DEPARTMENT OF COMMERCE WITH CA

BUSINESS LAW
II. B.COM (CA)
Unit – III

SALE OF GOODS ACT, 1930

Indian Sale of Goods Act 1930 is a Mercantile Law. 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.Section-2(1)
2. Seller A person who sells or agrees to sell goods.section-2(13)
3. Goods Every kind of movable property other than actionable things and money, includes
stocks and share, growing crops and grass and things attached to or forming to a part of land
which is agreed to be severed before the sale or under the contract of sale.section-2(7)
4. Existing goods Goods which are in existence at the time of contract of sale.section-6

5. Future goods Goods which are to be manufactured /produced by seller after making contract
of sale.section-2(6)

6. Specific goods Goods which are identified & agreed upon at the time of contract of sale has
been made. Section-6(2).

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MAIN DIFFERENCES BETWEEN SALE AND AGREEMENT TO SELL 

No Sale Agreement to Sell

1 Meaning: where the Property Meaning: where the transfer of
immediately transferred from property in goods is to take place
seller to buyer, it is called in future, from seller to buyer is
‘Sale’. called ‘Agreement to Sell’.
2 Definition: Sale can be defined Definition: in case where the
as “transfer of ownership in the seller agrees with the buyer to
goods by the seller to buyer in transfer the title of ownership on a
exchange of price paid or future date upon satisfying certain
promised or partly paid and condition is called as ‘Agreement
partly promised. to Sale’.

3 Example: ‘X’ sold 10 bags of Example: ‘X’ agrees to sell 10

Wheat to ‘Y’ against payment of bags of wheat to ‘Y’ for Rs.3,000
Rs. 3,000.  after getting the stock.
4 In contract of sale property in In agreement to sell, property in
goods transfers from seller to goods does not transfer
buyer immediately immediately 
5 Contract of sale is an executed Agreement to Sell is an executory
contract contract
6 It creates right in rem  It creates rights in personam
7 The seller can sue the buyer for The seller can sue the buyer only
case of breach of contract. for damages but not for the price.
8 Sale is liable for the Sale Tax. Agreement to sale is not liable for
the Sale Tax.
9 Seller has no right of resale. Seller has right of resale.
10 If the goods are destroyed, the The loss fall on the seller even
loss is borne by the buyer even though the goods are in the

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though the goods are in the possession of the buyer.

possession of the seller.
Conditions and Warranties

Implied Conditions and Warranties under the Sale of Goods Act

The Sale of Goods Act came into effect on 1st July 1930 and deals with the contracts or
agreements related to sale/purchase of goods. The contract of sale of goods, whereby a seller
transfers or agrees to transfer the property in the goods to the buyer for a specific consideration,
i.e. price, has following main essentials for its validity:
1. Two consenting parties
o Buyer – A person who buys or agrees to buy goods.
o Seller – A person who sells or agrees to sell goods.
2. Goods- Form the subject-matter for the contract of sale.
3. Transfer of the property- may or may not involve physical delivery of the goods.
4. Price- consideration for the goods.
5. All the essentials of a valid contract (1)

The central concept of condition and warranty with respect to the subject matter of the
contract of sale, i.e. goods is explained in section 12 of the Sale of Goods Act, 1930 as a
‘stipulation’ in the contract of sale which may be a condition or warranty.

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’ (8).
A condition is referred to as, an essential element attached to the subject matter of an
agreement which is mentioned by the buyer to the seller and is either expressed or implied while
entering into the contract. The buyer can refuse to accept the goods delivered by the seller, in
case of non-compliance with the condition mentioned by the seller in the contract. The
condition may be express or implied.

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If while entering into a contract, the buyer mentions (in words or writing) that the goods
are to be delivered to him before a given date, the date is taken as a condition to the contract
since the buyer expressed it. Whereas, if a buyer contracts to buy a red-coloured saree for her
‘wedding’ which is to be held on a date mentioned to the seller, then the time is the implied
condition for the contract. Even if the buyer doesn’t mention the date of delivery (but has
mentioned the date of the wedding or occasion), it is implied on the part of the seller that the
garment is to be delivered before the mentioned date of the wedding. In this case, the seller is
bound to deliver the garment before the date of the wedding as the delivery of the garment after
the said date of the wedding is of no use to the buyer and the buyer can refuse to accept the
same since the condition to the contract is not fulfilled.

WARRANTY
‘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’.

A warranty is referred to as extra information given with respect to the desired good or
its condition. The warranty is of secondary importance to the contract for its fulfillment. Non-
compliance of the seller to the warranty of the contract does not render the contract repudiated
and hence, the buyer cannot refuse to buy the good but can only claim compensation from the
buyer.

CONDITION WARRANTY

A condition is of primary importance. A condition is of secondary importance.

In case of a breach of warranty, the

Breach of condition leads to termination of the
injured party is liable to be
contract.
compensated.

The injured party can refuse to accept the goods as The Injured party can only claim
well as claim damages in case of breach of
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condition. damages in case of breach of warranty.

The Injured party cannot refuse to

The injured party can refuse to accept goods not
accept the goods not fulfilling the
fulfilling the condition of the contract.
warranty.

A condition can be treated as a warranty on the A warranty cannot be treated as a

wish of the buyer. condition.

Defined in Section 12(2) of the Sale of Goods Act, Defined in Section 12(3) of the Sale of
1930. Goods Act, 1930.

Implied Conditions and Warranties under the Sale of Goods Act

Section 14-17 of the Sale of Goods Act, 1930 deal with the implied conditions and warranties
attached to the subject matter for the sale of a good which may or may not be mentioned in the
contract.

IMPLIED CONDITION

Condition as to Title [Section 14(a)]

Section 14(a) of the Sale of Goods Act 1930 explains the implied condition as to title as
‘in the case of a sale, he has a right to sell the goods and that, in the case of an agreement to sell,
he will have a right to sell the goods at the time when the property is to pass’.

This means that the seller has the right to sell a good only if he is the true owner and
holds the title of the goods or is an agent of the title holder. When a good is sold the implied
condition for the good is its title, i.e. the ownership of the good. If the seller does not own the
title of the said good himself and sells it to the buyer, it is a breach of condition. In such a
situation the buyer can return the goods to the seller and claim his money back or refuse to
accept the good before delivery or whenever he learns about the false title of the seller.

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Sale by Description (Section 15)
Section 15 of the Sale of Goods Act, 1930 explains that when a buyer intends to buy
goods by description, the goods must correspond with the description given by the buyer at the
time of formation of the contract, failure in which the buyer can refuse to accept the goods.

Sale by Sample (Section 17)

When the goods are to be supplied on the basis of a sample provided to the seller by the
buyer while the formation of a contract the following conditions are implied:

● Bulk supplied should correspond with the sample in quality

● Buyer shall have a reasonable opportunity to compare the goods with the sample
● The good shall be free from any apparent defect on reasonable examination by the
buyer.

Sale by sample as well as Description (Section 15)

When the sale of goods is by a sample as well as a description the bulk of the goods
should correspond with both, i.e. description and sample provided to the seller in the contract
and not only sample or description.

Condition as to Quality or Fitness (Section 16)

The doctrine of Caveat Emptor is applicable in the case of sale/purchase of goods, which
means ‘Buyer Beware’. The maxim means that the buyer must take care of the quality and
fitness of the goods he intends to buy and cannot blame the seller for his wrong choice.
However, section 16 of the Sale of Goods Act 1930 provides a few conditions which are
considered as an implied condition in terms of quality and fitness of the good:

● When the buyer specifies the purpose for the purchase of the good to the seller, he relied
on the sound judgment and expertise of the seller for the purchase there is an implied
condition that the goods shall comply with the description of the purpose of purchase.
● When the goods are bought on a description from a person who sells goods of that
description (even if he doesn’t manufacture the good), there is an implied condition that
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the goods shall correspond with the description. However, in case of an easily
observable defect that is missed by the buyer while examining the good is not
considered as an implied condition.

WARRANTY

Enjoy Possession of the Goods [Section 14(b)]

Section 14(b) of the Act mentions ‘an implied warranty that the buyer shall have and
enjoy quiet possession of the goods’ which means a buyer is entitled to the quiet possession of
the goods purchased as an implied warranty which means the buyer after receiving the title of
ownership from the true owner should not be disturbed either by the seller or any other person
claiming superior title of the goods. In such a case, the buyer is entitled to claim compensation
and damages from the seller as a breach of implied warranty.

Goods are free from any charge or encumbrance in favour of any third party [Section 14(c)]
Any charge or encumbrance pending in favour of the third party which was not declared
to the buyer while entering into a contract shall be considered as a breach of warranty, and the
buyer is be entitled to compensation and claim damages from the seller for the same.

Transfer of general property:

There must be a transfer of general property as distinguishes from special property in
goods from the seller to the buyer. For e.g. if A owns certain goods he has general property in
the goods. If he pledges them with B, B has special property in the goods.

Transfer of title
The process that makes something the legal property of another person or an occasion
when this happens: Product revenue is recognized upon transfer of title and risk of loss to the
customer.
In a contract of sales ownership or title of goods are transferred from one person to
another in exchange of money, the main motive behind the making of the contract is a transfer
of rightful ownership and possession from a seller to a buyer, so this element lays down the
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groundwork for the making of a contract. According to a Latin maxim, Nemo dat quod non-
habet which means that no one can transfer a better title than he himself has, only the owner of
the goods can pass the lawful ownership or title of goods to the buyer. This principle is
enshrined in Section 27 of The Sale of Goods Act, if the title of seller is defective and if this
defective title is passed on to the buyer , then the buyer’s title would also be the same, and he
will have no rights on goods despite the fact that he acted in good faith and paid the price.
In Cundy V Linsay,  the claimant received an order for sale of handkerchiefs from a
person named Blenkarn, who signed in his name in a manner resembling “Blenkiron & Co.”- a
reputed firm located at “123, Wood Street”. The purchaser further mentioned his address to be
at “37, Wood Street, Cheapside”, to which the claimant sent the goods. Although no payment
was made by Blenkarn, he sold the goods to a third person- the defendants.
Later, the claimants alleged that, as they sold the goods to Blenkarn under the mistaken
assumption that they were selling it to Blenkiron & Co., there was no real consent to the
contract of sale. Consequently, there was no valid transfer of title, which remained with the
claimants, and accordingly, they sued the defendants for the conversion of goods. Hence, the
defendants, being in possession without a good title over such goods, were held liable for
conversion.

Remedies for Breach of Contract

When a promise or agreement is broken by any of the parties we call it a breach of contract. So
when either of the parties does not keep their end of the agreement or does not fulfill their
obligation as per the terms of the contract, it is a breach of contract. There are a few remedies
for breach of contract available to the wronged party. Let us take a look.

1] Recession of Contract

When one of the parties to a contract does not fulfill his obligations, then the other party
can rescind the contract and refuse the performance of his obligations.

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As per section 65 of the Indian Contract Act, the party that rescinds the contract must
restore any benefits he got under the said agreement. And section 75 states that the party that
rescinds the contract is entitled to receive damages and/or compensation for such a recession.

2] Sue for Damages

Section 73 clearly states that the party who has suffered, since the other party has broken
promises, can claim compensation for loss or damages caused to them in the normal course
of business.

Such damages will not be payable if the loss is abnormal in nature, i.e. not in the ordinary
course of business. There are two types of damages according to the Act,

● Liquidated Damages: Sometimes the parties to a contract will agree to the amount payable
in case of a breach. This is known as liquidated damages.

● Un liquidated Damages: Here the amount payable due to the breach of contract is
assessed by the courts or any appropriate authorities.

3] Sue for Specific Performance

This means the party in breach will actually have to carry out his duties according to the
contract. In certain cases, the courts may insist that the party carry out the agreement.
So if any of the parties fails to perform the contract, the court may order them to do so.
This is a decree of specific performance and is granted instead of damages.

For example, A decided to buy a parcel of land from B. B then refuses to sell. The courts
can order B to perform his duties under the contract and sell the land to A.

4] Injunction
An injunction is basically like a decree for specific performance but for a negative
contract. An injunction is a court order restraining a person from doing a particular act.

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So a court may grant an injunction to stop a party of a contract from doing something he
promised not to do. In a prohibitory injunction, the court stops the commission of an act and in a
mandatory in junction; it will stop the continuance of an act that is unlawful.

5] Quantum Meruit

Quantum meruit literally translates to “as much is earned”. At times when one party of
the contract is prevented from finishing his performance of the contract by the other party, he
can claim quantum meruit.

So he must be paid a reasonable remuneration for the part of the contract he has already
performed. This could be the remuneration of the services he has provided or the value of the
work he has already done.

Unpaid seller
Clause 3 of Section 54 states that when an unpaid seller has exercised his right of lien
or stoppage resells the goods, the buyer will acquire the rightful title of goods notwithstanding
that no notice of resale has been given to the original buyer. This can be understood clearly by
following cases:
Great Indian Peninsula v Hanmandas, the seller consigned the goods with the GIP Ry Co for
transportation to the buyer. On the arrival at the destination, the company had delivered the
goods to the buyer who had loaded them on his cart, but the cart had not yet left the railway
compound when a telegram was received by the company to stop the goods. The company did
not do so and were sued by the seller in damages. It was held that the transit had ended as soon
as the goods were handed over to the buyer.

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

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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

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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.

But if the parties do not have such specific terms, still the court may award the seller
with the interest amount due to him at a rate which it sees fit.

AUCTION SALE

We have all come across an auction at some time. Auctions have certain distinct
characteristics like the bidding process, the hammer, the whole setting is quite interesting. Did
you know that such auction sale is covered under the Sale of Goods Act? Let us have a look at
the rules of an auction sale.
An auction sale is a public sale. The goods are sold to all members of the public at large
who are assembled in one place for the auction. Such interested buyers are the bidders. The
price they are offering for the goods is the bid. And the goods will be sold to the bidder with the
highest bid.

The person carrying out the auction sale is the auctioneer. He is the agent of the seller.
So all the rules of the Law of Agency apply to him. But if an auctioneer wishes to sell his
own property as the principal he can do so. And he need not disclose this fact, it is not a
requirement under the law.

RULES OF AN AUCTION SALE

As we saw previously, the rules regarding an auction sale are found in the Sale of Goods
Act. Section 64 of the Act specifically deals with the rules governing an auction sale. Let us
take a brief look.

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1] Goods Sold in Lots

In an auction sale, there can be many goods up for sale of many kinds. If some particular goods
are put up for sale in a lot, then each such lot will be considered a separate subject of a
separate contract of sale. So each lot ill prima facie be the subject of its own contract of sale.

2] Completion of Sale

The sale is complete when the auctioneer says it is complete. This can be done by actions also –
like the falling of the hammer, or any such customary action. Till the auctioneer does not
announce the completion of the sale the prospective buyers can keep bidding.

3] Seller may Reserve Right to Bid

The seller may reserve his right to bid. To do so he must expressly reserve such right to bid. In
this case, the seller on any person on his behalf can bid at the auction.

4] Sale Not Notified

If the seller has not notified of his right to bid he may not do so under any circumstances. Then
neither the seller nor any person on his behalf can bid at the auction. If done then it will be
unlawful. The auctioneer also cannot accept such bids from the seller or any other person on his
behalf. And any sale that contravenes this rule is to be treated as fraudulent by the buyer.

5] Reserve Price

An auction sale may be subject to a reserve price or an upset price. This means the auctioneer
will not sell the goods for any price below the said reserve price.

6] Pretend Bidding

But if the seller or any other person appointed by him employs pretend bidding to raise the price
of the goods, the sale is voidable at the option of the buyer. That means the buyer can choose to
honor the contract or he can choose to void it.

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7] No Credit

The auctioneer cannot sell the goods on credit as per his wishes. He cannot accept a bill of
exchange either unless the seller is expressly fine with it.

RULES RELATING DELIVERY OF GOODS

1. Delivery Ways
When goods are sold then delivery can be made by symbolic, actual or constructive way. It
depends upon the parties that which way they adopt.
2. Time of Delivery
The seller should deliver the goods on a specified date. If the time is not fixed then delivery
should be within a reasonable time.
3. Payment and Delivery
Both the actions should be at the same time. The buyer should make the payment and seller
should deliver the goods in exchange of payment at the same time, just like the cash sale on
the customer of a super stores.
4. Place of Delivery
A delivery of goods should be at a specified place mentioned in the contract.
Example :- "X" agrees with "Y" to supply furniture on 38-Tipu Road Ahmadabad. "X" is
bound to supply the goods on the same place, where parties made contract.
5. Delivery Expenses
The expenses of putting the goods into deliverable state must be born by the seller,
otherwise as the parties agree.
Example :- "X" sells the T.V to "Y". The expenses of packing the T.V will be born by the
seller.
6. Delivery to Carrier
When seller is required to send the goods to the buyer, the delivery to carrier is considered
delivery to the buyer.
Example :- "X" sells computer to "Y". "X" handed over the computer to the carrier to be
delivered to "Y". It means delivery has been made.
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7. Defective Delivery
A buyer can reject or accept the defective and wrong delivery. In case of rejection buyer is
not bound to return it to the seller.
Example :- Mr. Imik buys 1000 books of Economics from Khan publishers. A publisher
sends 500 books. Mr. Imik may reject the whole or accept 500 and ask for the rest.
8. Good in the Custody of Third Party
If the sellers goods are in the custody of the third party, the delivery is not possible until the
third party agrees to handed over the sold goods to the buyer on behalf of the seller.
Example :- "M" has his cycle in the store of "Y". "M" sells the cycle to "B" and gives him
letter to take from "Y". "Y" agrees to deliver the cycle to "B".
9. Delivery in Installments
The buyer is not bound to receive the goods in installments but if the buyer and seller are
agree then the delivery of goods may be made in installments.
10. Buyer Should Apply for Delivery
It is the duty of the buyer that he should apply for the delivery of goods. The seller is not
bound to supply the goods without the demand of the buyer. If seller fails to supply the
goods on demand then he will be held responsible.
11. Partial Delivery Effect
If some portion of the goods has been made with the intention of delivering the rest of goods
then the ownership of the whole goods is deemed to pass to the buyer as some portion is
delivered.
Example :- "X" sold 10 bikes to "Y". "Y" received 5 and paid their price. "Y" refused to
accept the rest 5 bikes. It was a partial delivery.
12. Refusal of Buyers Liability
When seller is ready to sell the goods. While buyer is not ready to accept the delivery, then
buyer will be liable to the seller for the loss arising due to his refusal.
Example :- "X" agrees to sell out ten bags of apples to "B". "B" refuses to take delivery.
Apples destroy and "X" suffers a loss. "X" is entitled to claim damages from "B".
13. Acceptance Of Buyer

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The buyers acceptance can be judged by the following facts :
1. Buyer himself can intimate the seller that he has accepted the goods.
2. By his any action related to the goods like resale or by pledge.
3. When he retains for a reasonable time, it means he has accepted the goods.

******

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