SALE OF GOODS ACT

A) INTRO
1) Came into force 01/07/1930.
2) Applicable all over India.

CONTRACT OF SALE
As per section 4(1) “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.” According to Section 4(2),
a contract of sale may be absolute or conditional.

Essentials of contract :
1) Bilateral contract : Two parties should involved buyer and seller.
2) Transfer of property : Ownership in goods must be transferred from one person to
another person.
3) Goods : The subject matter must be goods (not service).
4) Consideration : Price must be paid for goods barter system does not come under sale of
goods Act.
5) All essentials of valid contract must be present in a contract of sale.

Agreement to sale :
The sale in which ownership is transferred in future or time lapses or subject to conditions
fulfilled which leads in transfer of ownership.

Contract of sale :
1) The sale for which offer to buy or sale is made and such offer is accepted.
2) The contract of sale can be expressed(written or oral or partly mixed) or implied.
3) It may be immediate delivery or immediate payment or both
4) It may be delivered or paid in installments.
5) Delivery and payment or both may be postponed.

Existing or future goods :

1) The goods owned or possessed by seller or future goods.
2) There may be a contract for sale of goods on which acquisition of goods by seller himself
is uncertain.

Goods perishing before making contract :

If goods perished without knowledge of seller and seller agreed to sell the goods then it is
void.

Goods perishing before sale but after agreement to sell :

If goods perished without any fault of seller or buyer after agreement is made but before
sale then that contract can be avoided.

Agreement to sell at valuation :

1) Where buyer and seller agreed that the goods shall be valued(priced) by the third party
and such third party can not or does not value the goods then the agreement is avoidable
and If buyer received goods partly or fully then he shall pay reasonable price.
2) If such third party is prevented from valuation either by seller or buyer then the party not
in fault can claim damages.
B) Contract of sale vs Agreement to sale :
S.no Contract of Sale Agreement to sale
Ownership in property is transferred Ownership is not transferred but
1. i.e, Executed Contract. agreed to sale
i.e, Executary Contract.
2. Sales takes place only for existing and Future and contingent goods.
specific goods
3. Risk lies with buyer. Risk lies with seller.
4. Jus in rem. Jus in personam.
(right against the whole world) (right against particular person)
5. Default
Seller in Buyer can sue seller for Goods Buyer can sue seller for Damages
default and Damages. only.
Buyer in Seller can sue buyer for Sale Seller can sue buyer for Damages
default Price and Damages. only.
6. Insolvency
By seller Buyer can recover goods from -
seller
By Seller has to deliver the goods Seller can refuse to deliver the
buyer to Official receiver and can goods and no need to pay damages.
receive proportionate
payment.

C) GOODS :
Goods means every kind of movable property except Actionable claim and money but
includes stocks shares,growing crops,grass and other things attached to & forming part of
land which agreed to be severed.

1) Existing goods : Goods exist at the time of contract.

a) Specific goods - Chosen specifically by buyer.
b) Unascertained goods - chosen by buyer but not exactly,means buyer just describes it. eg.
MI TV 49 inch type t.v)
c) Ascertain goods - chosen by buyer specifically or by describing and the same is identified
by the seller.
2) Future goods : Goods are not exist at the time of contract here only agreement to sale
exist. As per section 2(6) defined future goods as goods which are to be manufactured or
produced or acquired by the seller after making the contract of sale.

Reservation of Right of Disposal :

1) Right of disposal means whether to deliver or not to deliver of goods is lies with seller.
Ownership is not transferred unless the conditions(terms of the contract) specified by the
seller are not fulfilled.
2) If goods are delivered via railways by Bill of land or railway receipt the right of disposal
lies with seller or his agent.
3) If seller draws bill and send goods via railways and seller sends Bill of exchange and
railway receipt to buyer, the buyer can not hold railway receipt unless he honour the bill of
exchange he should send it back to seller if buyer wrongfully retains the railway bill then
ownership in goods is not transferred.

D) TRANSFER OF OWNERSHIP
1) Passing of specific or ascertained goods : Ownership is not transferred unless
goods are ascertained.
(a) Specific goods in a deliverable state : In unconditional contract if specified goods
are in deliverable state then ownership is transferred irrespective of payment or time
of delivery and the buyer would under the contract is bound to take the delivery.
(b) Specific goods to be put into a deliverable state : It’s the seller’s responsibility to
make goods in deliverable state and inform the the same to the buyer until then
ownership is not transferred.
(c) Specific goods in a deliverable state, when the seller has to do anything thereto
in order to ascertain price : If seller is bound to weigh or measure or to do any act to
ascertain the price then the ownership is not transferred until the act is done by seller
and intimate the same to the buyer.
2) Passing of unascertained goods : When the buyer described the goods and seller
identifies(appropriated) the goods and separated and put them in deliverable state and
informed buyer and the same is agreed by the buyer either implied or expressed then the
ownership is transferred. Assent given by buyer may be before or after the appropriation
is made.
3) Goods on approval or sale or return :
Ownership is transferred in following situations -
a) When buyer approves the acceptance of goods before specified time.
b) Buyer does something to goods which only owner can do. (sold goods,damage them etc)
c) Buyer did not approved and retained goods beyond specific time period.

4) “Nemo dat quod non habel” - Non owner can not transfer the ownership means
buyer also don’t get good title.
Exceptions :
1) Sale by mercantile agent - Consignment (agent) but not theft goods.
Conditions :
• The person must be in possession of goods or documents of title to the goods in his
capacity as a mercantile agent and with the consent of his owner
• The person must sell the goods while acting in the ordinary course of business.
• The buyer must act in good faith without having any notice, at the time of contract
that the mercantile agent has no authority to sell the goods.
2) Co-owner or joint owner - If any one of the co-owner sell the the goods then title will
be transferred.
Conditions :
• One of the several owners must be in sole possession of the goods.
• The joint owner must have permission of co-owners.
• The buyer must purchase goods in good faith.
• The buyer should not have notice regarding the matter that the seller has no
authority to sell.
3) Sale by person in possession under voidable contract : According to the Section 29 a
person got possession of goods under a voidable contract which is not rescinded, can
transfer a good title to the buyer. The buyer should purchase the goods in good faith
and without notice of the seller’s defective title.
 4) If seller already sold the goods but having possession with him and he sold the same
goods to another person then ownership is transferred, then the buyer gets good title
only when he don’t know about the previous sale.
5) Sale by buyer before getting ownership - Sale on approval or return basis.
6) Effect of estoppel : If Mr.X selling Mr.Y’s goods in front of Mr.Y by saying those goods
belongs to Mr.X himself and Mr.Y kept silence then the ownership is transferred to
buyer.
7) Unpaid seller : Unpaid seller has exercised lien or stoppage in transit can resell the
the goods and the buyer(2nd buyer) gets good title than original buyer(1st buyer)
8) Sale under other provisions of the Acts :
rd
 Finder of lost goods who spent equal to or more than 2/3 of value of the goods.
 Liquidator of co. Or Official receiver.
 A sale by pawnee.

Effect of Destruction of Goods :

Unless otherwise specified in the contract - the risk lies with the supplier until the
ownership is transferred to buyer. Once the ownership is transferred the risk lies with
buyer whether delivery is made or not.(simply risk passes with ownership)
Exceptions :-
(a) If anything is specified in contract when to pass the risk even though ownership is not
transferred.
(b) If delivery has got delayed by either party means seller delayed delivery or buyer
delayed to take delivery the person in default should bear the loss.
(c) If there is a custom in that particular trade that the risk does not pass with property, in
such a case the risk will pass as per the custom.

E) Condition and Warranty :

CONDITION WARRANTY
1 It’s such a Stipulation or obligation It’s a such a stipulation or obligation that is
that is essential to the main purpose collateral to the main purpose of the
of the contract. contract.
2 The breach of which by seller gives  The breach of which by seller does not
right to buyer can repudiate the give right to buyer to repudiate the
contract(cancel the contract) & also contract and buyer only can claim the
can claim damages. damages.
 No remedy is available if the
fulfillment of warranty becomes
impossible by law.
3 Eg: coaching classes Eg: coaching classes
Syllabus not completed which is main A.C not working
purpose of coaching centers
4 Breach of condition may be treated as Breach of warranty will not be treated as
breach of warranty. breach of condition.
Situations :
a) When buyer elects.
b) By court or law.
c) Contract is indivisible - Buyer
already enjoyed some part of the
contract.
 If the buyer elect to breach of
 condition as breach of warranty
then he can claim only damages
can not repudiate the contract.
 No remedy is available when the
fulfillment of condition is
excused by law by means of
impossibility
or otherwise.

CONDITION and WARRANTY can be express or implied :

EXPRESS condition and warranty : Means condition and warranty agreed by buyer and
seller orally or in written form.
IMPLIED condition and warranty : Means condition and warranty provided in law to protect
the buyer interest.

 IMPLIED CONDITION :
1) Condition as to title : The seller should have good title.
2) Sale by sample : If the seller shown sample to buyer than the original goods sent by
seller should correspond with sample.
[Eg: If seller shows sample of Samsung s20 plus then he should send the same
model when buyer places order. If he sends other models then buyer can
repudiate the contract]
(A) If the sample is having any defect which on the reasonable
examination can easily ascertained by the buyer and buyer approved
the sample and ordered goods, if the original goods have the same
defect then buyer can not repudiate the contract or claim damages.
[Eg: If there is a crack on the screen of the sample mobile shown by the seller
and the same is approved by the buyer and if all the goods sent by seller have
the same defect then buyer can not repudiate the contract or claim damages.]
(B) If the sample is having any defect which on the reasonable
examination can not easily be ascertained by the buyer and buyer
approved the sample and ordered goods, if the original goods have the
same defect then buyer can repudiate the contract or claim damages.
[Eg: If there is a bug in software of a mobile shown as sample by buyer
and that bug is shown up at time of checking the sample and buyer
places order and same bug(defect) is shown up in all mobiles then seller
can repudiate the contract or claim damages. Because bug in software
can’t be detected at a glance.]
3) Sale by description : If a buyer gives description about the goods which he
sells,then the original goods sent by him should match the description he
provided earlier.
[Eg: If in description it was mentioned that the mobile phone supports 5G
technology then the mobiles sent by him should support the same.]
4) Sale by sample and description : If seller shows sample and provide
description then the original goods sent by him should match the sample and
description.
 5) Sale by quality and fitness : If the buyer relying on the skill and judgement of
the seller and describes the purpose of the goods or services and the seller’s
business or profession is related to the purpose of the buyer then seller should
satisfy the buyer needs properly.
[Eg-(1) If a person(buyer) visits medical store and asks for cough syrup for him
then it is the pharmacist’s(seller) responsibility and job to give proper cough
syrup. If any damages incurred to person(buyer) then he can repudiate the
contract and also can claim damages.
Eg-(2) If a person(buyer) visits Bike mechanic shop and asks for cough syrup
and if that mechanic gives any syrup and if buyer incur any loss then he can’t
claim any damages from mechanic because it’s not his job to give medicine.]
[Eg-(3) If a person purchases a thermometer in a shop it should show
temperature because it is the basic purpose of purchasing that. No customer
need to tell shopkeeper that he wants thermometer to check temperature.
And if thermometer fails to show temperature and shopkeeper can’t say that
the buyer didn’t mentioned the purpose. This example applicable for both
implied warranty and implied guarantee.]
6) Condition as to wholesomeness : If the seller selling food related items
then it is implied condition on seller that he should maintain quality of such
food items.
7) Condition as to merchantable quality : The seller should maintain good
quality of his goods.

 IMPLIED WARRANTY :
1) Warranty as to undisturbed possession : The seller can not disturb the possession
of the seller if he does so then buyer can claim damages.
[Eg: Mr.A purchased Toyota car and after few days Toyota decided to
recall the car for some manufacturing defects. Here the possession of a
car of Mr.A is being disturbed for sometime because Toyota taking the
car for resolving any defects so Mr.A can claim damages or compensation
from Toyota.]
2) Warranty as to non-existence of encumbrances : The goods shall be free from
any charges. If the seller sold the hypothecated or pledged goods and creditor
disturbing buyer then buyer can claim damages and if he repays debt on the pledged
goods he can recover the same can be recovered from the seller.
3) Disclosure of dangerous nature of goods : The seller should disclose the
dangerous nature of goods to seller if he fails to do so and if any damages incurred
by the buyer then he can be claim such damages from the seller.
4) Warranty as to quality or fitness by usage of trade : The seller should deliver
quality work of his trade(Custom of same Business) and no need to specify by buyer
to do so.

Note : An express warranty or condition does not affect a warranty or condition implied by
this Act unless inconsistent therewith.

 CAVEAT EMPTOR : Let the BUYER be aware.

Buyer should be aware while purchasing.
Exceptions : All implied conditions are exceptions to Caveat Emptor.
F) DELIVERY
1) Actual delivery : When are transferred physically.
2) Constructive delivery : When delivery takes place without the change of custody.
[Eg: Mr.X have goods and those goods are kept in warehouse(private by
paying monthly rent.) and Mr.X sold goods to Mr.Y and he also continue to
keep the goods in same warehouse.(custody is still with warehouse keeper)]
3) Symbolic delivery : Sale by bill of lading.(A bill of lading is a document issued by a carrier to
acknowledge receipt of cargo for shipment. Although the term historically related only to carriage by sea, a bill
of lading may today be used for any type of carriage of goods)

1) Part Delivery :
If goods are delivered partly then ownership is transferred in unsent goods also(means
ownership is transferred on whole goods),only when there is no intention of severing of
unsent goods from whole goods.
If there is a intention of severing of goods from whole goods then ownership is transferred
only on sent goods. Part delivery is different from installment delivery.

RULES AS TO DELIVERY
Apart from any contract, goods sold are to be delivered
• at the place at which they are at the time of the sale; and
• goods agreed to be sold are to be delivered at the agreed place.
• if goods not then in existence,delivery is at the place at which they are manufactured or
produced;
• Where under the contract of sale the seller is bound to send the goods to the buyer, but no
time for sending them is fixed, the seller is bound to send them within a reasonable time;
• Where the goods at the time of sale are in the possession of a third person, there is no
delivery by seller to buyer unless until such third person acknowledges to the buyer that he
holds the goods on his behalf; This shall not affect the operation of the issue or transfer of
any document of title to the goods;
• Demand or tender of delivery made at reasonable hour only otherwise it may be treated
as ineffectual.
• Unless otherwise agreed, the expenses of and incidental to putting the goods into a
deliverable state shall be borne by the seller.

2) Delivery of wrong quantity:

a) Delivered less than agreed quantity :
i) Buyer may reject the whole goods
ii) Buyer can accept the goods and pay the price for the received goods.
b) Delivered more than agreed quantity :
i) Buyer may reject the whole goods
ii) Buyer may accept the agreed quantity of goods and reject the excess goods.
iii) Buyer may accept the whole goods and pay for the whole goods at agreed
rate(per unit).
c) Delivered goods non described goods along with the described goods :
i) Buyer may reject the whole goods.
ii) Buyer may accept the described goods and reject the rest.

3) Installment deliveries :
Buyer can not receive the goods in installments unless otherwise specified in the
contract.
If the contract for the sale of goods specifies that goods should be delivered in
installments and payment is made for each installment AND,
If seller makes default in sending goods in subsequent installments
OR
If buyer defaults in taking delivery THEN,
Treatment of breach of contract is considered based on the circumstances,means
whether to repudiate the contract or to claim the damages is decided on the
circumstances of the situation.
4) Deliver to carrier or wharfinger :
a) If the seller is agreed or required to send goods to the buyer via carrier or to be
delivered to wharfinger for safe custody of goods it is deemed that the delivery is
made to buyer when goods are handed over to carrier or wharfinger.
b) The seller should make contract with carrier or wharfinger on behalf of buyer and
seller should describe the nature of goods to carrier or wharfinger if he fails so and
if any damages incurred during transit then buyer may reject the goods and
damages should be borne by the seller.
c) If transit of goods involves sea route then it’s seller responsibility to intimate the
buyer to insure the goods,if he fails so to do the risk lies with seller during the
transit.

 Acceptance
The buyer deemed to be accepted the goods when,
1) Buyer intimates the acceptance.
2) Kept goods with him beyond reasonable time and kept silence.
3) Done any act on goods which only owner can do.

 Return of rejected goods

If goods received by the buyer and if he decided to reject the goods then only
intimation of rejection to seller is enough no need to deliver back the goods to the
seller.

G) MEANING OF UNPAID SELLER

Unpaid seller : A seller who has not received the full price of the goods only but not
other costs such as transport charges or handling charges etc.
(a) The whole price of goods has not been received
(b) Tendered or
(c) Received bill of exchange but dishonored.

 RIGHTS OF UNPAID SELLER : Seller have rights against goods and buyer.
Rights against goods
(1) Lien - Right to retain the goods.
When:
a) Possession must be with seller.
b) When payment is not made even after credit period.
c) Buyer is insolvent.
Exceptions :
(a) When he delivers goods to carrier or other bailee for the purpose of transmission
to the buyer without reserving the right of disposal of the goods.
(b) When buyer or his agent lawfully obtains the possession of the goods.
(c) Where seller has waived off the right to lien
(d) By estoppel - where the seller so himself that he leads third parties to believe
that the lien does not exist.
 (2) Stoppage in transit - Right to stop the goods which were in transit with an object to
regain and then retain the possession of goods until the price is paid. This can be done
only goods possession is with third party transport before goods reaching to buyer.

Conditions :
(1) Seller does not have possession.
(2) The goods must be in transit.
(3) The buyer must be insolvent.
(4) The seller must be unpaid.

The goods are said to be transit when :

(1) When they are delivered to carrier but not received by buyer or his agent.
(2) The goods rejected by the buyer.
(3) When part delivery has made and some part delivery is in transit those goods
which are in transit can be stopped to deliver to the buyer.

Transit comes to end :

(1) If buyer took delivery before destined location - transit ends(deemed as goods
delivered.)
(2) If the goods reached destined location and buyer asks to deliver in some other
location - Transit ends.(deemed as goods delivered.)
(3) If carrier wrongfully refuses to deliver the goods to buyer.
(4) Right of resale - Seller can resale the goods by giving notice to buyer.
Conditions -
(1) When goods are perishable - no need to give notice to buyer.
(2) When goods are non perishable.
(a) Seller gives notice to buyer :
 The loss of resale can be claimed from buyer
 The profit of resale can retained by seller
(b) Seller fails to give notice to buyer
 The loss from resale has to be borne by the seller.
 The profit from resale should be given to buyer.

Differences between Right of lean and Right of stoppage.

RIGHT OF LIEN RIGHT OF STOPPAGE

Retain possession Regain possession
Seller should have possession (1) Parted with possession
(2) Possession should be with carrier
(3) Buyer has not acquired possession
Buyer need not to be insolvent Buyer must be insolvent
Right of lien is applied before goods are Right of stoppage is applied after
transported. transporting the goods.

H) Right against buyer :

(1) Suit for price
(2) Suit against interest for delay of payment from due date.
(3) Suit for damages for non acceptance
 (4) Repudiating contract by buyer before date of delivery,seller may wait till the due
date(may be buyer may accept) or he may cancel the contract and claim for damages.

I) RIGHTS AGAINST THE SELLER :

(1) Can claim damages for non delivery.
(2) Can suit for price for which he already paid and goods are not delivered.
(3) Suit for specific performance - when goods are specific then buyer can demand seller
to deliver same specific goods.
(4) Suit for breach of warranty.
(5) Suit for damages for repudiation of contract by the seller before the due date of
delivery,buyer may wait until the due date or repudiate the contract and claim for
damages.
(6) Suit for interest on delay of refund.

J) AUCTION SALE :
(1) Meaning : Process of sale by bidding and ownership is transferred to highest bidder.
(2) Provisions :
(a) When goods are sold in lots : Each lot is considered as separate contract of sale.
(b) Completion of contract of sale : Fall of hammer 3 times.
(c) Right to bid may be reserved : Can control on participation of bidders.
(d) Reserve price : Minimum base price can be fixed.
(e) Pretended bidding : Seller places fake bidder to raise the bidding price then it is
voidable contract.

K) EFFECT OF TAX :

If tax is increased or decreased or levied or removed after the contract of sale or purchase
then,
1) Tax is increased or levied newly - seller can increase the price accordance with the taxation.
2) Tax is decreased or removed - buyer no need to pay such tax to the extent of decreased or
total tax amount(if removed).