MODULE – 3 THE SALE OF GOODS ACT 1930

 The law relating to the sale of goods or movables in India is contained in the Sale of Goods Act, 1930 which
came into force on 1st July, 1930.

Contract of sale:

 Under Section 4 (1) of the Sale of Goods Act, 1930, the contract of sale of goods is defined as follows: “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.” Property means the right of ownership.

 Absolute sale: In absolute sale, the property in the goods passes from the seller to the buyer
immediately and nothing remains to be done by the seller.

 Conditional sale: In a conditional contract of sale, the property in the goods do not pass to the
buyer until a certain condition fulfilled.

 Agreement to sell: Where under a contract of sale the transfer of property in the goods is to take
place at a future time or subject to some condition thereafter to be fulfilled, the contract is called
an agreement to sell.

Essential elements of Sale:

1. Contract: All the essential elements of a contract must be present in a contract of sale.
2. Existence of two parties: There must be two parties to constitute a contract of sale namely; a buyer and
a seller.
3. Goods: The subject matter of a contract of sale will always be goods.
4. Transfer of property: In a contract of sale, the seller must transfer or agree to transfer property in the
goods to the buyer.
5. Price: The consideration for a contract of sale must be money called the price.

Distinction between sale and agreement to sell:

Sale Agreement to Sell

 The property or ownership in the goods  The property in goods transfers on some future
immediately passes from seller to buyer. date or subject to fulfillment of some conditions.

 The goods belong to the buyer. In case of loss or  The goods belong to the seller and he will suffer
damage, the buyer will suffer the loss. the loss if goods are destroyed.

 The seller can recover the goods, can sue for

 If the buyer fails to pay the price, the seller can
damages and can resell the goods, but cannot sue
sue him for price, but cannot resell the goods.
the intended buyer for recovery of price.
 If buyer gets insolvent before he pays the price,
the seller must deliver the goods to the buyer’s  If buyer gets insolvent before he pays the price,
Official Receiver and shall be entitled only to a the seller can refuse to deliver the goods.
rateable dividend.
 If seller gets insolvent, the buyer can recover  If seller gets insolvent, the buyer who has paid the
goods from seller’s Official Receiver. price can claim rateable dividend.
Conditions and Warranties:

 Condition: According to Section 12(2), a condition is a stipulation essential to the main purpose of the
contract, the breach of which gives a right to repudiate the contract.

 Warranty: According to Section 12(3), a warranty is a stipulation collateral to the main purpose of the
contract, the breach of which gives a right to a claim for damages but not a right to reject goods and to
treat the contract as repudiated.

Express and Implied Conditions and Warranties

 The conditions and warranties may be express or implied.

 Express conditions and warranties are those, which have been expressly agreed upon by the parties at the
time of the contract of sale.
 When the conditions and warranties are not written in the contract, but applied to the contract either by
operation of law or by trade or custom, they are called implied conditions and warranties.

Implied Conditions:

1. Condition as to title of goods sold: In every contract of sale, there is an implied condition on the part of
the seller is that, the seller has a right to sell the goods.
2. Sale by description: if there is a contract of sale of goods by description, there is an implied condition that
the goods shall correspond with the description.
3. Sale by sample: In the case of contract for the sale of goods by sample, there is an implied condition that:
a) The goods must correspond with the sample in quality.
b) The buyer must have reasonable opportunity of comparing the bulk with the sample.
c) The goods must be free from any defect.
4. Sale by sample as well as description: Where the goods are sold by sample as well as by description, the
implied condition is that the bulk of the goods supplied must correspond with the sample and the
description.
5. Condition as to quality or fitness: the seller need not disclose the faults in the goods nor need he
guarantee that goods are fit for the purpose of the purchaser. But in some cases there is an implied
condition as to quality or fitness of goods if;
a) The buyer makes the seller know the purpose for which the goods are required
b) The buyer relies on the skill and judgement of the seller, and
c) It is the seller’s duty to supply by description.
6. Condition as to merchantability: Where the goods are bought by description from a seller who
deals in goods of that description there is an implied condition that the goods shall be of
merchantable quality.
7. Condition as to wholesomeness: This condition applies in the case of provisions and foodstuffs
which must not only be merchantable but also be wholesome and suitable for consumption.

Implied Warranties:

1. Warranty for quiet possession: there is an implied warranty that the buyer shall have quiet possession of
the goods and shall enjoy them. If the buyer is in any way disturbed in the enjoyment of goods, the buyer
has a right to sue the seller for damages caused.
2. Implied warranty against encumbrance: : There is an implied warranty that the goods shall be free from
any charge or encumbrance in favour of a third party not declared or known to the buyer before or at the
time when the contract is made.
3. Warranty implied by usage of trade: An implied warranty or condition as to quality or fitness for a
particular purpose may be annexed by the usage of trade.
4. Warranty to disclose dangerous nature of goods: Where the goods are dangerous to the knowledge of the
seller and the buyer is ignorant of the same, there is an implied warranty that the seller should warn the
buyer about the probable danger.

Doctrine of Caveat Emptor:

 The term ‘caveat emptor’ is a Latin word which means ‘let the buyer beware’
 The doctrine of caveat emptor means that the seller is not bound to disclose the defects in the goods,
which he is selling.
 It is the duty of the buyer to satisfy him before buying the goods that the goods will serve the purpose for
which they are being bought.

Exceptions to the Doctrine of Caveat Emptor:

1. Fitness for buyer’s purpose: The seller will be held liable for breach of implied condition as to quality of the
fitness of the goods if the buyer makes known to the seller the particular purpose for which he requires the
goods and relies on the seller’s skill or judgement.
2. Goods purchased under patent or brand name: In case where the goods are purchased under its patent
name or brand name, there is no implied condition that the goods shall be fit for any particular purpose.
3. Condition as to merchantability: This condition applies (i) where goods are sold by description, (ii) the
seller deals in those goods, and (iii) the buyer has no opportunity to examine the goods being bought.
4. Good sold by sample as well as description: Where the goods are sold by sample as well as by description,
the doctrine does not apply if the bulk of the goods supplied do not correspond with the sample and the
description.
5. Condition implied by usage or custom of trade: Where trade usage attaches an implied condition or
warranty regarding the quality of fitness of goods for a particular purpose, the doctrine of caveat emptor
does not apply.
6. Goods sold by Misrepresentation: Where the seller sells the goods by making some misrepresentation or
fraud and the buyer relies on it or where the seller knowingly conceals defects not discoverable on
reasonable examination, then the rule of caveat emptor will not apply.

Transfer of Ownership (Property) in Goods:

In a contract of sale of goods, there are three stages in the performance of contract by a seller:
1. Transfer of property in the goods.
2. Transfer of possession of the goods and
3. Passing of the risk.
Rights and obligations of parties in passing of ownership
1. Risk passes with property: In case of loss or destruction of goods it is the owner who suffers. The loss of
risk remains with the seller until the property there in is transferred to the buyer.
2. Only owner can sue: When the goods are in any way damaged or destroyed by the action of a third party,
only the owner can sue or take legal action against them.
3. Suit for price: Transfer of property confers upon the seller the right to sue the buyer for price.
4. Right of resale: To determine whether buyer can resell the goods to a third party is linked with transfer of
ownership.

Rules Regarding Transfer of Ownership:

1. Passing of Ownership in case of Ascertained Goods: In the case of specific or ascertained goods, the
property in them is transferred to the buyer at which time as the parties to the contract intend it to be
transferred.
When the intention of the parties cannot be ascertained in the case of sale of specific or ascertained
goods, the following rules are applicable:
a) When goods are in deliverable state: The ownership passes to the buyer as soon as the contract
is made and the sale is effected.
b) When goods are not in deliverable state: The ownership will not pass to the buyer until the
goods are put in a deliverable state.
c) When price of goods is to be ascertained: The ownership will pass to the buyer only after
ascertaining the price.
2. Transfer of Ownership in case of Unascertained Goods: In case of sale of unascertained goods or future
goods, the ownership will pass only when the goods are ascertained or separated from the total bulk.
3. When goods are sold on approval: When the goods are sent to the buyer on ‘approval’ or on ‘sale or
return basis’, the property in the goods will pass from seller to buyer when any of the following conditions
are satisfied:
a) When he accepts the goods.
b) When he adopt the transaction.
c) When he fails to return the goods.

Risk prima facie passes with ownership:

 The general rule is that goods remain at the seller’s risk until the ownership is transferred to the buyer.
 After the ownership has passed to the buyer, the goods are at the buyer’s risk whether delivery has been
made or not.
 Risk follows ownership.

Sale by Non-owners:

 The general rule is that if a person, who has no right or title to the goods, sold the same, the buyer, cannot
obtain any right or title to the goods which he purchased even though he may have acted honestly and paid
the value for the goods.
 Buyer cannot get a good title to the goods unless he purchases the goods from a person who is the owner
thereof or who sells them under the authority or with the consent of the owner.
 This is based on the following important Latin maxim, “Nemo dat quod non habet,” which means that ‘no
one can give what he has not got’.
Exceptions to the Rule “Nemo dat quod non habet”:
1. Sale under title by estoppels: When the owner of goods, by his conduct or by statement, wilfully leads the
buyer to believe that the seller has the authority to sell, then he is stopped from denying the seller’s
authority to sell.
2. Sale by mercantile agent: A mercantile agent is a person who has authority either to sell goods or to buy
goods or to raise money on security of goods. This exception will apply if the following conditions are
satisfied:
a) The goods must have been sold by a mercantile agent
b) He must be in possession of the goods with the consent of the real owner
c) The sale should be in the ordinary course of business
d) The buyer must act in good faith
e) The buyer should not have notice that seller had no authority to sell
3. Sale by a joint owner or co-owner: In order to get a valid title to the buyer who buys the goods from one of
the co-owners, the following conditions should be satisfied:
a) The co-owner must be in the sole possession of goods with the consent of other co-owners.
b) The buyer should purchase the goods for consideration and in good faith.
c) The buyer should not have suspicion of any defect in seller's authority to sell.
4. Sale by a person in possession under voidable contract: when the seller of goods has obtained possession
of the goods under a voidable contract and he sells those goods before the contract is repudiated, the
buyer of such goods acquires a good title provided the buyer acts in good faith and without notice of the
seller's defect of title.
5. Sale by a seller in possession after sale: Where a person, having sold the goods, continues to be in
possession of the goods and sells them over again to a buyer, the buyer gets a better title provided he has
acted in good faith and without notice of the previous sale.
6. Sale by a buyer in possession over which the seller has some rights: Where by the buyer has bought or
agreed to buy the goods, with the consent of the owner obtains possession of the goods or documents of
title to the goods, but the seller still has some lien or right over the goods, if the buyer sells the goods to a
second buyer, who buys them in good faith, the second buyer gets a better title.
7. Sale by an unpaid seller: Where an unpaid seller who is in possession of goods after having exercised the
right of lien resell the goods the buyer gets a good title there to as against the original buyer.
8. Exceptions under the provisions of other acts: The following are valid transactions:
a) Sale by finder of lost goods u/s 169 of Contract Act
b) Sale by Pawnee or pledgee u/s 176 of the Contract Act
c) Sale by an Official Receiver or Assignee in case of insolvency of an individual and Liquidator of companies.

PERFORMANCE OF THE SALE OF CONTRACT:

A contract of sale consists of two reciprocal promises:
i) The seller’s duty to deliver the goods; and
ii) The buyer’s duty to accept the goods and pay the price.

Delivery of Goods:
Delivery means voluntary transfer of possession of goods from one person to another. Delivery of goods may
be made in any of the following ways:
1. Actual delivery: Where the goods are physically handed over by the seller to the buyer, the delivery is said
to be actual.
2. Symbolic delivery: Where the goods are bulky and incapable of actual delivery, delivery may be made
symbolically, which has the effect of actual delivery.
3. Constructive delivery: Where the goods at the time of sale are in the possession of a third person, there is
no delivery by seller to buyer until such third person acknowledges to the buyer that he holds the goods on
his behalf.”

Rules Regarding Effective Delivery of Goods:

1. Buyer should apply for delivery: The seller is not bound to make delivery until the buyer applies for delivery.
2. Delivery may be either actual, symbolic or constructive: The delivery of goods must have the effect of
putting the goods in the possession of buyer or his authorized agent.
3. Delivery and payment are concurrent conditions: The seller should be ready to hand over the possession of
goods and the buyer should be ready to pay the price.
4. Place of delivery: The goods must be delivered at the specified place during the business hours and on a
working day. But where no place is specified in the contract, the following rules contained in Section 36(1)
shall apply:
a) In case of sale, the goods sold are to be delivered at the place where they are, at the time of sale.
b) In case of an agreement to sell, the goods are to be delivered at the place where they are, at the time
of agreement to sell.
c) If at the time of agreement to sell, the goods are not in existence they are to be delivered at a place
where they are manufactured or produced.
5. Time for delivery of goods: 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 the reasonable time.
6. Delivery when goods are in possession of third person: Where the goods at the time of sale are in the
possession of a third person, delivery takes place when such person acknowledges to the buyer that he
holds the goods on his behalf.
7. Expenses of delivery: Unless otherwise agreed, the expenses of putting the goods into a deliverable state
must be borne by the seller.
8. Delivery of wrong quantity: "Wrong quantity" may include short or excess delivery of goods than the
agreed quantity, and also the delivery of agreed quality mixed with another quality.
a) Short delivery: If the seller delivers a quantity less than he has contracted to sell, the buyer may reject
them. But if he accepts the goods so delivered, he shall pay for them at the contract price.
b) Excess delivery: If the seller delivers a larger quantity than he contracted to sell, the buyer has the
option of accepting the quantity as per the contract and reject the rest or he may reject the whole. It
he accepts the entire quantity, he has to pay for the excess at the contract price.
c) Mixed delivery: If the seller delivers the goods mixed with the goods of a different description, the
buyer may accept the contracted goods or reject the whole quantity of goods.
9. Instalment deliveries: Unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof
by instalments.
10. Liability of buyer for neglecting or refusing the delivery: When a seller is ready and willing to deliver the
goods and request the buyer to take delivery, and the buyer fails to take the delivery within a reasonable
time of that request, the buyer is liable to compensate the seller for any loss arising due to his neglect or
refusal to take delivery.
UNPAID SELLER:
 According to Sec. 45 of the Sale of Goods Act, the seller of goods is deemed to be an unpaid seller when the
whole of the price has not been paid.
 Even when a portion of the price is unpaid the seller will be an unpaid seller.
 When whole of the price has been tendered and the seller refused to accept such a tender, seller ceases to
be an unpaid seller.
 Under the Sale of Goods Act, the unpaid seller has two rights:
a) Against the goods and b) Against the buyer personally.

Rights of an Unpaid Seller:

A. Rights of unpaid seller against the goods:
1. Right of Lien: Lien is the right of an unpaid seller to retain the goods in his possession and
refuse to deliver them to the buyer until the whole price due to him is paid.
The unpaid seller can exercise lien only in the following cases:
 Ownership must have been passed to the buyer.
 The goods must be in the possession of the seller.
 The price or part of the price remain unpaid.
 If the unpaid seller has delivered a part of the goods, he may exercise his lien on the remaining
part of the goods.
Termination of Lien or Loss of Lien
An unpaid seller of goods loses his right of lien on the goods in the following cases:
a) By delivery to the carrier: when the goods are delivered to a carrier for its transmission to the buyer,
the right of lien is lost.
b) By delivery to the buyer: when the goods are delivered to the buyer or his agent, the right of lien is lost.
c) By waiver: when the seller expressly or impliedly waives his right of lien, the right of lien is terminated.
d) By tender of price: where the buyer tenders price for the goods purchased by him, seller’s lien is lost.

2. Right of stoppage of goods in transit: when an unpaid seller has parted with the possession of
the goods, but the goods have not actually come in to the hands of the buyer. i.e., while the
goods are in transit, the seller has the right to stop the goods in transit and retain possession. It
is known as right of stoppage of goods in transit.
The right of stoppage of goods in transit can be exercised only when the following conditions are satisfied:
 The seller must be an unpaid seller.
 The buyer must have become insolvent.
 The seller must have parted with the possession of the goods.
 The goods must be in transit.

Duration of transit:
The goods are deemed to be in transit from the time when they are delivered to a carrier for the
purpose of transmission to the buyer until the buyer or his agent takes delivery of them.
 Termination of right of stoppage of goods in transit:
a) Delivery to the buyer: When the buyer or his agent obtains delivery of the goods before their arrival
at the appointed destination.
b) Interception by the buyer: When the buyer or his agent takes delivery after the goods have reached
destination.
c) Acknowledgement to the buyer: When the goods have arrived at their destination and the carrier
acknowledges to the buyer or his agent that he holds the goods on his behalf.
d) Goods delivered to buyer’s carrier: When the goods are delivered to a carrier, who acting as an agent
of the buyer, the transit ends as soon as the goods are delivered to the carrier.

3. Right of Resale: If the buyer fails to pay the price within a reasonable time, the unpaid seller
has the right to resell the goods in the following circumstances:
 If the goods are of a perishable nature
 If the unpaid seller has exercised his right of lien or of stoppage in transit and gives
notice to the buyer of his intention to resell the goods
 Where the seller expressly reserve his right of resale in case the buyer makes default.

B. Rights of an unpaid seller against the buyer personally:

1. Suit for price: when the property has passed to the buyer, and the buyer wrongly neglects or refuses to
pay, the seller can sue him for the price.

2. Suit for damages: 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 repudiation: if buyer repudiates the contract before the date of delivery the seller may treat
the contract as rescinded and sue for damages for breach.

4. Suit for interest: In case of breach of contract on the part of the buyer, while filing a suit for the price,
the seller may sue the buyer for interest from the date when payment becomes due.