Unit 2

The Sale of Goods

Act,1930
Introduction
 The Sale of Goods Act is a kind of Indian Contract
Act. It came into existence on 1 July 1930.
 It is a contract whereby the seller transfers or agrees
to transfer the title (ownership) in the goods to the
buyer for consideration.
 It is applicable all over India, except Jammu and
Kashmir.
 The goods are sold from owner to buyer for a certain
price and at a given period of time.
 The name Indian is removed from the act with effect
from 23 September 1963 hence the act name is
now Sale of Goods act 1930.
Definition
 "" According to section 6 of the Indian sales of goods act,
a contract of sales means such contract by which the seller
transfer the title or ownership of the goods to the buyer or
makes an agreement to transfer it against a fixed price ""
 1. Buyer :A person who buys or agrees to buy goods.
 2. Seller :A person who sells or agrees to sell goods.
 3. Goods :Every kind of movable property other than

actionable things and money.

 4. Existing goods : Goods which are in existence at the

time of contract of sale.

 5. Future goods: Goods which are to be manufactured

/produced by seller after making contract of sale.

 6. Specific goods: Goods which are identified & agreed

upon at the time of contract of sale has been made ..

Contract of Sale
 Section4 of the Sale of Goods Act
defines a contract of sale as
under:
“A contract of sale of goods is a
contract whereby the seller
transfers or agrees to transfer the
property in goods to a buyer for a
price.”
Elements of Contract of Sale
1. Sale or Absolute Sale: Where the property
(ownership) in the goods is immediately
transferred from the seller to the buyer, and
nothing is left on the part of the seller, there is
a sale or absolute sale. Counter sale in a shop
is a sale or an absolute sale.
2. Agreement to sell or Conditional Sale: Where
the transfer of property (ownership) in the
goods shall take place in future or on the
fulfillment of certain conditions, it shall be an
agreement to sell or a conditional sale.
Essentials of a Contract of Sale

 A valid Contract
 Two parties
 Agreement for the transfer of ownership
 Goods
 Price
Difference between Sale and
Agreement to sell
 Nature of Contract:
An agreement to sell is an executory
contract, is a contract pure and simple and no
property passes; whereas a sale is an
executed contract plus a conveyance.
 Transfer of Property (ownership):

In sale the property in goods passes

from seller to buyer immediately and buyer
becomes the owner of the goods
immediately.
Continue….
 Risk of loss:
In a sale, if the goods are destroyed, the
risk of loss falls on the buyer even if the
goods were in the possession of the seller
because the risk of loss passes with the
ownership.
But in an agreement to sell if goods are
destroyed the risk of loss falls on the seller
even if the goods were in the possession of
buyer because ownership has not passed from
the seller to buyer and risk passes with the
ownership.
Continue…
 Consequences of the breach
On breach of an agreement to sell by the
seller, the buyer has only a personal remedy
against the seller. But if after a sale the seller
breaks the contract (e.g. resells the goods)
the buyer may sue for delivery of the goods
or for damages.
In an agreement to sell, if the buyer fails
to accept the goods the seller may sue for
damages only and not for the price. On sale,
if the buyer does not pay the price, the seller
may sue him for the price.
Continue..
 Insolvency of the buyer:
In a sale, if the buyer is adjudged an
insolvent, the seller in the absence of a lien
over the goods is bound to deliver the goods
to the Official Receiver or Assignee. The seller
will, however, be entitled to a rate able
dividend for the price of the goods.
In an agreement to sell, when the buyer
becomes insolvent before he pays for the
goods, the seller may not part with goods.
Continue…
 Insolvency of the seller:
In a sale, if the seller becomes insolvent,
the buyer is entitled to recover the goods
from the Official Receiver or Assignee as the
property of the goods is with the buyer.
In an agreement to sell, if the buyer has
already paid the price and the seller becomes
insolvent, the buyer can claim only a rate able
dividend and not the goods.
Conditions and Warranties
MEANING OF CONDITION:
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.
Essentials of a Condition
1. It is essential to the main purpose of the
contract.
2. The non fulfillment of condition causes
irreparable damage to the aggrieved party
which would defeat the very purpose for
which the contract is made.
3. The breach of a condition gives a right to
the aggrieved party to rescind the contract
and recover the damages for breach of
condition.
 Meaning of Warranties

 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.
Essentials of a Warranty
1. It is collateral to the main purpose of
the contract.
2. The breach of warranty causes
damage to the aggrieved party and
does not defeat the main purpose of
the contract.
3. The aggrieved party can only claim
the damages for breach of warranty
but can not repudiate the contract.
Difference between a Condition and
Warranty
1. Importance in contract: Condition is a
stipulation which is essential to the main
purpose of the contract, whereas warranty
is a stipulation which is collateral to the
main purpose of the contract.
2. Consequences of breach: The breach of
condition gives a right to the aggrieved
party to repudiate the contract and claim
damages, whereas the breach of warranty
gives the aggrieved party a right to claim
damages only i.e. aggrieved party can not
repudiate the contract.
Difference (Continue)..
3.Option of treatment: In the case of
condition, a breach of condition can be
treated as a breach of warranty as an
option on the part of the aggrieved
party, whereas in breach of warranty
there is no such option available to the
aggrieved party i.e. breach of warranty
can never be treated as breach of
condition.
When Condition to be treated as
warranty
1. Voluntary waiver by buyer: In a contract of sale,
although on a breach of condition by a seller, the buyer has a
right to treat the contract as repudiated and he can reject the
goods, but he is not bound to do so. Instead he can elect to
waive the condition i.e. to treat the breach of condition as
breach of warranty and accept the goods and sue the seller for
damages for breach of warranty.
Example: X agrees to sell Y, 100 bags of particular quality of
Basmati rice @Rs.4500 per bag. But he supplied second quality
Basmati rice @Rs.3500 per bag. It is breach of condition and
he can refuse to accept the delivery by rejecting the goods. But
if the buyer elect to treat the breach of condition as breach of
warranty, he can accept the second quality Basmati rice and
claim the damages @Rs.1000 per bag.
Continue…
2. Treating the condition as warranty: The buyer
may elect to treat a breach of a condition as a
breach of warranty.
The two cases mentioned above are voluntary in
nature and depend solely on the will of the buyer.
On discovery of the breach of a condition a party
having the right to repudiate the contract must
exercise it; and if he does not, he is taken to have
waived his right to repudiate it.
Transfer of Ownership
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.
Significance of Transfer of Ownership
 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.
 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.
 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.
 Suit for Price - The seller can sue the buyer for the price, unless otherwise

agreed, only after the gods have become the property of the buyer.
 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.
Transfer of title by non-owner
 A sale is a contract plus a conveyance. As a
conveyance it involves transfer of title of
goods from the seller to the buyer. If the
seller’s title is defective, the buyer’s title will
also be defective. A person can only transfer
what he has. No one can transfer a better title
to the goods than he himself possesses.
 This principle is expressed by the Latin
phrase, “Nemo dat quad non habet”, which
means “none can give who does not himself
possess”.
Exceptions
 1. Transfer of title by estoppels [(Sec. 27)] :
When the true owner of the goods by his conduct or words
or by any act or omission leads the buyer to believe that the
seller is the owner of the goods or has the authority to sell
them, he cannot afterwards deny the seller’s authority to sell.
 2. Sale by a mercantile agent [ Sec. 27]:

Sale of goods by a mercantile agent gives a good title to

the purchaser even in cases where the agent acts beyond his
authority, provided the following conditions are satisfied—
(i) The agent is in possession of the goods or of a document of
title to the goods.
(ii) Such possession is with the consent of the owner.
(iii) The agent sells the goods in the ordinary course business.
(iv) The purchaser acts in good faith and has no notice that the
agent had no authority to sell.
Exception(Continue..)
 3. Sale by one of several joint owners [Sec. 28]:
This section enables a co-owner to sell not only his own share but
also of his other co-owner. If one of several joint owners of goods
has the sole possession of them by permission of the co-owners, the
property in the goods is transferred to any person who buys them
from such joint owner provided the buyer acts in good faith and
without notice that the seller had no authority to sell.
 4.Sale by an unpaid seller [Sec. 54]: An unpaid seller of goods
can, under certain circumstances, re-sell the goods. The
purchaser of such goods gets a valid title of the goods.
 5.Sale of goods obtained under a voidable agreement [Sec.
29] :When the seller of goods has obtained possession thereof
under a voidable agreement but the agreement has not been
rescinded at the time of sale, the buyer obtains a good title to the
goods, provided he buys them in good faith and without notice of
the seller’s defect of title.
Performance of contract of sale
Modes of delivery:
1. Actual delivery. Example: Mrs. Anu sells a car to Mr. Narain. Car
is delivered to Mr. Narain. It will be called the actual delivery.
2. Symbolic delivery: not possible to give control is transferred.
Example: Mr. Ram sells the car to Mr. Anarta which are kept in
the "Show Room". Mr. Ram gives the key of show room to Mr.
Anarta. It is a symbolic delivery.
3. Constructive delivery: change in possession without actual
change in custody. Example:
Mr. Andor has bus, which he has rented out to Mr. Nelson. It is in the
custody of Mr. Nelson. Mr. Andor sells and transfers complete title to
Mr. Hick. The bus remained in the custody of Mr. Nelson. There is no
change in the custodian. Here only the title of the property has
changed. Now Mr. Nelson agrees to hold on behalf of the buyer. It is
called constructive delivery.
Right of Buyer
 Right to take delivery.
 Right to reject.
 Right to notice of insurance.
 Right to examine.
 Right to sue for damage.
 Right to sue for price.
 Right to sue for performance.
 Right to cancel contract.
 Right to sue for breach of warranty.
Duties of Buyer
 Duty to accept goods.
 Duty to demand delivery.
 Duty to take risk.
 Duty to inform seller.
 Duty to take delivery.
 Duty to pay price.
 Duty to pay for damages.
Unpaid seller
 A seller of goods is an unpaid seller within the
 meaning of the Sale of Goods Act 1979 when 
the whole price has not been paid.
 Example:

1. Party A sells a car on cash basis to party B

and the price has not been received yet.
2. A sells good to B on 5 months credit period
and B turns insolvent after 2 months.
Features of Unpaid Seller
1. He must sell goods on the cash basis and
must be unpaid. 
2. If he sells on credit basis, he is not an unpaid
seller during the period of credit.
3.  The term of credit has expired and the price
has not been paid to him.
4. He must be unpaid wholly or partially. If a part
of price remains unpaid, he is unpaid. 
5. If buyer offers payment and seller refuses to
accept, the seller is not an unpaid seller.
Rights of unpaid seller:
 
1. Rights against the goods.
A.  Rights of lien 

B. Right of stoppage of goods in transit 

C. Right of resale

2. Rights against buyer personally.

D. Suit for price 
E. Suit for damages for non-acceptance 
 Rights Against the Goods
 Right to lien: The right of lien means lawfully
right to retain the goods possession until the
full price is received.
 Right to stoppage of goods in transit: It

means stoppage of goods while they are in

transit to take possession until the price is
paid.
 Right to resale: If a buyer fails to pay or offer

the price within a reasonable time, the unpaid

seller has the right to resell the goods.
Right against buyer personally
1. Suit for price: Where ownership of the goods
has passed to the buyer and the buyer refuses
to pay the price according to the terms of the
contract, the seller can sue the buyer for
price, irrespective of delivery of the goods.
2. Suit for damages for non-acceptance: Where
the buyer refuses to accept and pay for the
goods, the seller may sue him for damages
for non-acceptance. The seller can recover
damages only and not the full price.