apple juice
from ‘B’.
B crushes the apple, puts juice in casks and
keeps them ready for delivery. A , however ,
delays to take the delivery and the juice goes
putrid and has to be thrown away. A is liable to
pay the price

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Difference between sale and
Agreement to Sell
 Transfer of ownership
 Nature of contract
 Types of goods
 Risk of loss
 Consequence of breach
Sn Basis of Sale Agreement to sell
o.
difference

1 Transfer of Immediate In future

ownership

2 Nature of Executed Executory

contract
Sn Basis of Sale Agreement to sell
o.
difference

3 Types of Existing or Future goods

goods specific

4 Risk of loss Falls on buyer Falls on seller

S. Basis of Sale Agreement to sell
no difference
.

5 Consequence The seller can The seller can only sue for
of breach by sue for the price damages for breach only
the buyer even goods are and not for the price
still in his
possession.
 A agreed to buy from B a certain quantity of
nitrate of soda. The ship carrying the nitrate
of soda was yet to arrive to the seller.
 Whether the ownership is transferred to the
buyer at the time of agreement, if not, when
it will transfer?
 If the ship sunk before arrival, who is going

to bear the loss? (give valid reason)

 https://www.docracy.com/21ioj9ydas/contra
ct-for-the-sale-of-goods-seller-friendly-ver
sion

 Read the sample copy of the domestic

contract of sale of goods and write down the
key points
UNPAID SELLER:-

Unpaid Seller Is A Person :- 

i.  To whom the whole price has not been paid.
ii. And where a bill of exchange or other negotiable
instruments has been accepted by the seller as a
conditional payment and that Negotiable Instrument
is dishonored..

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 Party A sells a car on cash basis to party B and the
price has not been received yet.

 A sells goods to B. B pays to A through Cheque.

Before B could obtain the delivery of goods, his
cheque has been dishonoured by the bank.

 In both the above cases A is an unpaid seller.

 Question : Discuss the remedy provided to him by

Law (Sale of Goods Act, 1930 )
 May & Bakers Ltd. (buyer) bought some goods
from J.L Lyons & co. (seller), but does not
take the possession of the goods (goods still
lying with J.L Lyons & co. and he has not
received any payment)

 Discuss the position of J.L Lyons & co. (seller),

in this case.
 Discuss the rights in detail, given by the sale
of goods Act, 1930, to J.L Lyons & co. (seller),
if the ownership has been transferred to May
& Bakers Ltd (buyer).
 Rights of unpaid
seller

Right against goods Right against the buyer personally

Suit for price

Suit for damages for non

Right of Lien
acceptance
Right of Resale

Right of stoppage of
goods in transit

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A. When the property (ownership) in the goods has
been transferred
1.RIGHT OF LIEN[Sec 47 to 49]

The right of lien means right to

retain the goods possession until the full price
is received.

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I. Where the goods has not been sold on the
credit basis.
Seller’s right of lien is terminated in following
cases.
1. When he delivers the goods to the carrier
for transmission to the buyer
2. When the buyer or his agent lawfully
obtains the possession of the goods
(Example : In case of INCOTERMS)
3. The right of lien once lost will not be
restored (subject to one exception only)
 A seller “S” sells a TV set to “B” and delivers
it to “B” and since the TV set was not
functioning properly , “B” delivered it back
to “S” for the repairs.

 The goods does not get the custom

clearance due to the packing issue and for
that the goods returned back to the seller
after having been delivered to the carrier.

Question: Whether Right of Lien still exist

2.RIGHT OF STOPPAGE IN TRANSIT[Sec. 50 to 52]

Means stoppage of goods while

they are in transit to take possession
until the price is paid (sec.50-52)

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 Unpaid seller can stop the goods in transit in
the following cases.
1. While the buyer becomes insolvent

Example:”A” sells TV set to “B”. “A” delivers the TV

to the carrier to carry it to “B”. Later on gets
news that “B” has become insolvent; “A” can
stop delivery.

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 3.RIGHT TO RE-SALE

If a buyer fails to pay or offer the price within a

reasonable time, the unpaid seller has the right
to resell the goods in the following
circumstances.

1. Where the unpaid seller has exercised his right of lien

and gives a notice to buyer of his intention of resell
the goods.
2. Where the unpaid seller has expressly reserved his
right of resale.

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The Sale of Goods Act gives the following remedies
to a seller and buyer for a breach of a contract of
sale:

 Seller’s suits /Right against the buyer personally

Suit for price(Sec. 55)
Suit for damages for non-acceptance of the
goods(Sec.56)

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 Buyer’s suits
Suit for damages

Suit for specific performance(Sec.58)

 It is very important to understand the rights
of unpaid seller so as to overcome the loss
which may be suffered in case the buyer
denies to make the payment

 In case the seller refuses to give goods it

becomes important to recover the goods and
damages
 The buyer should be careful to see that the
goods purchased will serve his purpose well

 If the buyer is not careful and he finds later

on that the goods do not serve his purpose,
he cannot held the seller liable for it

 If the buyer asks goods by taking their trade

name
 The rule of caveat emptor owes its origin to
the times when nearly maximum sales took
place in the open market

 The exception has now become more

prominent than the rule itself
 Sale of goods by description
 The goods sold must be of merchantable

quality
 In case of wholesomeness (food

products/eatables)
 Condition as to quality or fitness
 Sale of goods by showing the Sample
 Seller must have the title of Goods
Where the seller has agreed to supply goods
of a particular brand, the goods must bear
that brand only
Example:
https://youtu.be/UR9hTcofU1E?t=167

 Description must be of fact and not of mere

opinion
Goods shall correspond to description where
they have been sold by description
Case Law 1:
Leaf v. International galleries (1950)

 Where the goods quantity is described it must

match with the description
Example : Sealing of Petrol Pumps in UP in
2017
 Packing of the goods must be according to
the description. If it is not so, the buyer is
entitled to reject the goods and can claim
compensation from the seller.
 Merchantability means that the goods are
marketable under the description by which
they are known in the market .
 It means that there is no defect in the goods
which makes them unfit for sale (for e.g. If
sugar has the moisture content and has
turned into a sharbat, it cannot be called
merchantable.
 Adulterated goods

Example:
 Milk,
 Ban of Maggi case,
 vegetables,
 vegetable oils,
 confectionery and many more
products
 In case of eatables the goods must be fit for
human consumption

 A Comptroller & Auditor General (CAG) audit

report on the catering services in the Indian
Railways has observed the food articles unfit
for human consumption in the year July, 2017
Source: https://cag.gov.in
 Ordinarily the doctrine of ‘Let the buyer beware’
applies

 Where the article can be used only for one

particular purpose, the buyer need not inform the
seller the purpose for which the goods are required
 Where the buyer, makes known to the seller
the particular purpose for which the goods
are required, the goods shall be reasonably
fit for such purpose
 Facts of the case:
The buyer asked the dealer for a car suitable for
touring purpose and the seller gave him a Bugatti
car. A contract for the sale of the car was made.
Later, the buyer found that the car was unsuitable
for touring.
 Judgment of the case

The Court of Appeal held that the dealer was

liable because the buyer had relied on the
dealers judgment in selecting a suitable car
for the specific purpose stated by the buyer
(even though the car was bought under its
trade name).
 The bulk shall correspond to the sample

 The buyer should be given a reasonable

opportunity to compare the goods (bulk) with
the sample
 Facts of the case:
A sold some quantity of seeds to B by showing
the sample as ‘Common English Sanfoin’. Later
on, it was found that the seeds delivered to B
were not ‘Common English Sanfoin’ but ‘Gain
Sanfoin’, which was different and of inferior
quality. B accepted the goods believing it to be
‘Common English Sanfoin’.
 Judgment of the case

 The bulk must resemble with the sample

shown and it was different from the sample in
this particular case and hence B can sue A in
a court and can claim damages from A…
 Remedy for the buyer
 Where he will have to file a case
 Difference between civil court and consumer

court
 Niblett
v Confectioners' Material
[1921] 3 KB 387 Court of Appeal
The claimant purchased 1,000 tins of condensed milk from the
defendant. The tins were labelled 'Nissly'. Nestle told the
claimant that if they attempted to sell these on, they would
apply for an injunction to prevent the sale as the label was
very similar to Nestle's labels for their condensed milk. The
claimants agreed not to sell them and brought an action
against the sellers.
Held:
The sellers did not have the right to sell the goods
and therefore the buyers were entitled to repudiate the
contract.
 In the changing scenario of business, the
seller is more obliged towards the buyer to
care of his rights
 Legal perspective can be attained only if the

seller understands the things with the ethical

and moral perspective
 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/Cancelled
 Breach of condition gives buyer a right of
cancellation of a contract, which means 2
Rights are given to a buyer:

1. Right to return the Goods

2. Right to claim damages
 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 a right to

reject the goods and treat the contract as

repudiated
 Breach of Warranty gives buyer only one
Right :

1. Right to claim damages only

The seller does not have any right to cancel

the contract on a whole.
 Conditions may be express or implied.

Express condition:
Express condition are those which have
been expressly agreed upon by the parties at the time
of contract of sale

Implied condition:
Implied condition are those which the
law incorporates into the contract.

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 IMPLIED
CONDITION

As to
Description

As to Sample
As to Quality or
Fitness

As to
Merchantability As to
Wholesomeness
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 Condition as to Title
 Condition as to description
 Condition as to sample
 Condition as to description and sample
 Condition as to quality
 Condition as to merchantability
 Condition as to wholesomeness
 No person can transfer a better title than
what he has
 if a person buy goods from a thief, will also

be called a thief
 However this is subject to certain exceptions

or we can say there are cases in which non-

owner can transfer the title
Sale by an unpaid seller
Sale by finder of goods
In case of pledge
In case of insolvency by an official assignee
 Partnership refers to an  Limited Liability
arrangement wherein Partnership is a form of
two or more person business operation
agree to carry on a which combines the
business and share features of a
profits & losses partnership and a
mutually company.
 Indian Partnership Act,  Limited Liability
1932 Partnership Act, 2008
 Optional  Mandatory
 Partnership deed  LLP Agreement

PARTNERSHIP LLP
 Unlimited
 Partners are collectively
known as firm, so
there is no separate
legal entity.
 Any name
 Not mandatory
 Limited to capital
contribution
 It has a separate legal
status.
 Name containing LLP
as suffix
 Mandatory, only if
turnover and capital
contribution
overreaches 40 lakhs
and 25 lakhs
respectively.

PARTNERSHIP LLP