TYBBA_SEM_5

SUBJECT- (504) LEGAL ASPECTS OF BUSINESS

UNIT-3 The Sales of Goods Act, 1930

CONTENT OF CHAPTER

 Formation of contract for sale

 Subject matter of contract of sale

 Conditions and Warranties

 Express and Implied conditions and warranties

 Caveat Emptor

Prepared By-Kajal Patel

Vidyabharti Trust College of BBA, Umrakh

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Introduction of Act
 In a highly industrialized and commercial economy, sales of
various products or goods take different forms and are also
processed in a varied manner.
 The word “Goods” will need considerable understanding as this
word does not include any or every product which actually
sold in Economy.
 Example- If a building is sold it will not be considered as a
sales of goods. In the complex relationship between parties in
sale/purchase transaction, there is considerable scope of
misunderstanding, fraud, coercion etc. and as such
possibilities of disputes are many.
 According to sales of goods act, 1930 was enacted to enable to
know their mutual rights and obligations in transactions
involving sales or purchase of goods.
 It is substantially based on the English sales of goods, 1893.
Initially, this was part of Indian Contract Act itself in Section
76 to 123.
Scope and object of the Act
 The sales of Goods act deal with „sale” but not with „mortage‟.
 The act deal with „Goods‟ but not with other movable property,
e.g., actionable claims and money.
 In other words, this act does not deal with movable property
other than goods, and immovable property.
 Short title, Extent and commencement (Section 1)
 This act may be called the sales of goods Act, 1930.
 It extends to the whole India expects the state of Jammu
and Kashmir.
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  It shall come into force on 1st day of July, 1930.
 The object of enactment of the sales of goods act, 1930 is to
define and amend the law relating to the sales of goods.

Definitions of Important Terms

Sale of commodities constitutes one of the important types of

contracts under the law in India. India is one of the largest
economies and also a great country where and thus has adequate
checks and measures to ensure the safety and prosperity of its
business and commerce community. Here we shall explain The
Sale of Goods Act, 1930 which defines and states terms related to
the sale of goods and exchange of commodities.

The Sale of Goods Act, 1930 herein referred to as the Act, is the
law that governs the sale of goods in all parts of India. It doesn‟t
apply to the state of Jammu & Kashmir. The Act defines various
terms which are contained in the act itself. Let us see below:

 Buyer And Seller

 As per the sec 2(1) of the Act, a buyer is someone who buys
or has agreed to buy goods. Since a sale constitutes a
contract between two parties, a buyer is one of the parties to
the contract.
 The Act defines seller in sec 2(13). A seller is someone who
sells or has agreed to sell goods. For a sales contract to
come into existence, both the buyers and seller must be
defined by the Act. These two terms represent the two
parties of a sales contract.

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 Goods
 One of the most crucial terms to define is the goods that are
to be included in the contract for sale.
 The Act defines the term “Goods” in its sec 2(7) as all types
of movable property. The sec 2(7) of the Act goes as follows:

“Every kind of movable property other than actionable claims and

money; and includes stock and shares, growing crops, grass, and
thing attached to or forming part of the land which are agreed to
be severed before sale or under the contract of sale will be
considered goods”

As you can see, shares and stocks are also defined as goods by
the Act. The term actionable claims mean those claims which are
eligible to be enforced or initiated by a suit or legal action. This
means that those claim where an action such as recovery by
auction, suit, refunds etc. could be initiated to recover or realize
the claim.

Goods may be further understood in the following subtypes:

 Ascertained Goods:
This is a type not defined by the law but by the judicial
interpretation. This term is used for specific goods which have
been selected from a larger set of goods.
For example, you have 500 apples. Out of these 500 apples, you
decide to sell 200 apples. To sell these 200 apples, you will need
to separate them from the 500 (larger set). Thus you specify 200

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apples from a larger group of unspecified apples. These 200
apples are now the ascertained goods.

 Unascertained Goods:
These are the goods that have not been specifically identified but
have rather been left to be selected from a larger group. For
example, from your 500 apples, you decide to sell 200 apples but
you don‟t specify which ones you want to sell. A seller will have
the liberty to choose any 200 apples from the lot. These are thus
the unascertained goods.

 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. The contract
for the sale of future goods will never have the actual sale in it, it
will always be an agreement to sell.
For example, you have an apple orchard with apples in it. You
agree to sell 1000 apples to a buyer after the apples ripe. This is
a sale that has to occur in the future but the goods have been
identified already and the agreement made. Such goods are
known as future goods.

 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

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contingency clause in it. For example, if you sell your apples from
your orchard when the trees are yet to produce apples, the apples
are a contingent good. This sale is dependent on the condition
that the trees are able to produce apples, which may not happen.

3. Delivery
The delivery of goods signifies the voluntary transfer of
possession from one person to another. The objective or the end
result of any such process which results in the goods coming into
the possession of the buyer is a delivery process. The delivery
could occur even when the goods are transferred to a person
other than the buyer but who is authorized to hold the goods on
behalf of the buyer.

FORMATION OF CONTRACT OF SALE

 Till 1930, the law 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 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.

 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

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 transfers or agrees to transfer the property in goods to the
buyer for a price‟.
 A contract of Sale of goods include both (i) sale and (ii) an
agreement to sell
 Sale: Ownership in the goods is transferred by the seller to the
buyer immediately at the time of contract.
 Whereas Agreement to sell: The transfer of ownership in
goods is to take place, at a future time or subject to fulfillment
of some condition.

 ESSENTIALS OF A CONTRACT OF SALE

1. Two parties
 There must be two distinctive parties i.e. a seller and a
buyer.
 „Seller‟ means a person who sells or agreed to sell goods.
 „Buyer‟ means a person who buys or agreed to buy goods.
 A person cannot be a seller as well as a buyer, as a
person cannot buy his own goods.

2. Goods
 There must be some goods.
 According to section 2 (7), “Goods means every kinds of
moveable 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 served before sale or under the
contract of sale”.

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  Thus every kinds of movable property except actionable
claims and money are regarded as „goods‟.

3. Transfer of the property-

 Property here means „Ownership‟. Transfer of property in
the goods is another essential of 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. All Essential elements of a valid contract must be

fulfilled
 Being specie of contract, sale must conform to all other
essentials of a valid contract. Thus:
I. The parties to the contract must be competent to
contract.
II. The consent of the parties must be free.
III. The object of the contract must not be unlawful and
so on.
5. Price Include both sale and agreement to sale.
 The consideration for a contract of sale must be money
consideration called the „Price‟.
 If goods are sold or exchange for other goods, the
transaction is barter, governed by the transfer of property
act and not a sale of goods under this act.

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  But if goods are sold partly for goods and partly for
money, the contract is one of sale.

 Formation of contract of sales

 Expect where specially required by any law, no particular
form is necessary for entering into such a contract.
 The agreement may be express or may be implied from the
conduct of parties.
 As stipulated by section (1) of the sale of Goods act, 1930.
“A contract of sale is made by an offer to buy or sell goods
for a price and acceptance of such offer”.
 The contract may provide for the immediate delivery of the
goods or immediate payment of the price or both, or for the
delivery or payment by installments, or that the delivery or
payment or both shall be postponed”.
 Again as provided by section 5 (2) of the act, “A contract of
sale may be made in writing or by word of mouth (orally), or
partly in writing and partly by word of mouth”.
 Therefore, it can be said that a contract of sale may be
affected in any of the following ways namely;
1. There may be immediate delivery of the goods or
2. There may be immediate payment of price, but it may be
agreed that the delivery is to be made at some future
date; or
3. There may be immediate delivery of the goods and an
immediate payment of price; or
4. It may be agreed that the delivery or payment or both are
to be made in installments; or
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 5. It may be agreed that the delivery or payment or both are
to be made at some future date.

 DIFFERENCE BETWEEN SALE AND AGREEMENT TO SALE

The term Sale is defined in the Section 4(3) of the Sale of Goods Act, 1930 as –
“where under a contract of sale the property in the goods is transferred from the
seller to the buyer, the contract is called a sale.”

Example- A sells his Yamaha motorcycle to B for Rs.10,000. It is sale since the
ownership of the motorcycle has been transferred from A to B.

When there is willingness of the both the parties to constitute a sale i.e. the buyer
agrees to buy, and the seller is ready to sell the goods for monetary value. In an
agreement to sell the performance of the contract is done at a future date, i.e. when
the time elapses or when the necessary conditions are satisfied. After the contract
is executed, it becomes a valid sale. All the necessary conditions required at the
time of sale should exist in the case of an agreement to sell too.

BASIS FOR
SALE AGREEMENT TO SELL
COMPARISON

Meaning When in a contract of When in a contract of sale

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

Nature Absolute Conditional

Type of Contract Executed Contract Executory Contract

Transfer of risk Yes No

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 BASIS FOR
SALE AGREEMENT TO SELL
COMPARISON

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

transfers to the buyer title of goods remains with
with the transfer of goods. the seller as 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

Tax GST is charged at the No tax is levied.

time of sale.

Suit for breach of The buyer can claim Here the buyer has the right
contract by the damages from the seller to claim damages only.
seller and proprietary remedy
from the party to whom
the goods are sold.

Right of unpaid Right to sue for the price. Right to sue for damages.
seller

GOODS

•Defintion-Sec2 [7] The subject matter of a contract of a sale must be goods. The
term „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 served before sale or
under the contract of sale‟.

Classification of goods [Sec 6]

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1. Existing goods: Existing goods are those goods that are owned by or possessed
by the seller at the time of making the contract and the seller has the right to sell
the goods. Further classified into three types-

made.

both the partied at the time of sale.

upon at the time when sale is made.

2. Future goods :The goods which are neither in existence nor in possession of the
seller at the time of contract of sale, but will be manufactured, produced or
acquired by him after making the contract.

3. Contingent goods : are the goods the acquisition of which depends upon
happening and non-happening of the contingency.

CONDITION AND WARRANTY

MEANING OF CONDITION

Condition is the stipulation given at the time of making the

contract which is essential for the main purpose of the contract
and the condition can become warranty.

According to section 12(2) of the sales of goods act, 1930

A condition is a stipulation essential to the main purpose of the

contract, the breach of which gives rise to a right to treat the
contract as repudiated”

In addition, he may maintain an action for damages for loss

suffered, if any, on the footing that the whole contract is broken
and the seller is guilty for non-delivery.

A condition is essential requirements of the contract on which the

whole contract depends and if that requirement of contract is

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breached then the sufferer has an absolute right to reject the
contract itself.

ESSENTIAL ELEMENTS OF THE CONDITION

1. It is Essential for the main purpose of the contract

2. The main fulfillment of condition irreparable damages to the
aggrieved party which would defeat the very purpose for which
the contract is made.
3.
4. The Breach of the condition gives the buyer the right to claim
damages and right to rescind the contract and recover the
damages for breach of contract.

Example-Ram goes to Horse-trader and says that he wants buy a

horse that can be run at 40 KM an hour. The trader gives him
horse and says that the horse will run as per requirement. Here,
Horse being fast enough to run 40 KM/Hours is the essential
condition of contract. If horse is not that fast runner as Ram had
stipulated and does only 20 KM in hour can not only file a suit
for damages against the trade but also repudiate the contract.

Meaning of warranty

Warranty is the stipulation given at the time of the making the

contract of the sales which is collateral to the main purpose of
the contract and the warranty cannot become the condition.

According to section 12(3) of the sales of goods act 1930,

“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 to a right to reject the goods and treat the contract as
repudiated”.

Example- Hari goes to a horse-trader and says that he wants to

buy a good horse. The trader offer him a horse and says that it

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can run at 40 Km an hour. Hari buys the horse. Later, he comes
to know that the horse can only run 30 Km in an hour. Here the
commitment of the trader is only a warranty and is not an
essential conditions of the contract. Non-fulfillment of a warranty
only entitles the buyer to receive damages from the seller, not to
repudiate the contract.

ESSENTIAL ELEMENTS OF THE WARRANTY

1. It is the collateral to the main purpose of the contract.

2. Breach of the warranty .causes damages to the aggrieved party
and does not defeat the main purpose of the contract.
3. Breach of the warranty gives right to only claim damages and
buyer cannot rescind/repudiate the contract.

Types of Implied Condition

1. Implied condition As to Title
 In every contract of sale, unless the circumstances of the
contracts are such as to show a different intention, there is an
implied condition on the part of the seller, that:
 In case of sale, he has a right to sell the goods, and
 In case of agreement to sell, he will have a right to sell the
goods at the time when the property is to pass.
 If the seller‟s title turns out to be defective, the buyer may
reject the goods.
 Example- R purchases a car from D and used the car for
several months. D had no title to the car. The true owner of
the car demanded it from R. R had to return it to its true

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 owner. Hence, R was entitled to recover the full price even
through several month had passed.

2. Condition as to the Description

 In a contract of sale by description, there is an implied
condition that the goods shall correspond with the
description.
 Description may be in terms of quality, size or dimension or
characteristic of the goods.
 Example- Kashmiri mirch, Bombay tomato, Agra petha etc.
 If goods does not correspond to the description of goods,
buyer can reject the goods and claim refund of price paid.

3. Condition as to sale by sample

 In a contract of sale by sample, there may be following
implied condition:
 That the actual products would correspond with the
sample with respect to the quality, size, dimensions
etc.
 That the buyer gets a reasonable opportunity to
compare the goods with the sample.
 There shall may not be any latent/hidden defects in
goods that is not discoverable by exercise of ordinary
care.

4. Condition as to sale by sample as well as description

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  In a sale by sample as well as description, the goods
supplied must be in accordance with both the sample as
well as the description.

5. Condition as to quality or fitness

 As such there is no implied condition as to quality or fitness
of goods.
 Doctrine of Caveat Emptor means “let the buyer beware”.
 There is an implied condition that goods shall be reasonably
fit for such purpose if following conditions satisfied:
 The buyer makes known to the seller the particular
purpose for which the goods are required,
 The buyer relies on the seller‟s skill or judgment,
 The goods are of description which he sellers ordinarily
supplies in the course of his business.
Example-A had no special knowledge of hot water bottles, went
to a chemist shop and asked for hot water bottle. Chemist
showed him American rubber bottle. A bought the bottle. After
few days, when A‟s wife used the bottle, it burst and caused
injury to wife. As bottle could use only for one purpose, there
is a breach of condition.
 Above condition does not apply where buyer buys goods based
on trademarks or patent names of goods.

6. Condition as to merchantability
 Merchantability quality means that the quality and
condition of goods must be such that a man of ordinary

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 prudence would accept them as the goods of the
description.
 Where the goods are bought by description, there is an
implied condition that the goods shall be merchantable
quality.
 Seller should be dealer in goods either as manufacture or
trader.
 Goods must be free from any hidden defects.
This condition is applicable where the defects are latent
and could not be discoverable by an ordinary
examination of the goods.
 For Example-A buys shirt from seller B. The seller contained
certain chemical which caused skin disease to A. It was held
that condition as to merchantability has broken. Hence A
can claim refund of Price paid to B.

7. Condition as to wholesomeness
 In case of sale of eatable provisions and foodstuff, there is
another implied condition that the goods shall be
wholesome.
 By “wholesome” It means that goods must be for human
consumption.
 Thus, the provision or foodstuff must not only correspond to
their description, but must also be wholesome.
 For Example-Amit purchase milk that contains typhoid
germs and because of its consumption he dies. His wife can
claim damages.

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Types of Implied warranty

1. Warranty by possession of the goods (sec 14(b))

 The buyer shall have and enjoy quiet possession of the
goods which means a buyer is entitled to the quiet
possession of the goods purchased as an implied warranty
which means the buyer after receiving the title of ownership
from the true owner should not be disturbed either by the
seller or any other person claiming superior title of goods.
 In such a case, the buyer is entitled to claim compensation
and damages from the seller as a breach of implied
warranty.
 Example- A lady purchased a second hand type writer from
seller and spent money on its repair and used it for several
months. One day the true owner claimed that the typewriter
belongs to him. She had to return typewriter to true owner
and can claim refund of price as well as expenses incurres
on its repair.

2. Warranty of freedom of goods from any charges or

encumbrance (sec 14(c))
 Any charge or encumbrance pending in favor of the third
party which has not declared to the buyer while entering
into a contract shall be considered as breach of warranty,
and the buyer is entitled to compensation and claim
damages from the seller for the same.
3. Warranty of disclosing the dangerous nature of goods

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  There is an implied warranty on the part of seller who is
selling goods or dangerous nature to warn the buyer about
nature of goods and probable charges.
 If he does not inform and any injury cause to buyer or any
other person, then seller shall be held liable for breach of
warranty.

CAVEAT EMPTOR
 The term caveat emptor means “let the buyer beware”.
 In other words, it is no part of the seller‟s duty in a contract of
sale of goods to give to the buyer an article suitable for a
particular purpose, or of a particular quality, unless such
quality or fitness is made an express terms of the contract.
 The person who buys goods must keep his eyes open, his mind
active, and should be cautions while buying the goods.
 If he makes bad choices he must suffer the consequences of
lack of skill and judgment in the absence of any
misrepresentation or guarantee by the seller.
 For Example- Pigs were sold subject to all faults and the seller
knew that the pigs were suffering from swine-fever but he did
not inform the buyer about his defect. The seller was not liable
for damages because there was no implied warranty.

Exceptions to the “Doctrine of Caveat Emptor”

1. In case of misrepresentation by the seller
If the seller has made a false representation relating to the
goods and the buyer has relied upon it to his detriment.

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2. In case of concealment of latent defect
When the seller has deliberately concealed a defect, which is
not apparent on the reasonable examination of the goods.

3. Fitness for Buyer’s purpose

When the seller is manufacturer or a dealer of the types of
goods, sold him and the buyer has communicated to him the
purpose for which the goods are required and relied upon the
skill and judgment of the seller, there is an implied condition
that the goods are reasonably fit for the purpose for which they
are required section 16(1). This is called „Condition as to
fitness‟.

4. Merchantable Quality
In the case of goods bought by the description from the seller
who deals in the class of goods, there is an implied condition
that the goods shall be of merchantable quality.

5. In case of sales by description

Where the goods are sold by description and the goods
supplied by the seller do not correspond to the description.

6. In case of sales by sample

Where the goods are sold by sample and the goods supplied by
the seller do not correspond with sample.

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7. In case of sale by sample as well as description
Where the goods are sold by sample as well as description and
the goods supplied do not correspond with sample as well
description.

Difference between Condition and Warranty

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