Sale of Goods Act,1930

Contract of Sale
 According to Sec. 4 of the Sale of Goods Act, a contract of sale is a contract whereby
the seller transfers or agrees to transfer the property in goods to the buyer for a price.
There may be a contract between one-part owner & another [Sec. 4(1)]
 The term contract of sale is a generic term & includes both a sale & an agreement to
sell.
Sale & agreement to sell
 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’.
 Where the transfer of the property in the goods is to take place at a future time or
subject to some conditions thereafter to be fulfilled, the contract is called an
‘agreement to sell’.
Essentials of a contract of sale
1. Movable Goods: The sale of Goods act only relates to movable goods.
2. Two Parties: A sale of goods is a bilateral contract. To execute a sale, there must be
buyer and seller.
3. Consideration: In order to make a valid contract of sale of goods, the consideration
must be in term of money.
4. Valid Contract: To be a contract of sale, it must satisfy all the essentials of a valid
contract such as valid offer, a valid acceptance, free consent of the parties, a valid and
lawful consideration etc.
5. Agreement to transfer the ownership: By the contract of sale, the seller must agree
to transfer his goods to buyer with or without physical possession of the goods.
6. Method of formation of contract: To make a contract of sale under Section 5 (2) it
must be in writing or by word of mouth or implied from the acts of the parties.
Difference between Sale & agreement to sell
 Nature: A sale is an executed contract. But, an agreement to sell is an executory
contract. A sale is called an executed contract because of the fact that in sale,
considerations and delivery of goods takes place simultaneously but in an agreement
 to sale the consideration is given at a future date and goods are delivered to the buyer
at a future date.
 Transfer of ownership: In case of sale, the ownership of the goods is transferred to
the buyer immediately but in an agreement to sell the ownership of the goods is
transferred to the buyer at some future date.
 Transfer of risk: In case of sale, the buyer will have to bear the loss, even though the
goods are in possession of the seller. But in case of an agreement to sell, the seller is
to bear the risk of loss, even though the goods are in the possession of the buyer.
 Consequence of the breach: In a sale, if the buyer fails to pay the price of the goods
or if there is a breach of contract by the buyer, the seller can sue for the price even
though the goods are still in his possession. In an agreement to sell if there is a breach
of contract by the buyer, the seller can only sue for damages & not for the price even
though the goods are in the possession of the buyer.
Goods
 According to section 2(7) of the Sale of Goods Act, 1930, Goods means every kind of
movable property, other than actionable claims and money; and includes stocks,
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.
 The goods which form the subject matter of a contract of sale may be either existing
goods or future goods or contingent goods:
Types of Goods
1. Existing goods: These are the goods which are owned or possessed by the seller at
the time of sale. Only existing goods can be the subject of a sale. The existing goods
may be:
a) Specific goods: means goods identified and agreed upon at the time of a
contract of sale is made. They are also called existing goods or ascertained
goods. For example, a specified watch, horse etc.
b) Generic goods: are unascertained goods that are not specifically identified at
the time of a contract of sale is made. For example, 50 kg of rice out of 500 kg
of rice.
2. Future goods: These are the goods which a seller does not possess at the time of the
contract but which will be manufactured or produced or acquired by the seller after
making the contract of sale.
 3. Contingent goods: Though a type of future goods, these are the goods the acquisition
of which by the seller depends upon a contingency which may or may not happen.
The Price
 Under Sec. 9 & 10, the price in a contract of sale means the money consideration
for sale of goods. It forms an essential part of the contract. It must be expressed in
money. It is the consideration for the transfer or agreement to transfer the property
in goods from the seller to the buyer. It is not essential that the price should be
fixed at the time of sale.
 If the price is not fixed at the time of sale, then,
 Ascertainment of price: The price in a contract of sale may be fixed by
the contract or may be left to be fixed in manner thereby agreed or 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.
 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.
Condition & Warranties
 Condition: According to Section 12 (2) of the Sale of Goods Act, 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. There are mainly three essentials of a
condition, such as
I. Condition is essential to the main purpose of the contract.
II. The cause of non-fulfilment of condition is irreparable damage to the
aggrieved party.
III. As a result of breach of a condition the aggrieved party will get the right to
rescind the contract and recover the damages for breach of condition.
 Warranty: According to Section 12 (3), a warranty has 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 repudiated. Like condition,
the warranty is to fulfil three essentials, such as
I. Warranty is collateral to the main purpose of the contract.
 II. The breach of warranty does not breach the main purpose of the contract and it
causes damages to the aggrieved party.
III. The aggrieved party can only claim damages for breach of warranty.
Differences between a condition and a warranty
 Essential of Contract: Under Section 12 (2) of the Sale of Goods Act 1930, a
condition is defined as a stipulation which is essential to the main purpose of the
contract. On the other hand, warranty is defined under Section 12 (3) as a stipulation
that is collateral to the main purpose of the contract.
 Effect on breach: The breach of condition gives rise to a right to treat the contract as
repudiated. But the breach of warranty gives rise to the claim for damages but not to a
right to reject the goods and treat the contract as repudiated.
 Option of treatment: In case of condition, a breach of condition can be treated as a
breach of warranty as an option on the part of the aggrieved party. But, in case of
breach of warranty no such option is essential to the aggrieved party. So, the breach of
warranty cannot be treated as breach of condition.
When Condition is to be treated as warranty (Sec. 13)
1. Voluntary waiver of condition: Where a contract of sale is subject to any condition
to be fulfilled by the seller, the buyer may waive the condition or elect to treat the
breach of the condition as a breach of warranty.
2. Acceptance of goods by buyer: Where a contract of sale is not severable and the
buyer has accepted the goods or part thereof, the breach of any condition to be
fulfilled by the seller can only be treated as a breach of warranty and not as a ground
for rejecting the goods and treating the contract as repudiated, unless there is a term of
the contract, express or implied, to that effect.
Implied Conditions & Warranties
 Implied Condition:
1) Condition as to title (Sec. 14): In a 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-
a) In the case of a sale, he has a right to sell the goods;
b) In the case of agreement to sell, he will have the right to sell the goods
as the time when the property is to pass.
 For example: R bought a car from D, and used it for four months. D had no
title to the car & consequently R had to hand it over to the true owner.
Held, R could recover the price paid.
2) Sale by description (Sec. 15): In a sale by description, there is an implied
condition that the goods shall correspond with the description. In a contract for
the sale of goods by description-
 the buyer does not see the goods physically, he trusts the description;
 the goods supplied by the seller must correspond to the description;
3) Condition as to quality or fitness (Sec. 16): 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.
4) Sale by Sample (sec. 17): A sale by sample is a contract for sale where there
is a term in the contract, express or implied, to that effect that:
i. The bulk shall correspond with the sample in quality.
ii. The buyer shall have a reasonable opportunity of comparing the bulk
with the sample.
iii. The goods shall be free from any defect that would not be apparent on
examination of the sample.
iv. If the seller supplies the bulk that does not correspond with the sample
in quality, it is a clear breach of condition.
5) Condition as to wholesomeness: In the case of eatables & provisions, in
addition to the implied condition as to merchantability, there is another
implied condition that the goods shall be wholesome.
 For example: C bought a bun containing a stone which broke one of
C’s teeth. Held, he could recover damages.
6) Sale by inspection: Sale by inspection is one where the seller himself inspects
the goods before transferring the property to the buyer. In this case, the seller
is responsible for inspecting the goods before delivering and can be sued for
delivery of erroneous and low-quality goods.
Implied Warranties
 1. Warranty of quiet possession [Sec. 14(b)]: In a contract of sale, there is an implied
warranty that the buyer shall have & enjoy quiet possession of the goods.
2. Warranty of freedom from encumbrances [Sec. 14 (c)]: The buyer is entitled to a
further warranty that the goods are not subject to any charge or right in favour of a
third party.
3. Warranty as to quality or fitness by usage of trade: An implied warranty as to
quality or fitness for a particular purpose may be annexed by the usage of trade.
4. Warranty to disclose dangerous nature of goods: Where a person sells goods
knowing that they are likely to be dangerous to the buyer, he must warn the buyer of
the probable danger otherwise he will be liable in damages.
Caveat Emptor
 The principle of Caveat Emptor (let the buyer beware) lays down that it is the duty of
the buyer to satisfy himself before purchasing the article, that the article which he
buys, is the one he wants.
 It states that subject to the provisions of the Act and any other law for the time being
in force, there is no implied warranty or condition as to the quality of fitness for any
particular purpose of the goods supplied under the contract of sale.
Exceptions of the principle of Caveat Emptor
 The two important exceptions to the principle are-
Where the buyer-
I. expressly or by implication makes known to the seller the particular purpose
for which the goods are required so as to show that the buyer relies on the
seller’s skill or judgment; and
II. the goods are of a description which the seller supplies in the course of his
business (whether he himself manufactures them or not).

Multiple choice questions

1. Which of the following is a feature of an agreement to sell, instead of a contract of
sale?
a) Transferring the goods to buyer
b) Fulfillment of a condition
c) Transfer of ownership
d) Contract may be absolute or conditional.
 e) Goods
2. Which of the following is a reasonable manner to determine the price under
contract of sale?
a) Fixed in contract
b) Fluctuations in market
c) Negotiations
d) Buyer's perception
e) Seller's perception
3. An agreement to sell shall be made for which of the following kinds of goods?
a) Existing goods
b) Future goods
c) Intermediate goods
d) Finished goods
e) Perishable goods
4. Which of the following is a stipulation collateral to the main purpose of the
contract?
a) Condition
b) Warranty
c) Repair and maintenance
d) Guarantee
e) Replacement
5. Which of the following is/are not essential for a contract of sale?
a) Two parties
b) Price
c) Goods
d) Partnership
e) Delivery of goods
6. Under the doctrine of Caveat Emptor the seller is
a) Responsible for the bad selection of goods by the buyer
b) Not responsible for the bad selection of goods by the buyer
c) Both (a) and (b)
d) None of the above
7. Which of the following must necessarily be the subject matter of a contract of sale?
a) Goods
 b) Services
c) Fictitous assets
d) Immovable property
e) Complete sale
8. Asha purchased goods by making full payment from Minocha Enterprises due to a
threat enforced on her by her husband. Which of the following essential elements of a
contract is missing in the contract of sale?
a) Free consent
b) Two parties
c) Consideration
d) Subject matter must be goods
e) Legal formalities
Answers to MCQs
Q1. (b) Fulfillment of a condition
Q2. (a) Fixed in contract
Q3. (b) Future goods
Q4. (b) Warranty
Q5. (d) Partnership
Q6. (b) Not responsible for the bad selection of goods by the buyer
Q7. (a) Goods
Q8. (a) Free consent

MBABI-1006 LEGAL AND ETHICAL ASPECTS OF BUSINESS

Submitted by
Gargi and Yajur
(MBA Banking and Insurance, 1st Year)