Sales of Goods Act, 1930

• The sales of goods is the most common of all commercial contracts

• Contracts for the sale of goods are subject to the general legal principles
applicable to all contracts such as offer & its acceptance, the capacity of
the parties, free & real consent, consideration and legality of the object.

• However, a contract of sale has some special features which are not
found in all contracts such as warranties, ownership, goods title etc.

• A contract of sale of goods is a contract whereby the seller transfers or

agrees to transfer the property or goods to the buyer for a price
 Essentials of a contract to sale
 Two parties:
• There must be two distinct parties i.e. a buyer and a seller, to effect a contract
of sale and they must be competent to contract.

• Buyer means a person who buys or agrees to buy goods [section 2(1)]

• Seller means a person who sells or agrees to sell goods [section 2(13)]

 Goods:

• There must be some goods which is or is to be transferred from the seller to

the buyer.

• The goods which form the subject matter of contract of sale must be movable
• According to section 2(7), goods mean every kind of movable
property other than actionable claims and money, includes stcks
and shares, growing crops, trade marks, goodwill etc.
Classification of Goods:
• The goods which form the subject of a contract may be either
existing goods or future goods or contingent goods [Section 6(2)]
1. Existing goods: these are the goods which are owned or
possessed by the seller at the time of sale. The existing goods
may be of following types:
a. Specific Goods
b. Ascertained Goods
c. Unascertained Goods
2. Future goods: In sec 2(6) of the Act, future goods have been
defined as the goods that will either be manufactured or produced or
acquired by the seller at the time the contract of sale is made
3. Contingent Goods: Contingent goods are actually a subtype of future goods
in the sense that in contingent goods the actual sale is to be done in the future.
These goods are part of a sale contract that has some contingency clause in it,
which may or may not happen.

EFFECT OF DESTRUCTION OF GOODS:

• Goods perishing before making of contract (Sec 7): A contract for the sale
of specific goods is void if at the time when the contract was made, the goods
have, without the knowledge of the seller, perished. The same would be the
case where the goods become so damaged as no longer to answer to their
description in the contract.

• Goods perishing after the agreement to sell but before the sale is effected
(Sec.8): An agreement to sell specific goods becomes void if subsequently the
goods, without any fault on the part of the seller or the buyer, perish or
become so damaged as no longer to answer to their description in the
agreement before the risk passes to the buyer.
 Price:
• Price is an essential ingredient for all transactions of sale and in the absence
of the price or the consideration, the transfer is not regarded as a sale.

• The transfer by way of sale must be in exchange for a price. It has been
held that price normally means money.

• The price can be paid fully in cash or it can be partly paid and partly
promised to be paid in future.
• Price of sale may be

(1)fixed by the contract

(2)may be left to be fixed in manner thereby agreed

(3)may be determined by the course of dealing between the parties.

• Where the price is not determined in accordance with the foregoing
provisions, the buyer shall pay the seller a reasonable price. What is a
reasonable price is a question of fact dependent on the circumstances of
each particular case.

Agreement to sell at valuation:

• Where there is an agreement to sell goods on the terms that the price is
to be fixed by the valuation of a third party and such third party cannot
or does not make such valuation, the agreement is thereby avoided.

• Provided that, if the goods or any part thereof have been delivered to,
and appropriated by, the buyer, he shall pay a reasonable price therefor.

• Where such third party is prevented from making the valuation by the
fault of the seller or buyer, the party not in fault may maintain a suit for
damages against the party in fault.
 Transfer of general property
 Essential Elements of a valid contract
 BASIS FOR SALE AGREEMENT TO SELL
COMPARISON

Meaning When in a contract of sale, When in a contract of sale the

the exchange of goods for parties to contract agree to
money consideration takes exchange the goods for a price at a
place immediately, it is future specified date is known as an
known as Sale. Agreement to Sell.

Nature Absolute Conditional

Type of Executed Contract Executory Contract
Contract

Transfer of risk Yes No

Title In sale, the title of goods In an agreement to sell, the title of

transfers to the buyer with goods remains with the seller as
the transfer of goods. there is no transfer of goods.

Right to sell Buyer Seller

Consequences of Responsibility of buyer Responsibility of seller
subsequent loss or damage
to the goods

Suit for breach of contract The buyer can claim Here the buyer has the right
by the seller damages from the seller and to claim damages only.
proprietary remedy from
the party to whom the
goods are sold.
Right of unpaid seller Right to sue for the price. Right to sue for damages.
 Conditions and Warranties
• Before a contract of sale is entered into, a seller frequently
makes representations or statements with reference to the
goods which influence the buyer to clinch the bargain.

• Whether any statement or representation made by the seller

with reference to the goods is a stipulation forming part of
the contract or is a mere representation forming no part of
the contract, depends on the construction of the contract

• A stipulation in a contract of sale with reference to goods

may be a condition or a warranty [section 12(1)]
Condition [section 12 (2)]:

• A condition is a stipulation which is essential to the main purpose

of the contract

• It goes to the root of the contract.

• It non-fulfilment upsets the very basis of the contract.

• It is an obligation which goes so directly to the substance of the

contract that its non-performance may fairly be considered by the
other party as a substantial failure to perform the contract at all.

• If there is a breach of a condition, the aggrieved party can treat the

contract as repudiated
Warranty[Section 12(3)]:
• A warranty is a stipulation which is collateral to the
main purpose of the contract

• It is not of such vital importance as a condition is.

• It is an obligation which, though must be performed, is

not so vital that a failure to perform it goes to the
substance of the contract

• If there is a breach of a warranty, the aggrieved party

can only claim damages and it has no right to treat the
contract as repudiated
Difference between a condition and a warranty:

a. 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.

b. 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 warranty, the aggrieved party can claim damages only.

c. Difference as to treatment: A breach of a condition may be

treated as a breach of a warranty. This would happen where the
aggrieved party is contended with damages only. A breach of a
warranty, however, cannot be treated as breach of a condition.
 Express and Implied Conditions &
Warranties
Express conditions and warranties are which, are expressly provided in the contract.

Implied conditions and warranties are those which are implied by law or custom; these
shall prevail in a contract of sale unless the parties agree to the contrary.

Implied Conditions:
a. Condition as to title[section 14(a)]:
• In every contract of sale, unless the circumstances of the contract are such as to show a
different intention, there is an implied condition on the part of the seller, that
i. In case of a sale, he has a right to sell the goods

ii. In case of an agreement to sell, he will have a right to sell the goods at the time when the
property is to pass.

• The words 'right to sell' contemplate not only that the seller has the title to what he purports
to sell, but also that the seller has the right to pass the property. If the seller's title turns out
to be defective, the buyer may reject the goods.
b. Condition as to Description (section 15):

• In a contract of sale by description, there is an implied condition that the

goods shall correspond with the description.

• The term 'sale by description' includes the following situation

i. Where the buyer has not seen the goods and buys them relying on the
description given by the seller.

ii. Where the buyer has seen the goods but he relies not on what he has seen
but what was stated to him and the deviation of the goods from the
description is not apparent.

iii. Packing of goods may sometimes be a part of the description. Where the
goods do not conform to be method of packing described (by the buyer or
the seller) in the contract, the buyer can reject the goods.
c. Conditions as to quality or fitness [section 16(1):
• Normally in a contract of sale there is no implied condition as to quality or fitness of the
goods for a particular purpose.

• The buyer must examine the goods thoroughly before he buys them in order to satisfy
himself that the goods will be suitable for the purpose for which he is buying them

• The following points should, however, be noted in this regard:

i. Where the buyer, expressly or by implication, makes known to the seller the particular
purpose for which he needs the goods and depends upon the skill & judgment of the seller
whose business it is to supply goods of that description, there is an implied condition that
the goods shall be reasonably fit for that purpose

ii. If the buyer purchasing an article for a particular use is suffering from an abnormality and
it is not made known to the seller at the time of sale, implied condition of fitness does not
apply

iii. If the buyer purchases an article under its patent or other trade name, the implied condition
that articles are fit for a particular purpose shall not apply, unless the buyer relies on the
seller’s skill & judgment & makes known to the seller that he so relies on him

iv. In case the goods can be used for a number of purpose, the buyer must tell the seller the
particular purpose for which he requires the goods. If he does not, he cannot hold the seller
liable for the goods donor suit the particular purpose for which he buys the goods
d. Condition as to Merchantability[section 16(2)]:
• Where the goods are bought by description from a seller, who
deals in goods of that description (whether or not as the
manufacturer or producer) there is an implied condition that
the goods shall be of merchantable quality.

• Merchantable quality ordinarily means that the goods should

be such as would be commercially saleable under the
description by which they are known in the market at their full
value.
e. Condition implied by custom[section 16(3)]:
• An implied condition as to quality or fitness for a particular
purpose may be annexed by the usage of the trade
f. Sale by sample (section 17):
• A contract of sale is a contract for sale by sample where there is a term in the
contract, express or implied, to that effect

g. Condition as to wholesome:
• In case of eatables and provisions, in addition to the implied condition as to
merchantability, there is an another condition that the goods shall be
wholesome

Implied Warranties:
a. Warranty of quiet possession [section 14(b)]

b. Warranty of freedom from encumbrance [section 14(c)]

c. Warranty as to quality or fitness by usage of trade [section 16(4)]

d. Warranty to disclose dangerous nature of goods

 Caveat Emptor
• This means “let the buyer beware”

• This is a warning to buyers that they are responsible for making sure
that the item is in suitable condition, or that it fits their needs, before
buying.

• A doctrine that often places on buyers the burden to reasonably

examine goods before purchase and take responsibility for its
condition.

• Especially applicable to items that are not covered under a strict

warranty.
• The doctrine of caveat emptor has certain important
exceptions such as
a. Fitness for buyers purpose
b. Sale under a patent or trade name
c. Merchantable quality
d. Usage of trade
e. Consent by fraud
 Rights of an Unpaid Seller
• A seller of goods is deemed to be an unpaid seller
when:

a. The whole of the price has not been paid

b. A bill of exchange or other negotiable instrument has

been received as a conditional payment and the
condition on which it was received has not been
fulfilled by reason of the dishonour of the instrument
or otherwise
 Rights of an Unpaid seller

Against the goods Against the buyer personally

Where the property Where the property in the

in the goods has goods has not passed
passed [Section 46 (2)]
[Section 46 (1)]

Stoppage in Withholding Stoppage in

Lien Resale Transit
Transit deliver

Suit for Suit for Suit for

price damages Repudiation interest
Rights of an unpaid seller against the goods:
 Right of Lien [Section 45(1)(a) and 47 to 49]
• A lien is a right to retain possession of goods until payment of the price [Section 45(1)(a) ]

• It is available to the unpaid seller in the following cases

a. The goods have been sold without nay stipulation as to credit

b. The goods have been sold on credit, but the term of credit has expired

c. The buyer becomes insolvent [Section 47(1)]

Rules regarding lien:
1. The seller may exercise his right of lien notwithstanding that he is in possession of
goods as agent or bailee for the buyer [Section 47(2)]

2. The lien depends on actual possession and not on title

3. The possession of the goods by the seller must not expressly exclude the right of
lien
4. The lien can be exercised by the unpaid seller only for the price
and not for any other charges

5. Where an unpaid seller has made delivery of any part of the

goods, he may exercise his right of lien on the remainder part.

Termination of Lien
1. The seller delivers the goods to a carrier or other bailee for the
purpose of transmission to the buyer, without reserving the right
to disposal of the goods

2. The buyer or his agent lawfully obtains possession of the goods

as bager

3. The buyer waives his right of lien on the goods [Section 49(1)]
 Right of stoppage in transit [Section 46(1)(b) and 50 to 52]:

• The right to stoppage in transit is a right of stopping he goods in transit after

the unpaid seller has parted with the possession with goods

• The buyer 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 of the
price

• Right of stoppage in transit is available to the unpaid seller in the following

cases

a. When the buyer becomes insolvent

b. When the goods are in transit (section 50)

• Right of stoppage in transit is an extension of right of lien

Duration of transit (section 50):

• Transit is an intermediate stage.

• Goods are deemed to be in course of transit from the time they are delivered to a
carrier or other bailee for the purpose of transmission to the buyer, until the buyer or
his agent takes delivery of them from such carrier or other bailee [Section 51 (1)]

• The carrier may hold goods

a. As seller’s agent: In this case, the seller has lien on the goods and the question of
right of stoppage in transit does not arise

b. As buyer’s agent: In this case, the seller cannot exercise his right of stoppage in
transit

c. In an independent capacity: It is in this case that the seller has and can exercise
the right of stoppage in transit
 Right of Re-sale [Section 46(1)(c) and 54]:

• The unpaid seller can re-sell the goods:

a. Where the goods are of a perishable nature

b. Where the seller gives notice to the buyer of his/her intention to resell the goods
and the buyer does not within a reasonable time pay the price
• In case notice is given to the buyer and he/she did not respond, the unpaid
seller is entitled to:
a. If, on a resale, there is a loss to the seller, he can claim it from the buyer as
damages for breach of contract.
b. If, on a resale, there is a surplus, he is not bound to hand it over to the buyer
because the buyer cannot be allowed to take advantage of his won wrong
• In case notice is not given to the buyer, the unpaid seller is not entitled to:

a. To recover any loss on the sale of the goods

b. To retain any surplus arising on the resale of the goods. The buyer is entitled to
claim such surplus as his/her right [Section 54(2)]
 Right of withholding delivery [Section 46(2)]:

Rights of an unpaid seller against the buyer personally:

 Suit for price [Section (55)(a)]

a. Where the property has passed [Section 55 (1)]
b. Where the property has not passed [Section 55 (2)]

 Suit for damages for non-acceptance (Section 56)

 Repudiation of contract before due date (Section 60)

a. Treat the contract as subsisting and wait till the date of delivery
b. The seller may treat the contract as rescinded and sue for damages
for the breach.

 Suit for interest [Section 62 (2)(a)]

Remedies for Breach of Contract of Sale
1. Seller’s Suits
a. Suit for price (section 55)
b. Suit for damages for non-acceptance of the goods (section 56)
c. Suit for damages for repudiation of contract by the buyer before due date (section
60)
d. Suit for interest [Section 62 (2)(a)]

2. Buyer’s Suits
e. Suit for damages for non-delivery of the goods (section 57)
f. Suit for specific performance (section 58)
g. Suit for breach of warranty (section 59)
h. Suit for damages for repudiation of contract by the seller before due date (section
60)
i. Suit for interest [Section 62 (2)(b)]
 Partnership Act, 1932
• The term partnership has been defined in Section 4 of the partnership act,
1932
• According to the section 4, partnership is the relationship between persons
who have agreed to share the profit of a business carried on by all or any of
them acting for all.
• Persons who have entered into partnership with one another are called
individually as “partners” and collectively a “firm” and the name under
which their business is carried on is called the “firm name”
• There are four essential features in Partnership Act, 1932
a. Agreement
b. Business
c. Sharing of profits
d. Mutual agency
 AGREEMENT:
• Section 5, declares that a partnership is created by contract, not by status
• A partnership can arise only by an agreement between the parties
concerned.
• It is one of those elements which clearly display the distinction between a
partnership and other business relations such as joint family carrying on
business which do not arise by agreements but are the result of status,
succession or inheritance etc.
• It is, however, not necessary that there should be a very formal or written
agreement.
• An agreement to create a partnership may as well arise from the conduct
of the parties concerned (K.T Abdul Badsha Saheb v/s Century Wood
Industries, 1954)
• When the partnership agreement is written, it is called as “deed of
partnership”
• Writing of an agreement is not prescribed by the partnership act not even
for getting the firm registered under the act with the registrar of firms
• The validity of a partnership agreement does not depend upon capital
contribution by partners.
• A partner may contribute his know-how, intellectual property rights, skills,
experience or even sheer labour in consideration of becoming a partner.
• Where a partner died and the partnership became dissolved under
operation of law because there was no contrary provision and yet the
surviving partners continued the business, the court expressed the view
that this could not be regarded as a continuation of the old firm, but a new
partnership
• A provision in the partnership deed to the effect that the heirs of a
deceased partner would be entitled to become partners in the firm was
held as not making them partners automatically. They had to express their
desire to become partners, without such desire there was to be no
partnership with them
 Business:
• A partnership can exist in business and business only

• Business refer to any activity which if successful would result in profit

• The idea behind business is that it should result in gain

• Therefore, a society for religious or charitable purpose is not a partnership

• Voluntary association for carrying any social function is not a partnership as

well

• Business may be temporary or permanent

 Sharing of Profits:
• The word partnership is derived from the word “ to part” which means “to
divide”

• The division of profit is an essential condition of the existence of a partnership

• There was a time when sharing of profits was considered to be the final word
in the determination of the existence of a partnership
• This was state of the law up to the year 1860 when in Cox v/s Hickman the house
of lords reconsidered the test of determination the existence of a partnership
• The net result of this historic decision is that no man is a partner unless he has the
right to share the profits of the business
• But every man who received profits is not necessarily a partner.
• /

• Thus, sharing of profits is only a prima-facie evidence of the existence of a

partnership
 Mutual Agency
• The definition of partnership is section 4 concludes with the words that the
business may be carried on “by all or any of them acting for all”
• Thus, if the person carrying on the business acts not only for himself but for others
also, so that they stand in the position of principals and agents, they are partners
• This is the principle of Cox v/s Hickman
• The liability of one partner for the acts of his co-partner is in truth the liability of a
principal for the acts of his agents
• Where two or more persons are engaged as partners in any ordinary trade,
each of them has an implied authority from the other to bind all by contracts
entered into according to the usual course of business in that trade.

• Every partner in trade is the agent of his co-partner and all are therefore
liable for the ordinary trade contract of the other
Partnership and Co-ownership
• A partnership can arise only by agreement, co-ownership may arise in any
other way

• Business is necessary for the existence of a partnership, co-ownership can

exist without it

• Partners are mutual agents, co-owners are not

• A co-owner can sell his share without the consent of the others, but a partner
cannot
Different Kinds of Partners that are found in Partnership Firms:

Active or managing partner:

• A person who takes active interest in the conduct and management of the business of the
firm is known as active or managing partner.

Sleeping or dormant partner:

• A sleeping partner is a partner who ‘sleeps’, that is, he does not take active part in the
management of the business. Such a partner only contributes to the share capital of the firm,
is bound by the activities of other partners, and shares the profits and losses of the business.

Nominal or ostensible partner:

• A nominal partner is one who does not have any real interest in the business but lends his
name to the firm, without any capital contributions, and doesn’t share the profits of the
business. He also does not usually have a voice in the management of the business of the
firm, but he is liable to outsiders as an actual partner.

Partner in profits only:

• When a partner agrees with the others that he would only share the profits of the firm and
would not be liable for its losses, he is in own as partner in profits only.
Minor as a partner:
• A partnership is created by an agreement. And if a partner is incapable of entering
into a contract, he cannot become a partner. Thus, at the time of creation of a firm a
minor (i.e., a person who has not attained the age of 18 years) cannot be one of the
parties to the contract. But under section 30 of the Indian Partnership Act, 1932, a
minor ‘can be admitted to the benefits of partnership’, with the consent of all
partners.
• On his attaining majority, he has to decide within six months whether he will become
regular partner of withdraw from partnership.
• The choice in either case is to be intimated through a public notice, failing which he
will be treated to have decided to continue as partner, and he becomes personally
liable like other partners for all the debts and obligations of the firm from the date of
his admission to its benefits (and not from the date of his attaining the age of
majority).
Partner by Estoppel or Holding Out:
• When a person is not a partner but poses himself as a partner, either by words or in
writing or by his acts, he is called a partner by estoppel or by holding out.

• A partner by estoppel or by holding out shall be liable to outsiders who deal with the
firm on the presumption of that person being a partner in the business even though he
is not a partner and does not contribute anything to the business.
Secret partner
• who does not want to disclose his relationship with the firm to
the general public.
Outgoing partner
• who retires voluntarily without causing dissolution of the firm
Limited partner
• who is liable only up to the value of his capital contributions
in the firm, and the like.
Duties of a Partners
• Duty of good faith (Section 9)
• Duty not to compete [Section 16 (b)]
• Due Diligence [Section 12 (b) and 13(f)]
• Duty to Indemnify for fraud (Section 10)
• Duty to Render True Accounts (Section 9)
• Duty to Account for Personal Profits (Section 16)
Rights of Partners
• Right to Take Part in Business [Section 12(a)]
• Majority Rights [Section 12(c)]
• Access to Books [Section 12(d)]
• Right to indemnity [Section 13(e)]
• Right to Profits [Section 13(b)]
• Right to Interests [Section 13(c) and (d)]
• Right to Remuneration [Section 13(a)]
 Dissolution of Partnership
• When a firm is put to an end as between all the partners, it is called dissolution

• Section 39 declares provisions related to dissolution of partnership

• The mere execution of a deed of dissolution does not put an end to matters of rights and
liabilities of partners.

• That happens only when the firm is finally wound up and its properties are distributed
Modes of Dissolution

a. By Consent

b. By Agreement

c. Compulsory Dissolution

d. Contingent Dissolution

e. Dissolution of Firm at Will by Notice

f. Dissolution by Courts
 By Consent (Section 40):
• A firm may be dissolved with the consent of all the partners or in
accordance with a contract between the partners

 By Agreement (Section 40):

• A firm may be dissolved in accordance with a contract between the
partners.

• The contract providing for dissolution may be contained in the

partnership deed itself or in a separate agreement.

 Compulsory Dissolution (Section 41):

a. Insolvency

b. Illegality of business
 Contingent Dissolution(Section 42):
• Dissolution on the happening of certain contingencies
a. Expiry of term

b. Completion of Business
c. Death of partner
d. Insolvency of a partner
 Dissolution of Firm at Will by Notice (Section 43):
• Where the partners is at will, the firm may be dissolved by any partners
giving notice in writing to all other partners of his/her intentions to
dissolve the firm.
• The firm is dissolved as from the date mentioned in the notice as the date
of dissolution or, if no date is so mentioned, as from the date of the
communication of the notice.
 Dissolution by Courts (Section 44):
• The court may dissolve a firm on any of the following
grounds:
a. Insanity
b. Permanent incapacity
c. Misconduct
d. Persistent breach of agreement
e. Transfer of interest
f. Perpetual loss
g. Just and Equitable