INTRODUCTION

The sale of goods Act, 1930 codifies the law relating to the sale of goods in a separate enactment. The
Act came into fo4rce on 1st July, 1930.

DEFINITION

Section 4(1) of the Sales of Goods Act, 1930 defines, “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.” A contract of sale
of goods may be absolute or conditional according to the desire of the buyer and seller.

ESSENTIAL ELEMENTS OF CONTRACT OF SALE OF GOODS

The underlying are the essential elements or the characteristics of the contract of sale of goods.

i. Two Parties:

There must be two distinct parties to a contract of sale of goods, i.e. a buyer and a seller. A person
cannot buy his own goods.

ii. Transfer of Property:

Property means the general property in goods, and not merely a special property. General property in
goods means ‘ownership of goods’. The object of the contract of sale must be transfer of property in
goods by one person to another.

iii. Goods:

The subject matter of the contract of sale must be goods. According to the Act, “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 or forming part of the land which are agreed to be served before sale
or under the contract of sale.

[ Note:

• Sale of immovable property is governed by the Transfer of Property Act, 1882.

• The actionable claims means the claims which can be enforced through the courts of law. For ex.
A debt due from one person to another is an actionable claim.
• The money here means the currency of the country and not the old coins.]

iv. Price:

There must be price. Price means the money consideration for a sale of good. When the consideration is
only goods, it amounts to barter and not sale. However, the consideration may be partly in money and
partly in goods.

v. Includes Both Sale And Agreement To Sale:

The term ‘contract of sale’ is a generic term and includes both a sale and an agreement to sell.

vi. No Formalities To Be Observed:

The Act does not prescribe any particular form to constitute a valid contract of sale. Neither payment nor
delivery is necessary at the time of making the contract of sale.

SALE

Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the
contract is called a sale. It refers to an absolute sale. There is immediate transfer of ownership and
mostly of the subject matter.

AGREEMENT TO SELL

Where the transfer of property in the goods is to take place at a future time or subject to some conditions
thereafter to be fulfilled, the contract is called ‘an agreement to sell’. It is an executor contract and refers
to a conditional sale. Neither payment nor delivery is necessary at the time of making the contract of
sale.

CONTRACT OF SALE: HOW IS IT MADE?

i. A contract of sale may be made in writing or by word of mouth or partly in writing and partly
by word of mouth or may be implied from the conduct or dealings of the parties.
ii. There must be an offer to buy or sell goods for a price and acceptance of such offer by
another.
iii. The contract may provide for immediate delivery of the goods or delivery at the future date.
iv. The contract may provide for immediate payment of the price or payment by installment or
payment may be postponed.
v. The contract of sale of goods may be for existing or future goods.
vi. Contract of sale of goods must possess all the essentials of an ordinary contract.

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. In addition, he may maintain an action for damages for loss
suffered, if any.

For Example: X asked a car dealer to suggest him a car suitable for touring purposes. The dealer
suggested a particular car. Accordingly, X purchased it but found it unsuitable for touring purpose. In
this case suitability of car for touring purpose was a condition of contract. X, was therefore, entitled to
reject the car and have refund of the price paid.

Meaning of Warranty

A warranty is a stipulation collateral to the main purpose of the contract, the breach for which gives rise
to a claim for damages but not to a right to reject the goods and treat the contract as repudiated.

For example : X asked a car dealer to suggest him a good car and while suggesting the car, the dealer
said that it could run for 20 km per liter of petrol. But the car could run only 15 km per liter of petrol. In
this case the statement made by the seller was a warranty. X was, therefore not entitled to reject the car
but he was entitled to claim the damages.

Distinction between a condition and warranty:

1. Difference as to value: A condition is a stipulation which is essential to the main purpose of the
contract. A warranty is a stipulation which is collateral to the main purpose of the contract.

2. Difference as to breach: If there is a breach of a condition, the aggrieved party can repudiate the
contract of sale. In case of a breach of a warranty, the aggrieved party can claim damages only.

3. Difference as to treatment: A breach of condition may be treated as a breach of a warranty. This

would happen where the aggrieved party is contented with damages only. A breach of a warranty,
however, cannot be treated as a breach of a condition.

When Condition Can Be Treated As Warranty

1. Voluntary waiver of condition: Where a contract of sale is subject to any condition to be fulfilled by
the seller, the buyer may

(a) Waive the condition, or

(b) Elect to treat the breach of the condition as a breach of warranty. If the buyer once decides to waive
the condition, he cannot afterwards insist on its fulfillment.

2. Acceptance of goods by buyer: Where a contract of sale is not severable and the buyer has accepted
the goods or part thereof, the breach of any condition to be fulfilled by the seller can only be treated as a
breach of warranty, unless there is a term of the contract, express or implied, to the contrary.

Express And Implied Conditions And Warranties

In a contract of sale of goods, conditions and warranties may be express or implied. Express conditions
and warranties are those which are expressly provided in the contract.

Implied conditions and warranties are those which the law implies into the contract unless the parties
stipulate to the contrary Implied Condition:

1. Condition as to title: In a contract of sale, there is an implied condition on the part of the seller that
(a) In the case of a sale, he has a right to sell the goods, and

(b) 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.

2. Sale by description: Where there is a contract for the sale of goods by description, there is an
implied condition that the goods shall correspond with the description. If the sale is by sample as well as
by description, the goods shall correspond both with the sample and the description.

3. Condition as to quality or fitness: The condition as to quality or fitness is implied where

(a) The goods sold are such as the seller deals in the ordinary course of his business

(b) The buyer relies on the seller’s skill or judgment as to the fitness of the goods for any particular
purpose, and (c) The buyer expressly or impliedly makes known to the seller that he wants the goods for
that particular purpose.

4. Condition as to merchantability: Where goods are bought by description from a seller who deals in
goods of that description (whether he is the manufacturer or producer or not), there is an implied
condition that the goods shall be of merchantable quality.

5. Condition implied by custom: An implied condition as to quality or fitness for a particular purpose
may be annexed by the usage of trade.

6. Sale by sample: In the case of a contract for sale by sample, there is an implied condition

a) That the bulk shall correspond with the sample in quality

(b) That the buyer shall have a reasonable opportunity of comparing the bulk with the sample

(c) That the goods shall be free from any defect, rendering them unmerchantable, which would not be
apparent on a reasonable examination of the sample. Condition as to wholesomeness: In case of eatables
and provisions, there is an implied condition that the goods shall be wholesome and fit for human
consumption.

Implied warranties:

In a contract of sale, unless there is a contrary intention, there is an implied warranty that

(1) The buyer shall have and enjoy quiet possession of the goods, and

(2) The goods are free from any charge or encumbrance in favor of any third party.

TRANSFER OF PROPERTY IN GOODS

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 property

The transfer of property in the goods from the seller to the buyer is the essence of a contract of sale.
Therefore the moment when the property in goods passes from the seller to the buyer is significant for
following reasons:

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.

Essentials for Transfer of Property

The two essentials requirements for transfer of property in the goods are:

1. Goods must be ascertained: Unless the goods are ascertained, they (or the property therein)
cannot pass from the seller to the buyer. Thus, where there is a contract for the sale of
unascertained goods, no property in the goods is transferred to the buyer unless and until the
goods are ascertained
2. Intention to PASS Property in Goods must be there: In a sale of specific or ascertained goods
the property in them is transferred to the buyer at such time as the parties to the contract intend it
to be regard shall be had to the terms of the contract, the conduct of the parties and the
circumstances of the case.
3. Unascertained goods: Where there is a contract for the sale of unascertained goods, the property
in the goods does not pass to the buyer until the goods are ascertained. Until goods are
ascertained there is merely an agreement to sell. The Act further provides that where there is a
contract for the sale of unascertained or future goods by description and goods of that description
and in a deliverable state are unconditionally appropriated to the contract, the property in the
goods thereupon passes to the buyer. The ‘ascertainment of goods’ and their unconditional
“appropriation to the contract” are the two pre-conditions for the transfer of property from the
seller to buyer in case of unascertained goods. ‘Ascertainment’ is the process by which the goods
answering the description are identified and set apart. ‘Appropriation’ involves selection of
goods with the intention of using them in performance of the contract and with the mutual
consent of the seller and the buyer. The appropriation must be unconditional. It is unconditional
when the seller does not reserve to himself the right of disposal of the goods.
4. Goods sent on approval or ‘on sale or return: When goods are delivered to the buyer on
approval or ‘on sale or return’ or other similar terms, the property therein passes to the buyer:
i. When he signifies his approval or acceptance to the seller
 ii. When he does any other act adopting the transaction If the seller delivers the goods to
the buyer ‘on sale or return’ on the terms that the goods were to remain his property
until settled or paid for the property would not pass to the buyer until there terms are
complied with.
iii. If he does not signify his approval or acceptance to the seller but retains the goods
without giving notice of rejection, beyond the time fixed for the return of the goods,
or if no time has been fixed, beyond a reasonable time.

THE DOCTRINE OF CAVEAT EMPTOR

This means “let the buyer beware”, i.e., in a contract of sale of goods the seller is under no duty to
reveal unflattering truths about the goods sold. Therefore, when a person buys some goods, he must
examine them thoroughly. If the goods turn out to be defective or do not suit his purpose or if he
depends upon his own skill or judgment and makes a bad selection, he cannot blame anybody excepting
himself.

Example: H sent to a market 32 pigs to be sold by auction. The pigs were sold to W “with all faults and
errors of description”. H knew that the pigs were suffering from swine-fever, but he never disclosed this
to W. Held, there was no implied warranty by H and the sale was good and H was not liable in damages.
The rule of caveat emptor is enunciated in the opening words of Sec.16 which runs thus: “Subject to the
provisions of this Act and of any other law for the time being in force, there is no implied warranty or
condition as to the quality or fitness for any particular purpose of goods supplied under a contract of
sale.”

Exceptions

The doctrine of caveat emptor has certain important exceptions. They are:

1. Fitness for buyer’s purpose: Where the buyer, expressly or by implication, makes known to the
seller the particular purpose for which he requires the goods and relies on the seller’s skill or judgment
and the goods are of a description which it is in the course of the seller’s business to supply, the seller
must supply the goods which shall be fit for the buyer’s purpose.

2. Sale under a patent or trade name: In the case of a contract for the sale of a specified article under
its patent or other trade name, there is no implied condition that the goods shall be reasonably fit for any
particular purpose.

3. Merchantable quality: Where goods are bought by description from a seller who deals in goods of
that description (whether he is the manufacturer or producer or not), there is an implied condition that
the goods shall be of merchantable quality. But if the buyer has examined the goods, there is no implied
condition as regards defects which such examination ought to have revealed.

4. 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.

5. Consent by fraud: Where the consent of the buyer, in a contract of sale, is obtained by the seller by
fraud or where the seller knowingly conceals a defect which could not be discovered on a reasonable
examination (i.e., where there is a latent defect in the goods), the doctrine of caveat emptor does not
apply.
PERFORMANCE OF THE CONDUCT OF SALE

Delivery

Delivery means the voluntary transfer of possession from one person to another. Delivery of goods may
be made-

(a) By doing anything which the parties agree shall be treated as delivery, or

(b) By doing anything which has the effect of putting the goods into the buyer’s or his authorized
agent’s possession

Types of Delivery

The delivery of goods may be of the following three types:

(i) Actual Delivery: Delivery is said to be actual where the goods are physically handed
over to the buyer or his authorized agent. Example: X sells to Y 100 bags of wheat
lying in Z’s warehouse. X orders Z to deliver the wheat to Y. Z delivers to Y. In this
case there is an actual delivery of goods.
(ii) Symbolic Delivery: Delivery is said to be symbolic where some symbol of the real
possession or control over the goods is handed over to buyer. Example: X sells to Y
100 bags of wheat lying in Z’s warehouse and hands over the key of Z’s warehouse to
Y. In this case, there is symbolic delivery of goods.
(iii) Constructive Delivery: Delivery is said to be constructive where a person who is in
possession of the goods, acknowledges holding the goods on behalf of the buyer.
Example: X sells to Y 100 bags of wheat lying in Z’s warehouse. Y orders Z to
deliver the wheat to Y. Z agrees to hold the 100 bags of wheat on behalf of Y and
makes the necessary entry in his books. In this case, there is constructive delivery of
goods.

Rules as To Delivery

1. Payment and Delivery to be concurrent: Unless otherwise agreed, delivery of the goods
and payment of the price are concurrent conditions. They must happen simultaneously.

2. Mode of delivery: Delivery must have the effect of putting the goods into the buyer’s or
his authorized agent’s possession.

3. Effect of part delivery: A delivery of part of goods with an intention of giving the
delivery of the whole amounts to the delivery of the whole for the purpose of transfer of
ownership of goods, but a delivery of part of goods with an intention of separating it from the
whole lot does not amount to the delivery of the whole of the goods.

4. Buyer to apply for delivery; unless otherwise agreed, the seller of the goods is not bound
to deliver them until the buyer applies for delivery.

5. Place of delivery: Where there is a contract as to the place of delivery, the goods must be
delivered at the agreed place.
 6. Time of delivery: Where there is a contract as to the time of delivery, the goods are to be
delivered within the time agreed.

7. Delivery when the goods are in possession of a third party: Where the goods at the time
of sale are in the possession of a third person, there is no delivery by seller unless and until
such third person acknowledges to the buyer that he holds the goods on his behalf. However,
this provision shall not affect the operation of the issue or transfer of any document of title to
goods.

8. Demand of delivery to be treated as ineffectual: Demand or tender of delivery may be

treated as ineffectual unless made at a reasonable hour.

9. Expenses of delivery: Unless otherwise agreed, the expenses of putting the goods into a
deliverable state shall be borne by the seller.

10. Delivery of wrong quantity: Subject to any usage of trade, special agreement or course
of dealing between the parties, the rules as to the delivery of wrong quantity are as under:

Case Rights available to the buyer

I. Short delivery, i.e., where the seller delivers a quantity of goods less than contracted
for (a) The buyer may accept the goods so delivered, or (b) The buyer may reject the
goods
II. Excess delivery, i.e., where the seller delivers a quantity of goods larger than
contracted for (a) The buyer may accept the goods so delivered, (b) The buyer may
reject the whole, or (c) The buyer may accept the contracted quantity and reject the
excess.
III. Mixed delivery, i.e., where the seller delivers the goods contracted for mixed with
goods of different description Note: The mixing of goods with inferior quality does
not amount to mixing of goods of different description. (a) The buyer may reject the
whole, or (b) The buyer may accept the goods which are in accordance with the
contract and reject the rest

11. Delivery by Installments: Unless otherwise agreed, the buyer of goods is not bound to
accept delivery by installments. The question whether the aggrieved party can repudiate the
whole contract or not depends upon the terms of the contract and the circumstances of each
case where-
(i) The goods are to be delivered in installments
(ii) The installments are to be separately paid for B.B.A. Business Law 164
(iv) The seller makes no delivery or defective delivery in respect of one or more
installments or the buyer neglects or refuses to take delivery of or pay for one or more
installments.

12. Delivery to Carrier or Wharfinger: Where the seller is authorized or required to send
the goods to the buyer, delivery of the goods to carrier (whether named by the buyer, or not)
for the purpose of transmission to the buyer, or delivery of the goods to wharfinger custody,
is prima facie deemed to be a delivery of the goods to the buyer. The seller is further required
to perform the following two duties also:
(i) To make a reasonable contract with the carrier or wharfinger,
 (ii) To give notice to the buyer to enable him to insure the goods.

Rights of the Buyer:

1. To have delivery of the goods as per contract.
2. To reject the goods when they are not of the description, quality or quantity as specified in the
contract
3. To repudiate the contract when goods are delivered in installments without any agreement to that
effects
4. To be informed by the seller, when the goods are to be sent by sea route, so that he may arrange for
their insurance
5. To have a reasonable opportunity to examine the goods for ascertaining whether they are in
conformity with the contract.
6. To sue the seller for recovery of the price, if already paid, when the seller fails to deliver the goods.
7. To sue the seller for damages if the seller wrongfully neglects or refuses to deliver the gods to the
buyer
8. To sue the seller for specific performance
9. To sue the seller for damages for breach of a warranty or for breach of a condition treated as breach of
a warranty
10. To sue the seller the damages for anticipatory breach of contract
11. To sue the seller for interest where there is a breach of contract on the part of the seller and price has
to be refunded to the buyer

Duties of the Buyer:

1. To accept the delivery of goods, when the seller is willing to make the delivery as per the contract
2. To pay the price in exchange for possession of the goods
3. To apply for delivery of the goods.
4. To demand delivery of the goods at a reasonable hour
5. To accept delivery of the goods in installments and pay for them, in accordance with the contract.
6. To bear the risk of deterioration in the course of transit, when the goods are to be delivered at a place
other than where they are sold
7. To inform the seller in case the buyer refuses to accept or rejects the goods
8. To take the delivery of the goods within a reasonable time after the seller tenders the delivery
9. To pay the price, where the property in the goods are passed to the buyer, in accordance with the
terms of the contract
10. To pay damages for non-acceptance of goods
Rights of the Seller:
1. To reserve the right of disposal of the goods until certain conditions are fulfilled.
2. To assume that the buyer has accepted the goods, where the buyer.
3. To deliver the goods only when applied for by the buyer
a) Conveys his acceptance;
b) Does an act adopting the sale; or
c) Retains the goods without giving a notice of rejection, beyond
specified date (or reasonable time), in a sale on approval.
4. To make delivery of the goods in installments, when so agreed
5. To exercise lien and retain possession of the goods, until payment of the price
6. To stop the goods in transit and resume possession of the goods, until payment of the price
7. To resell the goods under certain circumstances
8. To withhold delivery of the goods when the property in the goods has not passed to the buyer
9. To sue the buyer for price when the property in the goods has passed to the buyer or when the price is
payment on a certain day, in terms of the contract, and the buyer fails to make the payment

Duties of the Seller:

1. To make the arrangement for transfer of property in the goods to the buyer.
2. To ascertain and appropriate the goods to the contract of sale
3. To pass an absolute and effective title to the goods, to the buyer.
4. To deliver the goods in accordance with the terms of the contract
5. To ensure that the goods supplied conform to the implied express conditions and warranties.
6. To put the goods in a deliverable state and to deliver the goods as and when applied for by the buyer
7. To deliver the goods within the time specified in the contract or within a reasonable time and a
reasonable hour.
8. To bear all expenses of and incidental to making a delivery (i.e. up to the stage of putting the goods
into a deliverable rate
9. To deliver the goods in the agreed quantity.
10. To deliver the goods in installments only when so desired by the buyer.
11. To arrange for insurance of the goods while they are in transmission or custody of the carrier.
12. To arrange for insurance of the goods while they are in transmission or custody of the carrier.

Buyer's Remedies against Seller for Breach of Contract

A buyer also has certain remedies against the seller who commits a breach. These are:

1. Suit for Damages for Non-Delivery- When the seller wrongfully neglects or refuses to deliver the
goods to the buyer, the buyer may sue the seller for damages for non-delivery. This is in addition to the
buyer's right to recover the price, if already paid, in case of non-delivery.

2. Suit for price- Where the buyer has paid the price and the goods are not delivered to him, he can
recover the amount paid.

3. Suit for specific performance- When the goods are specific or ascertained a buyer may sue the seller
for specific performance of the contract and compel him to deliver the same goods. The court orders for
specific performance only when the goods are specific or ascertained and an order for damages would
not be an adequate remedy. Specific performance is generally allowed where the goods are of special
significance or value e.g. a rare paining, a unique piece of jewellery , etc.

4. Suit for Breach of Warranty- Where there is a breach of warranty by the seller, or where the buyer
elects or is compelled to treat the breach of condition as breach of warranty, the buyer cannot reject the
goods. The buyer may, (a) set up the breach of warranty in extinction or diminution of the price payable
by him, or (b) sue the seller for damages for breach of warranty.

5. Suit for Damages for Repudiation of contract before Due date-Where the seller repudiates the
contract before the date of delivery, the buyer may adopt any of the following two courses of action --

1. He may treat the contract as rescinded and sue the seller for damages. This is also known as
'damages for anticipatory breach'. The damages will be assessed according to the prices
prevailing on the date of breach.
2. He may treat the contract as subsisting and wait till the date of delivery. The contract remains
open at the risk and for the benefit of both the parties. If the seller subsequently chooses to
perform there shall be no damages otherwise he shall be liable to damages assessed according to
the prices on the day stipulated for delivery.

6. Suit for interest- The buyer may recover such interest or special damages, as may be recoverable
bylaw. He may also recover the money paid where the consideration for the payment of it has failed.

In the absence of a contract to the contrary, the court may award interest, to the buyer, in a suit by him
for the refund of the price in a case of a breach on the part of the seller, at such rate as it thinks fit on the
amount of the price from the date on which the payment was made.

Rights Against the Buyer Personally (Seller's Remedies Against buyer for Breach of Contract) Besides,
the above rights against the goods, an unpaid seller has certain rights against the buyer personally. The
seller enjoys the following rights in personal (also known as remedies for breach of contract).

Seller’s remedies against the buyer for breach of the contract

1. Suit for Price -- When the property in the goods has passed to the buyer, and the buyer
wrongfully neglects or refuses to pay the price, the seller is entitled to sue him for the price.
Where under a contract of sale the price is payable on a certain day irrespective of delivery or
 passing of property, and the buyer refuses or neglects to pay on that day, the seller may sue him
for the price.
2. Suit for Damages for Non-Acceptance -- Where the buyer wrongfully neglects or refuses to
pay for the goods, the seller may sue him for damages for non-acceptance.
3. Suit for Damages for Repudiation of contract before date of delivery Where the buyer
repudiates the contract before the date of delivery, the seller may adopt any of the following two
courses of action, viz.-

a) The seller may treat the contact as rescinded and sue the buyer for damages. This is also
known as 'damages for anticipatory breach'. The damages will be assessed according to the
prices prevailing on the date of breach.
b) The seller may treat the contract as subsisting and wait till the date of delivery. The contract
remains open at the risk and for the benefit of both the parties. If the buyer subsequently chooses
to perform there shall be no damages; otherwise he shall be liable to damages assessed according
to the prices on the day stipulated for delivery.

4. Suit for Interest --The seller may recover interest or special damages whereby law interest or
special damages may be recoverable