SALE OF GOODS ACT --1930

Law relating to sale of goods is contained in the Sale of

. Goods Act 1930.
Came into effect from 1st July. 1930.
The Act contains 66 sections,extends to the whole of
India,except Jammu & Kashmir.
A few minor amendments were made by the Sale of
Goods ( Amendment ) Act 1963.
Trade is a consensual transaction & the parties to the
contract enjoy unfettered discretion to agree to any
terms they like relating to delivery& payment of price.
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• “Goods” include every kind of movable property
other than actionable claims and money and includes
stocks, shares, growing crops etc..
• Goods may be existing or future things like water,
gas, electricity, copy right and trade mark---are all
goods. Under the English law,stocks and shares are
not goods.
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Contract of Sale—Definition
Sec 4 of the sale of goods Act defines a contract of sale as “a
contract of sale of goods is a contract where by the seller
transfers or agree to transfer the property in goods to the
buyer for a price “.This definition reveals certain
Essential characteristics/elements of a contract of sale of goods.
1.A contract. All essential elements of a contract must be
present in a contract of sale.
2.Two parties viz buyer and seller—there must be two distinct
parties to a contract of sale.A person cannot buy his own
goods.—must be competent to contract.

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However a joint owner of goods can sell the same to the
other joint owner.
3.Transfer of property/ownership.—transfer of ownership
from the seller to the buyer is the most important
ingredient in a contract of sale.—which distinguishes a
sale from several other classes of contract like
bailment,lease etc.But physical delivery of goods is not
essential.
4.Goods—the subject matter of the contract of sale must
be ‘goods’..Goods means every kind of movable property
other than actionable claims and money;
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 and includes stock and shares,growing
crops,grass,and things attached to it.Goods can be
any kind except immovable properties. Goods
include,goodwill, trade marks,copy rights,patent
rights,water,gas,electricity,decree of a court of law .
5.Price—consideration for sale of goods must be
money called the price.--if goods are sold or
exchanged for other goods,the transaction is barter,
governed by Transfer of Property Act and not sale of
goods under this Act
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6.Includes both a’ sale’ and an ‘agreement to sell’—in
sale there is immediate transfer of ownership in goods
In an agreement to sell the transfer of ownership takes
place at a future date/time or subject to some
condition there after to be fulfilled.( Sec 4(3).It is an
executory contract.
Eg. On 1 January,A agrees with B that he will sell B his
scooter on 15 January for a sum of Rs 10000.It is an
agreement to sell,since A agrees to transfer the
ownership of the scooter to B at a future date.

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6.No formalities to be observed—The Act donot
prescribe any particular form to constitute a valid
contract of sale---can be made by mere offer and
acceptance
Offer may be made either by the seller or the buyer and
the same must be accepted by the other.
Neither payment nor delivery is necessary at the time of
making the contract of sale.
May be made either orally or in writing or partly in
writing or may be even implied from conduct of parties

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Where article are exhibited in a shop for sale and a
customer picks up one and the sales assistant packs
the same for him, there has resulted a contract of sale
of goods by the conduct of the parties.

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DISTICTION BETWEEN SALE AND AGREEMENT TO SELL :

Where the right of ownership in the goods is transferred

from the seller to the buyer in exchange of money - is sale.
• It may be absolute or conditional – in conditional sale the
process is completed subject to certain conditions.
• In an agreement to sell, the transfer of ownership in the
goods take place at a future time. It is conditional.

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Differences are :

1. Transfer of Property: In sale immediate effect of transferring

property - in agreement to sell, ownership passes on a future date.
2. Risk – In sale, risk prima facie passes to buyer – in agreement to
sell the seller remains owner and run all the risk ( sec.26 ).
3. Breach by the buyer– If a buyer commits default,the seller may
sue the buyer for the price.
4. Nature of contract. an agreement to sell is an executory contract
while a sale is an executed contract.
5. Breach by the seller. Sale makes the buyer owner of the goods- if
the seller refuses to deliver the goods the buyer may sue for
delivery by specific performance
.

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6.When goods are destroyed—In the case of sale, if the
goods are destroyed by accident the buyer has to bear
the loss though the goods are in possession of the seller.
7.Insolvancy of the buyer.—In the case of sale,if the buyer
becomes insolvent, and in the absence of him the seller
must deliver the good to the official receiver.But in
agreement to sell,if the buyer becomes bankrupt before
payment of price,the seller can refuse to deliver the
goods unless paid for.

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8.Insolvency of the seller– in the case of sale if the seller
becomes insolvent, the buyer can recover the goods
from the official receiver.But in the case of an agreement
to sell,if the seller becomes insolvent,the buyer who has
paid the price can claim rateable divident.

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SALE AND HIRE PURCHASE : A hire purchase agreement is
an agreement for hiring with an option to purchase. It
resembles a sale. The points of difference between sale
and hire purchase agreements are as follows.
1.In sale ownership is transferred from the seller to the
buyer. In hire purchase agreement ownership is
transferred only on payment of fixed number of
installments.

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2.In sale the buyer becomes owner. In hire
purchase agreement – he is hirer and a bailee.
3.In a sale, the buyer is bound to pay the price of
the goods and he cannot terminate the
contract. In a hire purchase an option is given
to the hire purchaser and he can terminate the
contract at any time and after that he is not
bound to pay further instalments .

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4. In sale when the buyer becomes insolvent, the
seller has no right to seize and take back the
goods.
In a hire purchase if buyer becomes insolvent or
fails to pay the installment, the seller has the
right to seize and take back the goods.
5).Sale is an executed contract. Hire purchase
agreement is only an executory contract.

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 CONDITION AND WARRANTY :
A condition is a stipulation which is essential to the main purpose of
the contract and it goes to the root of the contract, the breach of which
gives rise to a right to treat the contract as repudiated. A warranty is a
stipulation collateral to the main purpose of the contract. A breach of
this will give rise to a claim for damages. It will not entitle the party to
reject the goods / treat the contract as repudiated. When a condition is
reduced to a warranty the effect is not that the condition becomes a
warranty but it is only the remedy that change.

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DISTINCTION BETWEEN A CONDITION AND A WARRANTY
:
Condition (Sec 12 (2) “.A condition is a stipulation essential to the
main purpose of the contract,the breach of which gives rise to treat
the contract as repudiated”.
Essential features are--
1.A condition is a term essential to the main purpose of the contract.
2.Warranty is only collateral to the main purpose.
3.Main purpose of contract cannot be fulfilled unless the condition is
fulfilled. Fulfillment of contract does not depend upon the
fulfillment of a warranty.
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4.A breach of condition would entitle the other party to
repudiate the contract altogether . A breach of warranty
will give right only to claim damages and not to avoid the
contract.

5. A breach of condition may be treated as a breach of

damages only. A breach of warranty cannot be treated as a
breach of condition

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IMPLIED CONDITION :
In a contract of sale of goods the conditions and warranties may be
expressed or implied. Express conditions are expressly agreed upon
by the parties at the time of contract for sale. But when the
conditions and warranties are not written in the contract, but
applied to the contract by operation of law or by trade or custom
they are called implied condition and warranties. They are

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1. Conditions as to title of goods sold(Sec 14 )--it is one of the duties of
the seller to ensure that he has a right to sell the goods.—in the case of
an agreement to sell he shall have a right to sell the goods at the time
when the ownership in the goods is to pass from the seller to the buyer.
Eg.A purchased a motor car from B and used it for four months and
subsequently it was found that it belonged to C as it was stolen by ‘B’
from ‘C’. So ‘A’ was forced to surrender the motor car to ‘C’. ‘A’ filed a
suit against ‘B’ for recovering the price amount.It was held that ‘A’ was
entitled to recover the full price even though he had used the motorcar
for
.
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four months because of the breach of implied conditions as
to title (Rowland vs Divall).
2.Goods sold should correspond to description.
3.Condition as to quality or fitness.
4.Condition as to Merchantability.
5.Condition as to wholesomeness.
6.Condition as to sample.
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Some important implied warranties.
1.Warranty for quiet possession.
2. Warranty against encumbrance.
. Implied warranty --An implied warranty or condition as to
quality or fitness for a particular purpose may be annexed by
the usage of trade. For example: There was a sale of drugs by
auction. It was a trade usage to declare any sea damage in
such cases.
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 It was held that it could be implied that drugs so sold without
any such declaration were free from sea damage.
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.
For example: X sold a tin of disinfectant powder to Y, X knew
that the tin was to be opened with special care otherwise it
might prove dangerous. He also knew that Y was ignorant
about it. He did not warn Y. C opened the tin and his eyes were
injured by the powder. It was held that A was liable as he
should have warned Y of the probable danger.
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• Doctrine of Caveat Emptor-- The term ‘caveat emptor’ is a Latin
word which means ‘let the buyer beware’ i.e., a buyer
purchases the goods at his own risk. 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.
• Section 16 of the Sale of Goods Act has enunciated the rule of
caveat emptor as follows: “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”.

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 2. Warranty of freedom from encumbrances[Sec. 14 (c).
There is an implied warranty that the goods shall be free
from any charge or encumbrance before or at the time
when the contract is made.
For example: A borrowed Rs. 500 from B and
hypothecated his radio with B as security. Later on A sold
this radio to C who bought in good faith. Here, C can
claim damages from A because his possession is
disterbed by B having a charge.

.
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 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.
For example: A borrowed Rs. 500 from B and
hypothecated his radio with B as security. Later on
A sold this radio to C who bought in good faith.
Here, C can claim damages from A because his
possession is disterbed by B having a charge.
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 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.
For example: A borrowed Rs. 500 from B and
hypothecated his radio with B as security. Later on
A sold this radio to C who bought in good faith.
Here, C can claim damages from A because his
possession is disterbed by B having a charge.
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Rights of Buyer.
1. Entitled to get delivery of the goods in accordance with the
contract.
2. Is entitled to claim the whole goods and not in instalments.
3. He is entitled to a reasonable opportunity to examine the goods
before taking delivery.
4. Right to accept / reject.
5. Has right to sue for damages in case of breaches.
6. Entitled to claim interest if he has paid the whole price / a portion
in case of breach.

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Rights of Seller :
1. Where the buyer refuses to accept and pay for the goods sold, the seller
has a right to sue for damages.
2. Right to recover price.
3. Claim interest.
Rights of an unpaid seller :
When ownership in the goods is transferred to unpaid vender has the
following rights.
1. Right of lien. If the buyer does not pay the price, the seller has the right
to retain the goods until the whole price is paid. Lien means a right to
retain the goods of another till the charges due to him are paid.The lien
can be exercised as long as
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the seller remains in possession of the goods.
When a lien is lost ? .Once the possession is lost lien is
also lost.
When he delivers the goods to a carrier for the purpose
of transmission to the buyer without reserving the
right of disposal of the good or
When the buyer or his agent lawfully obtains possession
of the good or when the seller expressly or impliedly
waives his right of lien.

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2. Right to stoppage of goods in transit.
It is just an extension of the right of lien. When the goods are in
seller’s possession he is always entitled to exercise his lien and he
can retain the goods with him. Where the goods have come into the
possession of the buyer, his right of lien is lost. When the seller has
parted with the possession of the goods but have not actually come
into the hands of the buyer/ the goods are in transit the seller has the
right to stop the goods in transit and regain possession.

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3. Right of resale. The unpaid seller can resume possession of the goods
and upon insolvency of the buyer, can resell the goods if it is in
perishable nature. Other wise he may call upon the buyer to pay the
amount and incase of failure can resell.
Rights of an un paid seller against the buyer personally—
The un paid seller in addition to his rights against the goods mentioned
above has the following three rights against the buyer personally.
1 Suit for price ( Sec.55 )-Where property in goods has passed to the buyer
or price is payable, the seller is entitled to sue the buyer for price,
irrespective of the delivery of goods.
.
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2.Suit for damages for non acceptance (Sec.56)-where the
buyer wrongfully neglects or refuses to accept and pay for
the goods,the seller may sue him for damages for non
acceptance— The suit is for damages,rather than an
action for the full price of the goods.
3.Suit for special damages and interest ( Sec 61 ).The seller
can sue the buyer for special damages for losses which the
party knews ,when they made the contract, to be likely to
result from the breach of it.-also recognizes his right to get
interest at a reasonable rate on the total unpaid price of
the goods sold. (Telu Ram Jain vs Aggarval & sons, 1990 ).

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 FAS Contract :

FAS stands for ‘free alongside ship’. The

Ownership in goods sold under an FAS contract
passes from the seller to the buyer when the
goods are delivered alongside the ship named
by the buyer under a contract of carriage.
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 F.O.B AND F.O.R CONTRACTS:
F.O.B stands for Free on Board and F.O.R – Free on Rail. In such
contracts the seller has to put the goods on board / rail at seller’s
expense. The buyer is free from the bearing the cost of putting the
goods on board/ rail. But he is responsible for freight, insurance and
subsequent expenses . The seller does not insure the goods as the
ownership passes to the buyer as soon as the goods are put on board /
rail. So far as F.O.B contract is concerned–the buyer must name the
ship to which goods are to be delivered / he may authorise the seller
to select the ship.

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Where the buyer does not name the ship by which goods are to be
sent, the seller should not despatch the goods through a ship of his
choice.
In F.O.B or F.O.R contracts ownership passes to the buyer as soon as
the goods are put on board or on rail.

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