Introduction

Sale of Goods Act (1930)

I. Contract of Sale of Goods: Meaning & Essential Elements

Meaning: 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. There can be a contract of sale between
one part-owner and another.

In other words, under a contract of sale, a seller (or vendor) in the capacity of the owner, or
part-owner of the goods, transfers or agrees to transfer the ownership in goods to the buyer
(or purchaser) for an agreed upon value in money (or money equivalent), called the price,
paid or the promise to pay same.

A contract of sale may be absolute or conditional depending upon the desire of contracting
parties.

Essential Elements:

1. Movable goods: The Sale of Goods Act deals only with movable goods, excepting
actionable claims and money. This Act does not apply to immovable properties.

2. Movable goods for money: There must be a contract for the exchange of movable goods
for money. Therefore, in a sale there must be money-consideration. An exchange of goods for
goods is not a sale.

3. Two parties: There must be two distinct parties to a contract of sale, viz., a buyer and a
seller. A sale is a bilateral contract. A person cannot buy his own goods.

4. Formation of the contract of sale: A contract of sale is made by an offer to buy or sell
goods for a price and the acceptance of such offer. The contract may provide for the
immediate delivery of the goods or immediate payment of the price or both.
5. Method of forming the contract: The Sale of Goods Act does not prescribe any particular
form to constitute a valid contract of sale. A contract of sale may be in writing, or by word of
mouth, or may be implied from the conduct of the parties.

6. The terms of contract: The parties may agree upon any term concerning the time, place,
and mode of delivery. The terms may be of two types: essential and non-essential. Essential
terms are called conditions, and non-essential terms are called warranties.

7. Other essential elements: A contract for the sale of goods must satisfy all the essential
elements necessary for the formation of a valid contract, e.g.,

 the parties must be competent to contract,

 there must be free consent,
 there must be consideration,
 the object must be lawful, etc.

II. Goods: Meaning & Classification

Meaning: ‘Goods’ is defined as per Section 2 (7) of the ‘Act’ as. “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.”
Classification: In business law, the term "goods" refers to all movable property apart from
actionable claims and money. The classification of goods in business law can be tricky to
understand. In business law, the term "goods" refers to all movable property apart from
actionable claims and money. This includes growing crops, grass, and other things attached to
land or forming a part of the land, as well as stocks and shares. There are three main types of
goods: existing goods, future goods, and contingent goods.

Existing Goods

Existing goods are goods that physically exist and belong to the seller at the time of contract
of sale. Existing can be further divided into two categories:
  Specific Goods: These are goods that are specifically agreed upon between the seller
and buyer at the time of making the contract of the sale. For example, the seller may
agree to sell the buyer a specific item bearing a specific number. These are sometimes
known as "ascertained goods." This distinction becomes important because of the
rules regarding the transfer of property between parties.
 Unascertained goods: These are goods that are agreed upon at the point of making
the contract of sale but are not specifically identified in the contract. For example, a
seller may agree to sell a buyer one out of a number of items of the same type (e.g.,
bags of sugar) without defining which specific item the buyer will receive. As soon as
the specific item is defined, for example when being prepared for delivery, this
becomes specific, or ascertained goods.

Future Goods

Future goods are goods that are not yet in existence or that do not yet belong to the seller
when the contract of sale is made. This could be goods that are yet to be manufactured or that
the seller has not yet acquired. For example, a farmer may agree to sell a buyer all of the milk
produced by his/her cows in the coming year. This is called an "agreement to sell." Because
the milk does not yet exist at the point of making the contract, it is an example of future
goods.

Contingent Goods

Although contingent goods are a type of future goods, they differ in that they are dependent
on a specific contingency. For example, a seller may agree to sell a buyer some specific
goods that are due to arrive on a particular ship. If, when the ship arrives, it does not contain
those goods, the buyer will still have fulfilled his agreement, because the sale was contingent
on the ship containing those specific goods.

III. Sale vs. Agreement to Sell

The following are the major differences between sale and agreement to sell:

1. When the vendor sells goods to the customer for a price, and the transfer of goods
from the vendor to the customer takes place at the same time, then it is known as Sale.
 When the seller agrees to sell the goods to the buyer at a future specified date or after
the necessary conditions are fulfilled then it is known as Agreement to sell.

2. The nature of sale is absolute while an agreement to sell is conditional.

3. A contract of sale is an example of Executed Contract whereas the Agreement to Sell

is an example of Executory Contract.

4. Risk and rewards are transferred with the transfer of goods to the buyer in Sale. On
the other hand, risk and rewards are not transferred as the goods are still in possession
of the seller.

5. If the goods are lost or damaged subsequently, then in the case of sale it is the liability
of the buyer, but if we talk about an agreement to sell, it is the liability of the seller.

6. Tax is imposed at the time of sale, not at the time of agreement to sell.

7. In the case of a sale, the right to sell the goods is in the hands of the buyer.
Conversely, in agreement to sell, the seller has the right to sell the goods.

IV. Conditions and Warranties

Meaning of Condition: A condition is a stipulation essential to the main purpose of the

contract, the breach of which gives the right to repudiate the contract and to claim damages. (Sec
12 (2)). We can understand this with the help of the following example:

Say ‘X’ wants to purchase a car from ‘Y’, which can have a mileage of 20 km/lt. ‘Y’ pointing at
a particular vehicle says “This car will suit you.” Later ‘X’ buys the car but finds out later on
that this car only has a top mileage of 15 km/ liter. This amounts to a breach of condition
because the seller made the stipulation which forms the essence of the contract. In this case, the
mileage was a stipulation that was essential to the main purpose of the contract and hence its
breach is a breach of condition.

Meaning of Warranty: A warranty is a stipulation collateral to the main purpose of the said
contract. The breach of warranty gives rise to a claim for damages. However, it does give a right
to reject the goods or treat the contract as repudiated. (Sec 12(3)). Let us understand this with the
help of an example below.

A man buys a particular car, which is warranted to be quite to drive and very comfortable. It
turns out that after some days the car starts to make a very unpleasant noise every time it is
operated. Also sitting inside it is also not very comfortable.

Thus the buyer’s only remedy is to claim damages. This is not a breach of the condition but
rather a breach of warranty, because the stipulation made by the seller was only a collateral one.

Identification of a Stipulation as a Condition or Warranty

Whether a stipulation is a condition or a warranty is a very important aspect to have the

knowledge about. A stipulation in a contract of sale is either a condition or is a warranty
depending in either case on the construction of the contract. A stipulation may be a condition,
though called a warranty in the contract.

Distinction between Condition and Warranty

The following are the major differences between condition and warranty in business law:

1. A condition is an obligation which requires being fulfilled before another proposition

takes place. A warranty is a surety given by the seller regarding the state of the
product.

2. The term condition is defined in section 12 (2) of the Indian Sale of Goods, Act 1930
whereas warranty is defined in section 12 (3).

3. The condition is vital to the theme of the contract while Warranty is ancillary.

4. Breach of any condition may result in the termination of the contract while the breach
of warranty may not lead to the cancellation of the contract.

5. Violating a condition means violating a warranty too, but this is not the case with
warranty.
 6. In the case of breach of condition, the innocent party has the right to rescind the
contract as well as a claim for damages. On the other hand, in breach of warranty, the
aggrieved party can only sue the other party for damages.

V. Implied Conditions in a Contract of Sale of Goods

Conditions and warranties may be express or implied.

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.

i) Condition as to title: 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:

1. In case of a sale, he has a right to sell the goods, and

2. 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.

ii) Condition as to Description: 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;

1. Where the buyer has not seen the goods and buys them relying on the description
given by the seller.
2. 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.
3. 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.
iii) Condition as to Quality or Fitness: Where the buyer, expressly or by implication, makes
known the seller the particular purpose for which goods are required, so as to show that the
buyer relies on the seller's skill or judgment and the goods are of a description which it is in
the course of the seller's business to supply (whether or not as the manufacturer of producer),
there is an implied condition that the goods shall be reasonably fit for such purpose. In other
words, this condition of fitness shall apply, if:

1. The buyer makes known to the seller the particular purpose for which the goods are
required,
2. The buyer relies on the seller's skill or judgment ,
3. The goods are of a description which he sellers ordinarily supplies in the course of his
business, and
4. The goods supplied are not reasonably fit for the buyer's purpose.

iv) Condition as to Merchantability: 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.

v) Condition as to Wholesomeness: In case of sale of eatable provisions and foodstuff, there is

another implied condition that the goods shall be wholesome. Thus, the provisions or
foodstuff must not only correspond to their description, but must also be merchantable and
wholesome. By 'wholesomeness' it means that goods must be for human consumption.

vi) Condition Implied by Custom or Trade Usage: An implied warranty or condition as to

quality or fitness for a particular purpose may be annexed by the usage of trade. In certain
sale contracts, the purpose for which the goods are purchased may be implied from the
conduct of the parties or from the nature or description of the goods. In such cases, the parties
enter into the contract with reference to those known usage. For instance, if a person buys a
perambulator or a medicine the purpose for which it is purchased is implied from the thing
itself; the buyer need not disclose the purpose to the seller.
vii) Conditions in a Sale by Sample: 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. Usually, a sale by sample is
implied when a sample is shown and the parties intend that the goods should be of he kind
and quality as the sample is.

viii) Conditions in a sale by Sample as well as by Description: A vast majority of cases where
samples are shown, are sales by sample as well as by description. In a contract for sale by
sample as well as by description, the goods supplied must correspond both with the sample as
well as with the description.

VI. Rules Regarding Timing of Transfer of Ownership

1. When there is a contract for the sale of unascertained goods, no property in the goods is
transferred to the buyer unless and until the goods are ascertained.

2. When there is a contract for the sale of specific or ascertained goods, the property in such
goods passes to the buyer at the time the parties intend it to pass. The terms of the contract
and the circumstances of the case will indicate the intention of the parties.

3. When there is an unconditional contract for the sale of specific goods in a deliverable state,
the property in the goods passes to the buyer when the contract is made. The fact that the time
of payment of the price or the time of delivery of goods has been postponed does not prevent
the property in goods to pass to the buyer.

4. When there is a contract for the sale of specific goods not in a deliverable state, the
property in the goods does not pass until the seller has made it in a deliverable state.

5. When there is a contract for the sale of specific goods in a deliverable state and the seller
has to weigh or measure the goods to determine the price, the property in such goods does not
pass until the price is determined.

VII. General Rule of Transfer of Title on Sale and Its Exceptions

General Rule of Transfer of Title on Sale:

The general rule relating to transfer of title on sale is that only the owner of goods can sell the
goods. No one can convey to a buyer a better title than he himself has. If a person transfers
articles not belonging to him, the buyer or transferee gets no title, i.e. the buyer acquires no
better title to the goods than the seller had.

This rule is expressed by the Latin phrase, “Nemo quod qui non habet”, which means: no one
can give what he has not got.

This rule applies to both movable and immovable property. The general rule aims at
protecting the interests of the true owner, and is deemed necessary in the larger interest of the
society.

Thus, a buyer cannot get a good title to the goods unless he purchases the goods from a
person who is the owner thereof or who sells them with the consent of the owner.

Exceptions to the Rule of Transfer of Title on Sale

This general rule as to title is subject to the following exceptions. In each of the following
cases, a non-owner can give to the buyer a valid title to the goods:

1. Sale by agent: Sale of goods by a mercantile agent gives a good title to the buyer even in
cases where the agent acts beyond his authority, provided the following conditions are
satisfied:

 the agent is in possession of the goods or of a document of title to the goods;

 such possession is with the consent of the owner;
 the agent sells the goods in the ordinary course of business;
 the purchaser acts in good faith and has no notice that the agent had no authority to
sell.
2. Sale by one of joint owners: Sometimes one of several joint owners of goods has the sole
possession of them by permission of the co-owners. In this case, the property in the goods is
transferred to the buyer from such joint owner, provided the buyer acts in good faith and has
no notice that the said joint owner had no authority to sell.

3. Sale of goods obtained under a voidable contract: When the seller of goods has obtained
possession thereof under a voidable agreement, but the agreement has not been rescinded at
the time of sale, the buyer obtains a good title to the goods, provided he buys them in good
faith and without notice of the seller’s defect of title.

4. Sale by an unpaid seller: An unpaid seller of goods can under certain circumstances, re-sell
the goods. The buyer of such goods gets a valid title of the goods.

5. Resale by seller in possession of goods after sale: Sometimes a seller, after having sold the
goods, continues to be in possession of the goods or of the documents of title to them. If he
again sells those goods, he will convey a good title to the buyer, provided the buyer acts in
good faith and without notice of the previous sale. In such case, the original buyer can obtain
damages from the seller but cannot recover the goods from the second buyer.