BBA-II Semester (May-2024)

BNU Syllabus
BUSINESS LAW

Sale of Goods Act-1930

CLASS HANDOUT
Dr. Prasanth.B
BE., MBA., SET., NET., Ph.D.
Assistant Professor, IIBS, Bengaluru .

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 THE SALE OF GOODS ACT, 1930

UNIT 1: FORMATION OF CONTRACT OF SALE

• INTRODUCTION:
❖ It came into force on the 1st of July, 1930.
❖ It is applicable to whole of India except Jammu & Kashmir.
❖ The Law relating to this statute was contained in the Chapter VII of the Indian
Contract Act, 1872.
❖ Where the Sale of Goods Act is silent on any point, the general principles of the
law of contract apply.

• CONTRACT OF SALE

Sale Agreement to sell

(Executed) (Executory)
The term ‘contract of sale’ is defined in Section 4 (1) of the Sale of Goods Act, as under: “A
contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the
property in the goods to the buyer for a price. “

• DEFINITIONS
1. Buyer:
“Buyer means a person who buys or agrees to buy goods.” [Sec. 2(1)]
2. Seller:
“Seller means person who sells or agrees to sell goods.” [Sec. 2(13)]
3. Goods:
“Goods” means every kind of movable property other
than actionable claims and money; and includes stocks
and shares,
growing crops, grass and things attached to or forming part of the land which are
agreed to the severed before sale or under the contract of sale. [Sec. 2 (7)].
❖ An actionable claim is a claim to any debt. For example: a money debt,
book debts, etc.
❖ Money here means legal tender o f money, i.e. the recognized
circulation in the country; but not old rare coins.
❖ Things attached to the earth are not movables, but trees, growing
crops which can be easily severed from the earth before sale. Fruits,
vegetables and flowers which can be separated from the trees, are
included in ‘goods’.
❖ Livestock i.e. cows, buffaloes, cats etc. are ‘goods’.
❖ Patents, copyrights, goodwill, t r a d e -marks, a r e a l l considered
goods which can be the subject matter of a contract.
❖ A ship has also been considered t o come w i t h i n t h e
definition of the word “goods”. Similarly, water, gas and electricity
are included in the definition, though some writers doubt if they can
be classed among “goods”.

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 ❖ As per English law, “shares and stock” are not treated as
“goods”.
❖ To conclude, everything movable is goods, except the
following:
1. Money
2. Actionable Claims
3. Immovable assets
4. Services
❖ Classification of Goods:

Existing Goods Future Goods Contingent Goods

Goods which are already in Goods which are yet to be Acquisition of such goods
existence at the time of manufactured in future. depends upon a contingency
contract of sale which may or may not happen.
Example: A contracts to sell
to B all the apples which will
Example: A agrees to sell to B a
be produced in his garden
certain car provided he is able
next year
to purchase it from its present
owner.

Specific/Ascertained General /Unascertained

Goods Goods

Goods which are identified Goods which are not specifically

and agreed upon at the identified but indicated by
time of a contract description at the time of the
Contract
Example: A particular
painting Example: Any 1 pen out of 50
pens

4. Price
✓ “Price’ means the money consideration for a sale of goods.” [Sec. 2 (10)].
✓ No sale can take place without a price.
✓ Therefore,
a. Exchange of goods for goods will not be considered as sale
b. Gift of goods will not be considered as sale
c. Exchange of goods for goods along with price will be considered as sale
5. Property:

General property Special property

(ownership) (interest)

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But in Sale of Goods Act, ‘property’ means the general property in goods and not merely a
special property
Example: A who owns the goods pledges them to B, then A has the general property in the
goods, while B has a special property or interest in them.

6. Documents showing Title to Goods/ Documents of Title to Goods

It is a document which It is a document which is used as proof of

shows the ownership of the possession or control of goods.
goods.
It includes a Bill of lading, Dock- warrant,
It includes share certificate, Warehouse keeper’s Certificate, Wharfinger
RC book of car, etc. Certificate, Railway Receipt

7. Mercantile Agent:
“Mercantile Agent’ means an agent having in the customary course of business as such
agent, authority either to sell goods, or to consign goods for the purpose of sale, or, to
buy goods, or to raise money on the security of goods.” [Section 2(9)].
If a person is not carrying on business as such agent, he would not fall under this
definition. Thus, a contractor, a warehouseman, a carrier or a servant and a friend would be
excluded.

8. Delivery:
“Delivery’ means voluntary transfer of possession from one person to another” [Sec. 2
(2)]. Therefore, in case of theft, there is no delivery, though there is a transfer of
possession.

Actual delivery Symbolic delivery Constructive delivery:

When the goods are When there is a When it is affected without

delivery of a thing in any change in the custody
actually physically
token of a transfer of or actual possession.
delivered to the
something else
buyer. Example: Where a
Example: Handing over
warehouseman holding
car keys, handing over
the goods of A agrees to
documents
hold them on behalf of B,
at A’s request.

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• ESSENTIAL ELEMENTS OF A VALID CONTRACT OF SALE
Following are the essential elements of a valid contract of sale:
1. All the requirements of a valid contract must be fulfilled:
A contract of sale must fulfil all the requirements of a valid contract, e.g., free
consent, consideration, competency of the parties, lawful object and consideration.
If any of the essential elements of a valid contract is missing, then the contract of
sale will not be valid.
2. There must be two parties to the contract of sale:
There must be two parties, one seller and the other buyer. The reason for the
same is that in a contract of sale, the ownership of the goods has to pass
from one person to another.
3. There must be some goods as a subject-matter:
The ‘goods’ as defined in Section 2 (7) of the Sale of Goods Act.
4. The property in the goods must be transferred to the buyer:
The term ‘property’ in the goods means the ownership of the goods. In every
contract of sale, the ownership of the goods must be transferred by the seller to
the buyer, or there should be an agreement by the seller to transfer the ownership
to the buyer. The term ‘property’ here means the general property, i.e., all
ownership rights of the goods, and not merely a special property, i.e., limited rights
such as right of a Pawnee.
5. There must be some price for the goods:
The goods must be sold for some price. The term ‘price’ is defined in Section
2 (10)
6. A contract of sale can be absolute or conditional [Section 4(2)].

• DISTINGUISH BETWEEN
1. SALE AND AGREEMENT TO SELL

SALE AGREEMENT TO SELL

1.Transfer of property: the property 1.Transfer of property: In
in goods passes from the seller agreement to sell, the ownership of the
to the buyer property will pass from the seller
immediately to the buyer at some future time or on
fulfilment of some conditions.
2.Nature of contract: A s a l e i s 2.Nature of contract: An agreement
an executed contract to sell is an executory contract

3. Consequences of Breach by buyer: 3. Consequences of Breach by buyer : In an

In a sale, if the buyer fails to pay for the agreement to sell, the seller can only sue for
goods, the seller can: damages for breach of contract
i. Sue him for recovery of price
ii. Claim damages

4. Consequences of Breach by seller: 4. Consequences of Breach by seller: In

In a sale, if the seller defaults, the case of an agreement to sell, if the
i.e. commits a breach, the buyer can: seller commits a breach, the buyer can only
1. Claim delivery of the goods from claim damages.
third party
2. Sue for damages

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 5. Transfer of risk: In a sale, if the 5. Transfer of risk: In an agreement to
goods are destroyed, the loss falls on the sell, if the goods are destroyed, the loss falls
buyer even though they are in the on the seller, even though they are in the
possession of the seller. possession of the buyer.

6. Subsequent destruction: A 6. Subsequent destruction: Such loss

subsequent loss or destruction of the or destruction is the liability of the seller.
goods is the liability of the buyer.

2. SALE AND HIRE- PURCHASE

SALE HIRE-PURCHASE
1. Property in the goods is 1. The property in goods passes to the
transferred to the buyer immediately at hirer upon payment of the last instalment.
the time of Contract.
2. The position of the buyer is that of an 2. The position of the hirer is that of a
Owner of the goods. bailee till he pays the last instalment.
3. The buyer cannot terminate the 3. The hirer may, if he so likes, terminate
Contract and is bound to pay the price of the contract by returning the goods to its
the goods. owner without any liability to pay the
remaining instalments.
4. The seller takes the risk of any 4. The owner takes no such risk, for if the
loss resulting from the insolvency of the hirer fails to pay an instalment the
buyer. owner has right to take back the goods.
5. The buyer can resell the goods. 5. The hirer cannot resell the goods till the
last instalment.
6. Tax is levied at the time of the 6. Tax is not leviable until it eventually
contract. ripens into a sale.

3. SALE AND BAILMENT

SALE BAILMENT
1. The property in goods is transferred 1. There is only transfer of possession of
from the seller to the buyer. goods from the bailor to the bailee for any
of the reasons like safe custody,
carriage etc.
2. The return of goods in contract of 2. The bailee must return the goods to the
sale is not possible. bailor on the accomplishment of the purpose for
which the bailment was made.

3. The consideration is the price in 3. The consideration may be gratuitous or

terms of money. non-gratuitous.

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• BARTER AND EXCHANGE
Barter:
Where goods are transferred for goods, the transaction is one of a ‘barter’ and not sale, i.e.
wheat is given in exchange of rice.
Exchange:
Where money is exchanged for money, the transaction is one of ‘exchange’ and not
sale, i.e. 100-rupee note is exchanged for 2 notes of Rs. 50.

• SALE AND CONTRACT FOR WORK AND LABOUR

A contract of sale has to be distinguished from a contract for work and labour. The
contract of sale contemplates the delivery of goods, whereas in contract for work and
labour or materials, the contract is for the exercise of the skill and labour, and delivery of
goods is only subsidiary.
Example: G commissioned R, an artist to paint a portrait and supplied the canvas and the
paint. Held, it is a contract for work and labour and not one for the sale of goods.

• FORMATION AND MODES OF A CONTRACT OF SALE

A contract of sale is made by an offer to buy or sell by one person, and the acceptance of
such offer by another person. And it may be made in anyone of the following modes
[Section 5 (1)]:
1. There may be immediate delivery of goods, but the price to be paid at some future
date.
2. There may be immediate payment of price, but the delivery to be made at
some future date.
3. There may be immediate payment of price and the immediate delivery of
goods.
4. The price and delivery of the goods may be postponed.
5. The price and delivery of the goods may be agreed to be made in
instalments.

✓ It may be noted that no particular form is necessary for the making of a

contract of sale.
✓ It may be in any form, e.g., a contract of sale may be made
(a) In writing, or
(b) By words of mouth, or
(c) Partly in writing and partly by words of mouth, or
(d) May be implied from the conduct of the parties.
However, if any particular mode is prescribed by any law, then the contract of sale
must be made in that particular mode [Section 5 (2)].

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• EFFECT OF DESTRUCTION OF GOODS

Goods are destroyed Goods are destroyed Goods are destroyed

after agreement to sell after the contract of sale
before the contract of
sale but before sale Contract is already
Agreement is void executed
Contract becomes void
(Risk of goods is with (Risk if goods are with the
(Risk if goods is with
the seller) buyer)
the seller)
*Aggrieved party can
claim damages

• PRICE AND MODES OF FIXING THE PRICE

The price means the money consideration for the sale of goods [Section 2 (10)]. Price
may be fixed in any of the following modes provided in Section 9:

1. The fixation of price by the contract of sale [Section 9 (1)]:

The price may be expressly fixed the contract of sale. The parties may fix any
price they like.

2. The fixation of price in a manner provided in the contract of sale

[Section 9 (1)]:
The contract of sale may provide for some manner in which ‘price is to, be fixed. In
such cases, the price may be fixed in a manner provided in the contract.

3. The fixation of price by course of dealings [Section 9 (1)]:

Sometimes, the customs or usage of trade provides certain principles for the
determination of the price. In such cases, the price may be determined from the
course of dealings between the parties.

4. The fixation of a reasonable price [Section 9 (2)]:

Sometimes, none of the above principles is applicable. In such cases, the buyer
shall pay to the seller a reasonable price. The term ‘reasonable’ price is a
question of fact which depends on the circumstances of each particular case.

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5. The fixation of price by third party [Section 10]:
✓ The parties may agree to sell and buy goods on the terms that the price
shall be fixed by the valuation of a third party.

✓ However, if such third party fails to make the valuation, the contract
becomes void. But if the buyer has received the goods and has
appropriated them, he becomes bound to pay reasonable price to the seller.

✓ Sometime, the third party is influenced or prevented by the buyer or the

seller from fixing the price. In such cases, the innocent party may recover
damages from the defaulting party.

Example:
A agreed to sell his 100 bags of rice to B at a price to be fixed by C. But C failed to
fix the price. In this case, the agreement becomes void on C’s failure to fix the
price.

Example:
A agreed to sell his 100 quintals of wheat to B at a price to be fixed by C. C is
willing to value wheat and fix the price. But, A by his wrongful acts, prevents C
from making the valuation of the goods. In this case, B can claim damages
from A.

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 UNIT 2: CONDITIONS AND WARRANTIES

• INTRODUCTION:
In every contract of sale of goods there are certain stipulations made with reference
to goods which are the subject-matter thereof. Such stipulations differ in character and
importance. The clause divides stipulations into conditions and warranties.
Condition:
“A condition is a stipulation essential to the main purpose of the contract, that breach of
which gives a right to treat the contract as repudiated.”
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 a right to reject the goods and treat
the contract as repudiated”.

CONDITION WARRANTY

1.A condition is essential to the 1. It is only collateral to the main

main purpose of the contract. purpose of the contract.
2. In case o f b r e a c h of condition, 2. In case of breach of warranty,
aggrieved party can: aggrieved party can only claim
i. Rescind the contract, return the damages.
goods and claim refund.
ii. Claim damages
3. A breach of condition may be 3. A breach of warranty cannot be
treated asa breach of warranty treated as a breach of condition.

4. Example: 4. Example:

• WHEN A CONDITION CAN BE TREATED AS A 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 waive the condition or elect to treat the breach of the condition as a
breach of warranty and not as a ground for treating the contract as repudiated.

2. Where the buyer elects to treat the breach of the conditions, as one of a
warranty. That is to say, he may claim only damages instead of repudiating
the contract

3. Compulsory waiver of a condition:

Where a contract of a 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 and not as a ground for rejecting the
goods and treating the contract as repudiated, unless there is a terms of the
contract, express or implied, to that effect.

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 Example:
B agrees to buy from A 20 bales of cotton by sample. The cotton is delivered
to B who makes payment of its price. B upon examination of cotton finds them
not equal to sample but uses 2 bales and sells 3. At this point he cannot rescind
the contract and recover the price. But A is bound to compensate for the loss
caused to B by breach of warranty.

4. Impossibility:
Nothing in this section shall affect the case of any condition or warranty, fulfilment
of which is excused by reason of impossibility or otherwise.

• CONDITIONS:

EXPRESS CONDITIONS IMPLIED CONDITIONS

Express conditions: Express conditions are those, which are agreed upon between the
parties at the time of contract and are expressly provided in the contract.

Implied Conditions:
✓ It is a condition, which the law implies into the contract of sale. The law
presumes that the parties have incorporated it into their contract.
✓ The implied conditions are read into every contract of sale unless they are
expressly excluded by the parties.
✓ In case of conflict between the express and implied conditions, the express term
shall prevail and the implied terms shall not be considered.
✓ Following are the implied conditions which are contained in the Sale of
Goods Act:
1. Conditions as to title:
❖ According to this condition, it is presumed that the seller has a valid
title to the goods, i.e., he has the right to sell the goods. If later
on, the buyer comes to know that the seller had no valid right to
sell the goods, then he may reject the goods and claim the refund of
the price, if already paid.
❖ This implied condition may be analyzed as under:
(i) In case of sale, the implied condition is that the seller has the
right to sell the goods, and
(ii) In case of an agreement to sell, the implied condition is that
the seller will have the right to sell the goods at the time
when the ownership is to pass from the seller to the buyer.
❖ Example:

2. Condition as to description:
❖ Sometimes, the goods are sold by description. In such cases, the
implied condition is that the goods shall correspond with the
description.
❖ The term ‘correspondence with description’ means that the goods
purchased by the buyer must be the same which were described by
the seller.
❖ If subsequently, it is discovered that the goods do not correspond
with the description, the buyer may reject the goods and claim the
refund of the price, if already paid.
❖ Example:

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 3. Condition as to sample:
❖ In case of sale of goods by showing the sample to the buyer, there
are following three implied conditions,
(i) That the goods delivered shall correspond with the quality of
the sample
(ii) That the buyer shall have a reasonable opportunity of
comparing the bulk with the sample.
(iii) That the goods shall be free from latent defects (i.e., the
defects which are not discoverable on reasonable
examination of sample)

4. Condition as to sample as well as description:

❖ Sometimes, the seller shows sample of the goods to the buyer and
also gives him their description. In such cases, the implied condition
is that the goods shall correspond with both, the sample as well as
description.

5. Condition as to quality or fitness for buyer’s purpose:

❖ Ordinarily, there is no implied condition that the goods shall be fit
for the particular purpose of the buyer.
❖ Seller is not responsible:
(i) To know the particular purpose of buyer.
(ii) If buyer chooses the goods negligently.
❖ However, in following exceptions, there is an implied condition that
the goods shall be fit for the buyer’s specific purpose.
In following cases seller is responsible to the buyer:
(i) If the buyer makes his purpose clear to the seller.
(ii) If the buyer buys the goods ‘relying upon his skill and
judgment’.
❖ Example:

6. Condition as to merchantability:
The term ‘merchantability’ has not been defined in the Sale of Goods Act.
However, it has been interpreted by the courts, and basically it means the
two things, namely: If goods are purchased for

Self use Resale

They should be reasonably fir for They should be immediately re-

the purpose for which they are saleable in the market under their
generally used. description.
Example: Example:

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 7. Condition as to wholesomeness:
This condition is a part of the condition as to merchantability. It is
applicable in cases of eatables, i.e., foodstuffs and other goods which are
used for human consumption. As per this condition, goods sold must be fit
for human consumption.
Example:

• WARRANTIES:

EXPRESS WARRANTIES IMPLIED WARRANTIES

Implied Warranties:
✓ It is a warranty, which the law implies into the contract of sale. The law
presumes that the parties have incorporated it into their contract.
✓ The implied warranties are read into every contract of sale unless they are
expressly excluded by the parties.
✓ In case of conflict between the express and implied warranties, the express term shall
prevail and the implied terms shall not be considered.
✓ Following are the implied warranties which are contained in the Sale of Goods Act :
1. Warranty as to quiet possession:
❖ Where the buyer has obtained the possession of the goods, he has a right
to enjoy them in a way he likes, i.e., no one should interfere with the
quiet enjoyment of the buyer.
❖ If buyer’s right of possession and enjoyment is disturbed by anyone, then
the buyer can recover damages from the seller.
❖ Example:

2. Warranty as to free from encumbrance:

❖ In every contract of sale there is an implied warranty that the goods sold
shall be free from any charge.
❖ If the possession of the buyer is disturbed due to such charge in favour of
third party, he can claim damages from the seller.
❖ Example:

3. Disclosure of dangerous nature of goods:

❖ There is another implied warranty on the part of the seller that in case
the goods are inherently dangerous or they are likely to be dangerous to
the buyer and the buyer is ignorant of the danger, the seller must warn the
buyer of the probable danger.
❖ If there is breach of this warranty, the seller will be liable in damages.

4. Warranties implied by customs:

❖ Like implied conditions, implied warranties are also attached by custom or
usage of trade. This is so because the parties enter into an agreement
subject to the known customs or usages of trade.

• THE DOCTRINE OF CAVEAT EMPTOR

(BUYER BEWARE):
❖ ‘Caveat Emptor’ is a Latin expression which means “let the buyer beware”.
❖ The Doctrine states generally seller is not responsible for bad goods.
❖ This Doctrine takes the side of the seller.
❖ As per the ruler, seller is not responsible in following cases:
(i) To know the particular purpose of buyer.
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 (ii) If buyer chooses the goods negligently
(iii) If the goods are defective and the defect is patent (i.e. defect which can be
discovered by mere inspection)

❖ Exceptions: The exceptions to the doctrine of Caveat Emptor; which are

mentioned below (i.e. in the following seller is responsible):
1. Where the buyer specifies the particular purpose for which the goods are
required to the seller.
2. Where buyer relies on the seller’s skill or judgment.
3. Where there is contract of sale by sample, the rule of caveat emptor will not apply
if the goods do not correspond with sample
4. Where goods are bought by description, the goods shall correspond with the
description.
5. If the goods are bought both by sample as well as by description this rule will
not apply if goods do not correspond with both sample and description.
6. There is an implied condition that the goods shall be of merchantable quality
7. When the seller actively conceals some defect in the goods so that the same
could not be discovered by the buyer on a reasonable examination, then the rule
of Caveat Emptor will not apply.
8. When the goods are purchased under some brand name.

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 UNIT 3: TRANSFER OF OWNERSHIP AND DELIVERY OF GOODS

Transfer of property: Delivery of Goods: Acceptance of Goods

Meaning Meaning

Rules Rules

• TRANSFER OF PROPERTY (OWNERSHIP):

A. Meaning:
❖ The term ‘property in the goods’ may be defined as the legal ownership of
the goods.
❖ Transfer of Ownership means transfer of Risk, Rights and Returns pertaining
to the goods.
❖ The term ‘property in the goods’ must be distinguished from the term
‘possession of the goods’. The term ‘property in the goods’ means the
ownership’ of the goods, whereas the term ‘possession of goods’ simply
means the custody or physical control over the goods.

B. Rules:
1. The ownership is transferred at the time of making the contract
if the following conditions are fulfilled:
(a) The sale must be of specific goods:
These are the goods which are identified and agreed upon at the
time of contract.
(b) The goods must be in a deliverable state:
The goods are said to be in a deliverable state when they are in
such a state that the buyer would, under the contract, be bound to
take delivery of them.
(c) The contract of sale must be unconditional:
A contract is unconditional in which no condition is imposed
regarding the transfer of ownership of the goods.
2. Transfer of ownership in case of sale of unascertained goods. The
unascertained goods are the goods which are not specifically identified
at the time of making the contract of sale.
In case of sale of unascertained goods, the ownership is transferred to the
buyer on the fulfilment of both the following conditions:
(i) Ascertainment of goods:
It is the process by which the goods to be delivered under the
contract are identified and set apart. It is a unilateral act of the
seller alone to identify and set apart the goods.
(ii) Appropriation of goods:
It is the process by which the goods to be delivered under the
contract are identified and set apart with the mutual consent of
the seller as well as buyer. It is a bilateral act of the seller and the
buyer to identify and set apart the goods.

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 Example:

3. Where the specific goods are to be put in a deliverable state by the

seller: The ownership is transferred as soon as the seller has put the goods
in a deliverable state and the buyer comes to know about the act of the
seller.

4. Where the specific goods in a deliverable state are to be weighed or

measured by the seller to ascertain the price, the ownership is transferred
to the buyer as soon as the seller has done the act of ascertaining the price
and the buyer comes to know about this act of the seller.
Example:

5. However, parties may decide to pass the ownership as per the contract.

6. Transfer of ownership in case of sale on approval

❖ The ownership of goods is with seller and the possession of
goods is with buyer
❖ The buyer has an option to return the goods.
❖ The ownership is transferred to the buyer in any of the
following three ways:
(i) When the buyer accepts the goods:
The acceptance by the buyer may be express or implied.
(ii) When the buyer adopts the transaction:
The buyer may adopt the goods by doing some act which
shows that he has accepted the goods e.g., where he further
sells or pledges the goods.
(iii) Where the buyer fails to return the goods within fixed
or reasonable time

7. Reservation of right of disposal

❖ The seller may like to retain the ownership of the goods until some
later date, e.g., until the price is paid or some conditions are fulfilled.
The seller may do so by reserving his right of disposal.
❖ Where the seller has reserved his right of disposal, the ownership of
the goods is not transferred to the buyer even if the goods are
delivered to the buyer or some carrier for the purpose of
transmission to the buyer. The ownership is transferred to the
buyer only when the conditions imposed by the seller are fulfilled.
❖ In the following two circumstances the seller is presumed to
have reserved the right of disposal:
1. By taking the documents showing title in his own name or
his agent’s name
2. By sending the bill of exchange for the price, to the
buyer, along with the documents of title
❖ Example:

8. Transfer of risk
❖ The risk and the ownership of the goods go together.
❖ In other words, the goods are at the risk of the party who has the
ownership of the goods. This means that in case of loss of the
goods, the loss shall be borne by the party who has the ownership
of the goods at the time of loss.
 ❖ Exceptions:
In these exceptional circumstances, the goods may be at the risk of
one party and their ownership may be with the other:
1. Agreement between the parties:
The terms of agreement between the parties may provide as
to when the ownership shall be transferred and who shall
suffer the loss.
2. Goods are at the risk of the party in default: Sometimes,
the delivery of the goods is delayed due to the fault of
either seller or buyer. In such cases, the goods shall be at
the risk of the party in default though their ownership is with
the other party.
3. Trade customs:
The risk and the ownership may also be separated by the
trade customs e.g.; the trade custom may provide that the
goods shall be at the risk of the buyer whether or not the
ownership has been transferred to him.

9. Transfer of title by non-owners

❖ “Nemodat quod non-habet”: This means that ‘no one can transfer a
better title than he himself has’. Thus, the buyer cannot get a better
title than that of the seller. If the seller’s own title is defective, the
buyer’s title will also be defective.
❖ Example:
❖ Exceptions:
In the following exceptional circumstances, a non-owner can
transfer a valid title to a bonafide buyer:
1) Sale by a mercantile agent
A ‘mercantile agent’ is an agent who deals in the buying and
selling of the goods on behalf of his principal, e.g., an
auctioneer. Where a mercantile agent sells goods in the
ordinary course of his business, the buyer who buys in good
faith, gets a valid title to the goods even if he (the mercantile
agent) is not the owner of the goods.

2) Sale by a joint owner: When the joint owner is in the sole

possession of the goods, and he sells them to a person who
buys in a good faith, the buyer gets a valid title to the goods.

3) Sale by estoppel: When the owner of goods, by his conduct

or by statement, willfully leads the buyer to believe that the
seller has the authority to sell, then he is estopped (i.e.,
prevented) from denying the seller’s authority to sell

4) Sale by unpaid seller: To be done in Unit 4

5) Sale by a seller in possession of goods after their sale: If
the seller continues to have the possession of the goods
even after their sale and if he resells the same goods to a
new buyer then in such cases, the second buyer gets a valid
title to the goods if he buys them in a good faith.
6) Sale by a buyer in possession of goods after their sale: If
the buyer obtains the possession of the goods which he has
bought or agreed to buy from the seller and the seller still
has some lien or other rights over the goods. If the buyer
resells the same goods to a new person. In such cases, the
second buyer gets a valid title free.
 7) Sale by a finder of goods:

If the goods are perishable If the goods are non-perishable

If the expenses on the goods ≥ 2/3rd of Market Value

8) Sale by a person in possession under a voidable contract:

The buyer gets a valid title only if the following conditions
are satisfied:
a. A person must obtain the possession of the goods
by coercion, undue influence, fraud or
misrepresentation.
b. The seller must have obtained the possession of the
goods under a voidable contract and not under a
void contract.
c. The contract must not have been rescinded (i.e., put
to an end) at the time of sale
d. The buyer must act in a good faith.

9) Sale Under the Provision of Other Acts :

a. Sale by an Official Receiver or Liquidator of the
Company will give a valid title to the purchaser.
b. Sale by a pawnee/pledgee under default of pawnor in
repayment of debt will give valid title to the
purchaser.

❖ In case of hire-purchase, hirer cannot pass a good

title even to a bonafide buyer.

• DELIVERY OF GOODS

A. Meaning:
❖ “Delivery” means a voluntary transfer of possession from one person to
another”.
❖ Delivery of goods may be actual, symbolic or constructive

B. Rules:
1. Buyer in position to access the goods:
The delivery of the goods may be made in any of the modes, but it must have the
effect of putting the goods in the possession of the buyer or his agent.
2. Demand for delivery of goods:
It is seller’s duty to put the goods in deliverable state and inform the buyer
regarding same. It is buyer’s duty to make a demand for the delivery of the goods.
3. Goods in the possession of a third person:
Sometimes, at the time of sale, the goods are in the possession of a third
person. In such cases, the effective delivery takes place when such person
acknowledges to (i.e., inform) the buyer, that he holds the goods on his
(buyer’s) behalf.
4. Delivery to a carrier or wharfinger:
Where the sold goods are delivered to a carrier/wharfinger for the purpose of
transmission to the buyer or safe custody, the delivery of goods to the
carrier/wharfinger is treated as a delivery to the buyer.
 5. Place for the delivery of goods:

Specified in the Not specified in the contract

contract
In case of sale- Place of Sale
The goods must be In case of an agreement to sell- Place of agreement to
delivered at such sell
place If at the time of agreement to sell, the goods are not in
existence- Place of manufacture

6. Time for the delivery of goods:

Specified in the contract Not specified in the contract

The goods must be The delivery of goods must be made

delivered at such within a reasonable time during
specified time business hours on a working day.

7. Time for demand or tender of delivery:

The demand of delivery by the buyer must be made within reasonable time during
business hours and on a working day.

8. Expenses for the delivery of goods:

The expenses of putting the goods into a deliverable state are borne by the seller.
And the expenses of receiving the goods are borne by the buyer. However, the
seller and the buyer may also agree otherwise

9. Deterioration of goods during transit:

The buyer shall bear the loss of deterioration of goods which is incidental
i.e. natural in transit unless otherwise agreed.

10. Delivery of goods by instalments:

As a rule, the delivery of goods by instalments is not considered as a good delivery
and the buyer is not bound to accept the goods delivered to him by instalments,
unless otherwise agreed.

11. Part delivery of goods:

Where the part delivery is made in Where the part delivery is made with the
progress of the whole delivery intention of separating it from the whole

Then it is treated as a delivery of Then it is not treated as a delivery of the

the whole and the ownership of whole and the ownership of the whole
the whole quantity is transferred quantity is not transferred to the buyer.
to the buyer.
 12. Delivery of wrong quantity:

Goods
the
all
Accept
Reject the

Reject the
damages for delay.
contract quantity of goods, and the buyer can claim
The seller still has the right to tender again the
not treated as cancelled, it is valid and ssubsisting.
The buyer rejects the whole quantity the contract is
Accept the

Reject

Accept
or Goods

Goods
Goods
or

Goods
the

Goods
the
Goods

Accept the
quantity
ordered
Short delivery or Excess delivery or Mixed delivery

• ACCEPTANCE OF DELIVERY OF GOODS

Acceptance is deemed to take place when the buyer intimates to the seller that he had
accepted the goods; or
(a) Does any act to the goods, which is inconsistent with the ownership of the
seller; or
(b) Retains the goods after the lapse of a reasonable time, without intimating to the
seller that he has rejected them.
 UNIT 4 : UNPAID SELLER

• MEANING OF UNPAID SELLER:

A seller will be called ‘unpaid’ if the following conditions are fulfilled:
(1) The whole or part of the price has not been paid or tendered and that the
seller has immediate right of action for the price.
(2) A bill of exchange or other negotiable instrument has been received but the same
has been dishonored.

• RIGHTS OF UNPAID SELLER

Against Goods Against Buyer

Suit for recovery of
When property in When property in price Rescind the
goods is transferred goods is not contract Suit for
transferred damages
Suit for interest
1. Right of Lien 1. Right of
withholding
2. Right of
delivery
stoppage
in transit 2. Any other
right
3. Right of resale

(A) Rights against the Goods:

1. Where the ownership of the goods has transferred to the buyer: In this case,
the unpaid seller has the following rights:
(a) Right of lien
❖ The right of lien is the right to retain possession of the goods.
❖ This right can be exercised only when the possession of
goods is with the seller.
❖ The unpaid seller of goods can retain his possession of goods until
payment of the price in following cases:
a) Where the goods are not sold on credit.
b) Where the goods have been sold on credit, but the
term of credit has expired
c) Where the buyer becomes insolvent.
❖ The unpaid seller can retain the goods only for the payment of the
price of the goods: He cannot retain the goods for any other
charges, e.g., maintenance, charges for storage of goods during
the exercise of lien etc.
❖ The right of lien is indivisible in nature.
❖ Termination of Lien:
a) By delivery of goods to the carrier
b) By delivery of goods to the buyer
c) By waiver of the lien
d) By payment of price by the buyer
 ❖ Example:

(b) Right of stoppage in transit

❖ The right of stoppage in transit is the right to regain
possession of the goods.
❖ This right can be exercised only when,
(i) Seller should have parted with the possession
(ii) Possession should be with a carrier, &
(iii) Buyer has not acquired the possession.
❖ The right of stoppage in transit can be exercised only if the
buyer has become insolvent.
❖ The unpaid seller can stop the goods in transit only for the
payment of the price of the goods.
❖ Distinction between Right of Lien and Right of Stoppage in
transit

Right of Lien Right of stoppage in transit

1. The essence of a right of lien 1. The essence of stoppage in
is to retain possession transit is to regain possession
2. Seller should be in possession 2. In stoppage in transit,
of goods under lien (i) seller should have parted with the
possession
(ii) possession should be with a
carrier, & (iii) buyer has not acquired
the possession.
3. Right of lien can be exercised 3. Right of stoppage in transit can
even when the buyer is not be exercised only when buyer
insolvent. becomes insolvent
4. Right of lien precedes right of 4. Right of stoppage in transit
stoppage in transit. begins when the right of lien ends

❖ Example:
 (c) Right of Resale

The unpaid seller has the direct In any other case, the unpaid seller has the right to
right to resell the goods in the resell the goods by following the procedure:
following circumstances:
Unpaid seller should give a notice to the buyer of
his intention to resell the goods
Where the goods are of perishable
(+)
nature
Additional time for payment
Where the unpaid seller has
If the buyer does not pay the price within a
expressly reserved his right of
reasonable time, the seller may resell the goods
resale.
If the notice of resale is given then in case of loss
on resale, it can be recovered and in case of profit
on resale, it can be retained.
However, the notice of resale is not given, the
seller cannot recover the loss suffered on resale.
Moreover, if there is any profit on resale he must
return it to the original buyer

2. Where the ownership of the goods has not been transferred to the buyer:
(a) Right of Withholding Delivery
When the ownership of the goods sold is not transferred to the buyer,
if the buyer fails to pay the price, the unpaid seller may refuse to deliver the
goods to the buyer. Such right is known as right of withholding the delivery
of the goods.
(b) Any other right
Since ownership and possession of goods is with the seller, seller can
use, gift, resell the goods, etc.

(B) Rights against the Buyer

1. Suit for recovery of price
Where the buyer takes the ownership as well as possession of goods and the
buyer fails to pay the price of the goods, the seller can file a suit against the buyer
for recovery of the price.
2. Suit for damages for repudiation of the contract before the due date of
delivery of goods:
Where the buyer repudiates (i.e., puts an end to) the contract before the due
date of delivery of the goods, the seller has the following options:
(i) He may not immediately take any action against the buyer, and treat the
contract as subsisting and wait till the date of delivery of goods.
(ii) He may immediately treat the contract as repudiated and bring a legal
action against the buyer for the recovery of damages. Thus, the option of
bringing the action lies with the seller. He may either wait till the date of
delivery of goods arrives, or bring an immediate action for damages.
 3. Suit for damages
Where the seller is ready and willing to deliver the goods to the buyer, but the
buyer wrongfully neglects or refuses to accept the goods and pay for them, then
the seller may bring a legal action against the buyer for the recovery of damages
suffered due to non-acceptance of the goods.
4. Suit for interest
The court may award the interest from the date of tender of the goods or from the
date when the price is payable. The rate of interest to be awarded is at the
discretion of the court.

• EFFECTS OF SUB-SALE OR PLEDGE BY BUYER

❖ The right of lien or stoppage in transit is not affected by the buyer selling or
pledging the goods unless the seller has assented to it.
❖ Exceptions:
(a) When the seller has assented to the sale, mortgage or other disposition of
the goods made by the buyer.
(b) When a document showing title to goods has been transferred to the buyer
and the buyer transfers the documents to a person who has bought goods
in good faith and for value.
❖ Example:

• RIGHTS OF PARTIES IN BREACH OF CONTRACT

Rights of Seller against Buyer Rights of Buyer against Seller

Rescind the contract Damages for non-delivery

Suit for recovery of Suit for specific
price Suit for damages performance Suit for
Suit for interest breach of warranty Suit
for breach of condition
Rescind the Contract
• AUCTION SALES
❖ An auction sale is a sale at which the auctioneer, as agent for the seller, invites
persons present to bid for goods sold.
❖ Auctioneer acts in a dual capacity

He acts as an agent Subsequently, he

of the seller till the acts as an agent of
article is ‘knocked the buyer.
down’ to the bidder.

END