SALE OF GOODS ACT 1930

INTRODUCTION
Till 1930, transactions relating to sale and purchase of goods were regulated by the Indian Contract
Act, 1872. In 1930, Sections 76 to 123 of the Indian Contract Act, 1872 were repealed and a
separate Act called ‘The Indian Sale of Goods Act, 1930 was passed. It came into force on 1st July,
1930. With effect from 22nd September, 1963, the word ‘Indian’ was also removed. Now, the
present Act is called ‘The Sale of Good Act, 1930’. This Act extends to the whole of India except
the State of Jammu and Kashmir.
MEANING OF CONTRACT OF SALE
According to Section 4(1) of the Sale of Goods Act, 1930, “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”.
Example - A sells his Yamaha Motor Bicycle to B for Rs. 10,000. It is a sale since the
ownership of the motorcycle has been transferred from A to B.
The term ‘Contract of Sale’ is a generic term and includes:
a. Sales; and
b. Agreement to sell
Where the seller transfers the property in the goods immediately to the buyer is a sale.
But where the transfer of the property in the goods is to take place in a future time a subject to some
conditions thereafter to be fulfilled, the contract is called an agreement to sell. An agreement to sell
becomes a sale when the time passed as the conditions are fulfilled subject to which the property in
the goods is to be transferred.
ESSENTIALS OF A CONTRACT OF SALE
1. Contract The word contract means an agreement enforceable at law. It presumes free consent on
the part of the parties who should be competent to contract. The agreement must be made for a
lawful consideration and with a lawful object. In other words all the essential elements of a valid
contract must also be present in a contract of sale.
2. Two Parties To constitute a contract there must be two parties, viz., a buyer and a seller, as a
person cannot buy his own goods.
3. Transfer of Property Property means ‘ownership’. Transfer of property in the goods is another
essential of a contract of sale of goods. A mere transfer of possession of the goods cannot be
termed as sale. To constitute a contract of sale the seller must either transfer or agree to transfer
the property in the goods to the buyer.
4. Goods According to Section 2(7), “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 severed before sale or under the
contract of sale”.
5. Price To constitute a valid contract of sale, consideration for transfer must be money paid or
promised. Where there is no money consideration the transaction is not a contract of sale, as for
instance goods given in exchange for goods or as remuneration for work or labour.
6. Other elements of contract – it includes all the elements of the contract.

AN AGREEMENT TO SELL Where under a contract of sale the transfer of property in the goods is
to take place at a future time or subject to same condition thereafter to be fulfilled, the contract is
called ‘an agreement to sell’ [Section 7(3)]. It is an executory contract and refers to a conditional sale.
Examples On 1 January, X agrees with Y that he will sell Y his scooter on 15 January for a sum of
Rs 4,000. It is an agreement to sell, since X agrees to transfer the ownership of the scooter to y at a
future time.
DIFFERENCE BETWEEN SALE AND AGREEMENT TO SELL
S.no Basis Sale Agreement to sell

1 Transfer of Transfer of ownership of goods Transfer of ownership of goods

ownership takes place immediately
2 Contract It is an executed contract
because nothing remains to be
done.
3 Transfer of risk Transfer of risk of loss of
goods takes place immediately
because ownership is
transferred.
4 Conveyance of Buyer gets a right to enjoy the
property goods against the whole world
including seller
5 Destruction of As a result, in case of
goods destruction of goods, the loss
is to take place at a future time
or subject to fulfillment of some
condition.
It is an executory contract
because something remains to be
done.
Transfer of risk of loss of goods
does not take place because
ownership is not transferred.
Buyer does not get such right to
enjoy the goods.
As a result, in case of destruction
of goods, the loss shall be borne
 shall be borne by the buyer by the seller even though the
even though the goods are in goods are in the possession of
the possession of the seller. the buyer.

1. GOODS– SUBJECT MATTER OF CONTRACT OF SALE

According to Section 2(7), “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 land which are agreed to be severed before sale or under the contract of sale.
Trademarks, copy rights, patent rights, goodwill, electricity, water, gas are all goods.
a. Existing goods Goods earned and possessed by the seller at the time of the making of the contact
of sale are called existing goods.
b. Future Goods Goods to be manufactured, produced or acquired by the seller after the making of
the contract of sale are called ‘future goods’ [Sec 2(6)]. These goods may be either not yet in
existence or be in existence but not yet acquired by the seller. Examples X agrees to sell to Y all
the mangoes which will be produced in this garden next year. It is contract to sale of future
goods, amounting to ‘an agreement to sell’.
c. Contingent Goods Goods, the acquisition of which by the seller depends upon an uncertain
contingency are called ‘contingent goods’ [Sec. 6(2)]. Obviously they are a type of future goods
and therefore, a contract for the sale of contingent goods also operates as ‘an agreement to sell’
and not a ‘sale’ so far as the question of passing of property to the buyer is concerned. In other
words, like the future goods, in the case of contingent goods also the property does not pass to
the buyer at the time of making the contract.
2. PRICE The consideration for a contract of sale must be money consideration called the
“price”.
3. BUYER - “buyer” means a person who buys or agrees to buy goods.
4. DELIVERY - “delivery” means voluntary transfer of possession from one person to
another;
5. SELLER “seller” means a person who sells or agrees to sell goods;

CONDITIONS AND WARRANTIES

 Meaning of Stipulation [Section 12(1)] A stipulation in a contract of sale of goods may be a
condition or warranty [Section 12(1)].
Meaning of Condition [Section 12(2)] A condition is a stipulation
(a) Which is essential to the main purpose of the contract, and
(b) The breach of which gives the aggrieved party a right to terminate the contract.
Meaning of Warranty [Section 12(3)] A warranty is a stipulation
(a) Which is collateral to the main purpose of the contract, and
(b) The breach of which gives the aggrieved party a right to claim damages but not right to reject
goods and to terminate the contract.
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 - these are expressly provided in the contract. For example,
a buyer desires to buy a SONY TV Model No. 2062. Here, model no. is an express condition. In
an advertisement for Khaitan fans, guarantee for 5 years is an express warranty.
Implied Conditions and Warranties - These are implied by law in every contract of sale of goods
unless a contrary intention appears from the terms of the contract. The various implied conditions
and warranties have been shown below.
Implied conditions [Sections 14(A), 15(1), 16(1), 16(2), 16(3), 17]
1. Condition as to Title [Section 14(a)] There is an implied condition on the part of the seller that
(i) in the case of a sale, he has a right to sell the goods, and (ii) 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 [Section 15] Where there is a contract of sale of goods by description, there
is an implied condition that the goods shall correspond with description. The main idea is that the
goods supplied must be same as were described by the seller. Sale of goods by description
include many situations as under:
3. Sale by Sample [Section 17] A contract of sale is contract for sale by sample when there is a term
in the contract, express or implied, to that effect. Such sale by sample is subject to the following
three conditions.
 The goods must correspond with the sample in quality.
 The buyer must have a reasonable opportunity of comparing the bulk with the sample.
 The goods must be free from any defect which renders them unmerchantable and which would
not be apparent on reasonable examination of the sample. Such defects are called latent defects
 and are discovered when the goods are put to use. It may be noted that the seller cannot be held
liable for apparent or visible defects which could be easily discovered by an ordinary prudent
person.
4. Sale by sample as well as by Description [Section 15] If the sale is by sample as well as by
description, the goods must correspond with the sample as well as the description.
5. Condition as to Quality or Fitness [Section 16(1)] There is no implied condition as to the quality
or fitness for any particular purpose of goods supplied under a contract of sale. In other words,
the buyer must satisfy himself about the quality as well as the suitability of the goods. This is
expressed by the maxim caveat emptor (let the buyer beware).
6. Condition as a Merchantable Quality [Section 16(2)] Where the 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.
The expression ‘merchantable quality’ means that the quality and condition of the goods must be
such that a man of ordinary prudence would accept them as the goods of that description. Goods
must be free any latent or hidden defects.
Implied Warranties [Section 14(b), 14(c), and 16(3)]
1. Warranty as to Quiet Possession [Section 14(b)] There is an implied warranty that the buyer shall
have and enjoy quiet possession of the goods. The reach of this warranty gives buyer a right to
claim damages from the seller.
2. Warranty of Freedom from Encumbrances [Section 14(c)] There is an implied warranty that the
goods are free from any charge or encumbrance in favour of any third person if the buyer is not
aware of such charge or encumbrance. The breach of this warranty gives buyer a right to claim
damages from the seller.
3. Warranty as to Quality or Fitness for Particular Purpose which may be Annexed by the Usage of
Trade [Section 16(3)]
4. Warranty to Disclose Dangerous Nature of Goods In case of goods of dangerous nature the seller
must disclose or warn the buyer of the probably danger. If the seller fails to do so, the buyer may
make him liable for breach of implied warranty.

MEANING OF THE DOCTRINE OF CAVEAT EMPTOR [SECTION 16]

Caveat Emptor means "let the buyer beware", i.e. the buyer must take care. As a general rule, the
buyer purchased goods after satisfying himself as to quality and fitness and, therefore, the buyer
purchases the goods at his own risk, relying upon his own skill and judgement. In a contract for sale
of goods there is no implied warranty or condition as to quality or fitness for any particular purpose
of goods and therefore, the buyer purchased the goods at his risk relying on his own skill and
judgement (Section 16) Example : A purchase a horse from B. A needed the horse for riding but he
did not mention this fact to B. The horse is not suitable for riding but is suitable only for being
driven in the carriage. Caveat emptor being the rule. A can neither reject the horse nor can he claim
any compensation from B. This rule applies to the purchase of specific goods, for example, a horse
or a picture where the buyer can exercise his own judgement it applies also whenever the buyer
voluntarily chooses what he buys. But it has no application in any case, in which the seller has
undertaken and the buyer has left it to the seller, to supply goods to be used for a purpose known to
both parties at the time of the same.
UNPAID SELLER
INTRODUCTION
The seller of goods is deemed to be an ‘unpaid seller’:
(a) When the whole of the price has not been paid or tendered.
(b) When a bill of exchange or other negotiable instrument (such as cheque) has been received as
conditional payment, and it has been dishonoured [Section 45(1)].
The term ‘seller’ includes any person who is in the position of a seller (for instance, an agent of the
seller to whom the bill of lading has been endorsed, or a consignor or agent who has himself paid,
or is directly responsible for the price) [Section 45(2)].
The above definition of unpaid seller states the following :
1. The seller shall be called an unpaid seller even when only a small portion of the price
remains to be paid.
2. It is for the non-payment of the price and not for other expenses, that a seller is termed as an
unpaid seller.
3. Where the goods have been sold on credit, the seller cannot be called as an unpaid seller
during the credit period unless the buyer becomes insolvent. On the expiry of credit period if
the price remains unpaid, then only the seller will become an unpaid seller.
4. Where the full price has been tendered by the buyer and the seller has refused to accept it,
the seller cannot be called as unpaid seller.
(a) X sold some goods to Y for Rs. 10,000. Y paid Rs. 9000 but failed to pay the balance.
(b) X sold some goods to Y for Rs. 10,000 and received a cheque for the full price as conditional
payment. On presentment, the cheque was dishonoured by the Bank.
RIGHTS OF AN UNPAID SELLER
I. Rights of an unpaid seller against the goods - Where the property in the goods has passed to the
buyer, an unpaid seller has the following rights against the goods [Sec. 46(1)]:
1. Right of lien 9Secs. 46(1) (a) and 47 to 49] - A lien is a right to retain possession of goods until
payment of the price [Sec. 46(1) (a)]. It is available to the unpaid seller of the goods who is in
possession of them where.
(a) The goods have been sold without any stipulation as to credit:
(b) The goods have been sold on credit, but the term of credit has expired;
(c) The buyer becomes insolvent [Sec. 47(1)].
Rules regarding lien. (1) The seller may exercise his right of lien not with standing that he is in
possession of the goods as agent or bailee for the buyer [Sec. 47(2)]. If he loses the possession of
he goods, he losses the right of lien also.
2. Right of stoppage in transit [Sec. 46(1) (b) and 50 to 52] - The right of stoppage in transit is a
right of stopping the goods in transit after the unpaid seller has parted with the possession of the
goods. He has the further right of resuming possession of the goods as long as they are in the
course of transit, and retaining possession until payment or tender of the price. It is available to the
unpaid seller-.
 When the buyer becomes insolvent; and
 When the goods are in transit (Sec. 50).
3. Right of resale [Secs. 46(1) (c) and 54] The unpaid seller can re-sell the goods –
(1) Where the goods are of a perishable nature: or
(2) Where he gives notice to the buyer of his intention to re-sell the goods and the buyer does not
within a reasonable time pay or tender the price.
II. Rights of an unpaid seller against the buyer Where the property in the goods has passed to the
buyer, an unpaid seller has the following rights against the buyer
To claim damages - Where the buyer wrongfully neglects or refuses to accept and pay for the
goods, the seller may sue him for damages (and not for full price) for nonacceptance. Now the
question arises as to what shall be the basis or principles of estimating the damages to the claimed.
The answer is provided by Section 73 of the Indian Contract Act. According to Section 73, the
 measure of damages is the estimated loss arising directly and naturally from the buyer’s breach of
contract.
To claim interest - Where under a contact of sale, the seller tenders the goods to the buyer and the
buyer wrongfully refuses to accept and pay for them, the court may award interest on the price from
the date of the tender of the goods or from the date when the price is payable. If the goods are sold
on credit, interest will run from the expiry of the credit. The rate of interest to be awarded is
discretionary with the court. It may be noted that the seller can only recover interest when he is in a
position to recover the price. When he only sue for damages, for breach of contract, he is not
entitled to interest.
To claim price - Where under a contract of sale, the property in the goods has passed to the buyer
and the goods have actually come into his possession, the unpaid seller’s only remedy is a suit for
the price. Where under a contract of sale, the price is payable on a day certain irrespective of
delivery and the buyer wrongfully neglects or refuses to pay the price, the seller may institute a suit
for the recovery of the same, although the property in the goods may not have passed.
To repudiation of contract - Where buyer repudiates the contract before the due date of delivery, the
seller may either treat the contract as subsisting and wait till the due date of delivery or he may treat
the contract as rescinded and sue for damages for the breach.
AUCTION SALES
A sale by auction is a public sale where different intending buyer try to outbid each other. The
goods are ultimately sold to the highest bidder. The auctioneer who sells the goods by auction is an
agent of the seller, i.e., the owner. His relationship with the owner of the goods is governed by the
general principles of the law relating to agency.
Procedure in auction sales. The usual procedure in case of auction sales is as follows: The proposed
auction is duly advertised and a printed catalogue of the goods together with the terms of sale is
circulated. On the appointed day and time, the intending buyers assemble and the auctioneer puts
the different lots to auction and invites bids from the intending buyers.
Rules of auction sales. The law on auction sales is contained in Sec. 64 of the Sale of Goods Act.
According to it, in the case of a sale by auction the following rules apply:
1. Goods put up for sale in lots. Where goods are put up for sale in lots, each lot is prima facie
deemed to be subject of a separate contract of sale [Sec. 64(1)].
2. Completion of sale. The sale is complete when the auctioneer announces its completion by the
fall of the hammer or in some other customary manner.
3. Right of seller to bid. A right to bid may be reserved expressly by or on behalf of the seller.
Where such right is expressly reserved (but not otherwise), the seller or any one person on his
behalf may bid at the auction ‘Section 64 (3)].
4. Sale not notified subject to a right to bid. Where a sale is not notified to be subject to a right to
bid no behalf of the seller, it is not lawful.
5. Reserve price. The sale may be notified to be subject to a reserve or upset price [Sec. 64(5)]. It
is a price below which the auctioneer will not sell.
6. Use of pretended bidding. If the seller make use of pretended bidding to raise the price, the sale
is voidable at the option of the buyer [Sec. 64(6)].
7. Knock out or agreement not to bid against each other. Where a group of persons form a
combination to prevent competition between themselves at an auction and arrange that only one
of them will bid.