The Sale of Goods Act, 1930

Chapter 2 THE SALE OF GOODS ACT, 1930
Unit 1 - Nature & Formation of Contract of Sale

Introduction
The Act came into force on 1st July, 1930. It is applicable all over India
including state of Jammu & Kashmir.
Definitions
Buyer [Section 2 (1)]
According to Section 2(1) of Sale of goods Act ‘Buyer’ means a person who
buys or agrees to buy goods.
Seller [Section 2 (13)]
According to Section 2(13) of Sale of goods Act ‘Seller’ means a person who
sells or agrees to sell his goods.
Contract of Sale [Section 4(1)]
Sale [Section. 4(3)] Agreement to Sell [Section 4(3)]
Transfer of Property in goods
Immediately (a) On future date (or)
(b) On fulfillment of certain condition
Example:- A sells his Yamaha Example:- X agrees with Y on 10th of April

motorcycle to B for Rs.10, 000. that he will sell his Car to Y on 10th of May
It is sale since the ownership of for a sum of Rs.3 lakhs. It is an agreement
the motorcycle has been to sell. Since X agrees to transfer the
transferred from A to B. ownership of his Car to Y in future.
Contract of Sale [Section 4 (1)]
A contract of Sale of goods is a contract whereby the seller transfer or agrees

to transfer the property in the goods to buyer for a price.
CA Namrata Rodrigues 69
The Sale of Goods Act, 1930
Sale [Section 4(3)]
Where under a contract of sale, property in goods is transferred from the

seller to buyer, the contract is called sale.
Agreement to sell [Section 4(3)]
Where under a contract of sale the transfer of property in the goods is to take
place at the future time or subject to some condition thereafter to be fulfilled,
the contract is called agreement to sell.
When an Agreement to Sell becomes Sale [Section 4(4)]
When agreement to sell provides that the ownership of the goods shall be
transferred at some future date, it becomes sale when that date arrives.
Where the ownership of the goods, is to be transferred on the fulfillment of

some conditions the agreement to sell becomes sale when those conditions
are fulfilled.
Distinguish between Sale and Agreement to Sell
Basis of Sale Agreement to Sell

Difference
Transfer of The ownership of goods is The ownership of goods is

ownership transferred to buyer transferred to buyer at some
immediately. future time or on the
fulfillment of certain
condition.
Nature of Sale is an executed contract. Agreement to sell is an

Contract executory contract.
Loss Loss will be borne by Buyer Loss will be borne by seller

even if the possession of since the ownership of goods
goods is with seller. is not passed to buyer.
Essential Elements of Contract of Sale
Following are the essential elements of Valid Contract of Sale:-
 All requirements of a valid contract must be fulfilled.
 There must be two parties to the contract of sale
 There must be goods as a subject-matter
 The property in goods must be transferred to buyer
 There must be some price for goods
Goods
Definition
According to Section 2(7) of Sale of goods Act, ‘Goods’ means every kind of
movable property other than actionable claims and money but includes stock
& shares, growing crops, grass and the things attached to or forming part of
the land which are agreed to be severed (i.e. separated) before sale or under
contract of sale.
Types of Goods
Existing Goods: Existing goods are goods which are already in existence.
 Specific goods means goods which have been actually identified & agreed
upon at the time of contract of sale are made [Section 2 (14)]
Example:- X goes to Maruti car centre to purchase a car. The dealer has
20 models in his shop. ’X” selects a particular car of a specific model
and the dealer agrees to deliver the same. The car so selected and
approved by X shall be called as ascertained Goods.
 Unascertained goods means goods which are not specifically identified at

the time of contract of sale. It is indicated by description at the time of
Contract of sale.
Example:- Merchant agrees to supply one tin of oil from his godown
containing several such tin. It is not known which tin will delivered. It is
a contract of sale of ‘unascertained goods.’
 Future Goods : These are the goods which are not in existence at the time
of contract of sale. Goods are to be acquired or produced or
manufactured after the contract of sale Section 2(6)
Example:- A, a manufacturer of fans, contracted to sell 100 fans to B @

400/- per fan. However fans were yet to be manufactured by A. This is
an agreement of sale of future goods.
 Contingent goods : There may be contract for the sale of goods the
acquisition of which by the seller depends upon a contingency which may
or may not happen.
Example:- P contracts to sell 50pieces of particular article provided the

ship which is bringing them reaches the port safely. This is an
agreement for the sale of contingent goods.
Effect of Perishing goods
 Goods perishing before making the contract: - The contract is void if the
contract is for the sale of specific goods. Thus the rule is based on the
specific
goods mutual mistake of the fact essential to the contract renders the contract
only
void [Section 7]
 Goods perishing after agreement to sell: - The contract is void if the

contract is for the sale of specific goods and the goods are destroyed
without any fault of the seller or buyer. [Section 8]
Document of title to goods
"Document of title to goods" includes bill of lading, dock-warrant, warehouse

keeper's certificate, wharfingers' certificate, railway receipt, multimodal
transport document, warrant or order for the delivery of goods and any other
document used in the ordinary course of business.
The list is only illustrative and not exhaustive. Though a bill of lading is a
document of title, a mate's receipt is not; it is regarded at law as merely an
acknowledgement for the receipt of goods.
However, there is a difference between a ‘document showing title’ and

‘document of title’. A share certificate is a ‘document’ showing title but not a
document of title. It merely shows that the person named in the share
certificate is entitled to the share represented by it, but it does not allow that
person to transfer the share mentioned therein by mere endorsement on the
back of the certificate and the delivery of the certificate
Price [Section 2 (10)]
Definition
‘Price’ means the money consideration for the sale of goods. Price is essential
part of contract
Ascertainment of Price [Section 9]
 Fixed by the contract of sale
 Fixed in the manner provided in contract of sale.
 Fixed by the course of dealing between the parties.
 Reasonable price
Agreement to sell at valuation [Section 10]
The parties may agree to sell & buy goods on the terms that the price shall be
fixed by the valuation of third party.
 If third party fails to make the valuation than contract becomes void
 But if the third party is influenced by buyer or seller from fixing the price,
than innocent party may recover the damages from the defaulting party.
Example:-
1. A agreed to sell 100 bags of rice to B at a price to be fixed by C but C

fails to fix the price. In this case the agreement becomes void on C’s
failure to fix the price.
2. A agreed to sell 100 bags of rice to B at a price to be fixed by C. But

A by the wrongful act, prevents from making the valuation of goods.
In this case B can claim the damages from A.
Hire Purchase Agreement
A hire purchase agreement is an agreement whereby the seller of the goods

agrees to transfer the property in goods to hire-purchaser when a certain
fixed number of installments of price are paid by the buyer.
 Possession of goods is delivered by owner thereof to the person on the

condition that such person pays the agreed amount in periodical
installments, and
 The property in the goods is to pass to such person on the payment of last of
such installment and
 Such person has right to terminate the agreement at any time before the
property so passes.
The hirer has following option:-
 He may purchase the goods after paying all the agreed installments.
 He may return the goods at any time & stop further payment of the
installment. The installment already paid all treated as hire charges for the
use of goods hired.
Difference Between Sale and Hire Purchase
Basis of Sale Hire purchase

Difference
Transfer of The ownership of goods is Ownership does not pass until

Ownership transferred to buyer the payment of last
immediately. installment.
Position of The position of buyer is The position of Hirer is that of

Buyer / that Owner Bailee
Hirer
Right of the No right to terminate the He has all option to terminate

Buyer / contract. He is bound to pay the contract at any stage and
Hirer the price of the goods cannot be forced to pay the

further installments.
Right Buyer has unrestricted Hirer cannot excise the right of

towards right to re-sell the goods ownership till the last
Goods installment is paid for i.e. he
cannot resell goods till that
time.
Burden of The seller takes the risk of The owner takes no such risk,
Risk of any loss resulting from the for if the hirer fails to pay an
Insolvency insolvency of the buyer installment, the owner has
of the right to take back the goods.
buyer
Transfer of The buyer can pass a good The hirer cannot pass any
title title to a bona fide title even to a bona fide
purchaser from him purchaser.
Bailment of Goods
In case of bailment, the goods are delivered by one person to another, for
some purpose on the condition that the goods shall be returned back on the
achievement of the purpose. In Bailment there is only transfer of possession
from the Bailor to Bailee.
Difference Between Sale and Bailment
Basis of Sale Bailment

Difference
The ownership of goods is Only possession not ownership is

transferred to buyer transferred from balior to baliee
immediately. for specific purpose.
Buyer can deal with goods In bailment, the bailee is bound to
in any manner he likes. act as per the instruction of bailor.
The consideration in sale is The consideration in case of

the money. bailment is undertaking to return
the goods after the purpose is a
complied. Charges may be kind
or cash.
In sale there is no question Goods must be returned after

of return of goods the purpose is achieved.
Sale and Contract of work and materials / Labour and Skills
The sale of Goods Act applies to contract of sale be not to a contract for work &
materials. A contract of sale contemplates the delivery of goods whereas a
contract for work & materials involves exercise of skill & labour by one party in
respect of materials supplied by another. The delivery of goods being only
subsidiary or incidental.
The goods have no material significance in the minds of the parties to contract.
Whether a contract is a contract of sale or a contract of work and skill is a

mixed question of fact and law.
The intention of the parties is the main criterion to determine whether a

contract is a contract of sale or a contract of work and skill.
will not come
under SOGA If the dominant motive behind a contract is to render services and exercise
work and skill, it is a contract of work and skill, even though the person
exercising such work and skill supplies the goods from his own stock.
If the dominant motive behind a contract is to transfer the goods, it is a

contract of sale, even though while transferring such goods, some work and
skill is also exercised on the goods.
Example:- A contract involved the repair of car & supply of parts for the
purpose.
Unit 2 - Condition & Warranties

Introduction
Every contract of sale is likely to contain a number of terms like quality of

goods, their fitness of buyer purpose etc. Every such term is not likely to be of
equal importance. Some of them may be so vital to the contract that their
breach may seem to be breach of contract as a whole such terms are known
as condition. The term which is not of such importance is known as warranty.
It does not lead to breach of contract but can claim only damages for the
breach.
Definition
The term ‘Condition’ is defined in Section 12(2) of Sale of goods Act, as under:-
“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.’’
The term ‘Warranty’ is defined in Section 12(3) of Sale of goods Act, as under:-
“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 a right to reject the
goods and treat the contract as repudiated.’’
Difference Between Condition & Warranties
Basis of Condition Warranty

Difference
Nature Essential term of contract of Collateral or incidental to the

sale main purpose of the contract.
Remedy Breach of condition gives right Breach of warranty gives right

to treat the contract as broken to claim damages only.
& also right to claim for the
damages.
Exercise Breach of condition be treated Breach of warranty cannot be

the option as breach of warranty treated as breach of condition
When breach of condition is treated as breach of warranty
Section 13 of the Sales of Goods Act, 1930, specifies cases where a breach of
condition be treated as a breach of warranty. As a result of which the buyer
loses his right to rescind the contract and can claim for damages only.
In the following cases, a contract is not avoided even on account of a breach

of a condition:
1. Voluntary waiver of condition –
i. Where the buyer altogether waives the performance of the

condition. A party may for his own benefit, waive a stipulation
ii. Buyer may treat the breach of condition as breach of warranty.

That is to say, he may only claim damages instead of repudiating
the contract
Example:- P agrees with Q to deliver 100 bags of sugar on 1st

March,2009. P failed to deliver the sugar on 1st March, 2009 as
agreed and is liable for breach of contract. But now he is
prepared to deliver the sugar on 19th March 2009. Q can accept
this delivery by treating the breach of condition as a breach of
warranty and can claim the damages.
2. Compulsory waiver of condition : Where the contract of sale is not
(separable) 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.
Example:- B agrees to buy A 20 bales of cotton by sample. The cotton

is delivered to B who makes payment of price. B upon examination of
cotton finds them not equal to sample but uses 3 bales and sells 2
bales. Here A cannot repudiate the contract and recover the price. He
can only claim for the damages.
Stipulation As To Time
Condition
Express Condition: When any stipulation is inserted in the contract at the will
of the parties, it is said to be expressed conditions.
Implied Condition : It is stipulation which has not been included in the contract
of sale in express words, but law presumes that the party have incorporated
into the contract.
Following are implied conditions:-
1. Condition as to title [Section 14 (a)]:- It is important implied condition in

every contract of sale. According to this condition it is presumed that the
seller has a valid title to the goods i.e. he has right to sell the goods. If
later on, buyer comes to know that the seller has no valid right to sell the
goods, then he may reject the goods & claim the refund of the price, if
already paid.
 In case of sale the implied condition is that the seller has the right the
sell the goods &
 In case of agreement to sell, the implied condition is that seller will
have the right to sell the goods at the time when the ownership is to
pass from the seller to the buyer.
Example: A purchased a tractor from B who had stolen it. A used the
tractor for 2 months. After that the true owner spotted the tractor and
demanded it from A. Held that A was bound to hand over the tractor to
its true owner and that A could sue B, the seller without title, for the
recovery of the purchase price.
2. Condition as to description [Section 15]:- Sometimes the goods are sold

by description. In such cases, the implied condition is that the goods shall
be corresponds with the description i.e. goods purchased by the buyer
must be same which were described by the seller. Subsequently, if it is
discovered that goods do not correspond with description the buyer
may reject the goods & claim for the refund of the price, if already paid.
Example: A purchased from B a Car, which had never seen. B described

the car as a ‘brand new’. However on delivery A found that the car was
used and repainted. And thus A returned the car to B as the car did not
corresponds the description. A was entitled to reject the car.
3. Condition as to sample [Section 17(2)]:- In case of sale of goods by

showing the sample to the buyer, there are following 3 implied
condition :-
 Goods delivered shall correspond with the quality of sample.
 Buyer shall have a reasonable opportunity of comparing the bulk with

the sample.
 Goods shall be free from latent defects (i.e. defects not discoverable
on reasonable examination of sample)
Example:- A company sold certain shoes made of special sole by

sample for the French Army. The shoes were found to contain paper
not discoverable by ordinary inspection. Held, the buyer was entitled to

the refund of the price.
4. Condition as to sample as well as description [Section 15]:- Sometimes

seller shows sample of the goods to the buyer and also gives him their
description. In such case, the implied condition is that the goods shall
correspond with both, the sample as well as description.
Example:- A agreed with B to sell certain oil described as refined rape

seed oil, and showed him the sample. The goods tendered were equal to
sample, but contained a mixture of hemp oil. B can reject the goods.
5. Condition as to quality or fitness for the buyer’s purpose [Section. 16

Very IMPO (1)]:- Ordinarily there is no implied condition that the goods shall be fit
for the particular purpose of the buyer. But if buyer makes the purpose
clear to the seller & buys the goods ‘relying upon skill & judgment’ than
there is are implied condition that the goods shall be fit for the buyer’s
specific purpose.
It is not necessary that the purpose should be expressed words but can
also be ascertained from the nature of goods.
Example:- A bought a set of false teeth form B, a dentist. But the set
was not fit for the A’s mouth. A rejected the set of teeth and claimed the
refund of the price. As the only purpose for which he wanted was not
fulfilled.
6. Condition as to merchantability [[Section 16(2)]:- ‘ Merchantability’

means:
When goods are purchased
 For resale → they should be immediately resaleable in the market at

their full value.
 For self use → they should be reasonable fit for the purpose for which
they are generally used.
This implied condition will be there only if the following requirements are
satisfied:-
 The goods are sold by description
 The seller business is to supply the goods of that description.
Example:- A purchases a certain quantity of black yarn from B, a

dealer in yarn, and finds it damaged by white ants ,the condition as to
merchantability has been broken and A is entitled to reject it as not
merchantable.
7. Condition as to wholesomeness:- It is part of condition as to

merchantability. It is applicable in cases of eatables i.e. foodstuffs and
other goods which are used for human consumption [Frost v/s
Ayleshbury Dairy & Co.]
Warranty
Warranty may be either:-
 Express
 Implied
Express Warranty : When any stipulation is inserted in the contract at the will
of the parties, it is said to be expressed warranties.
Implied Warranty
1. Warranty as to quiet possession [Section 14 (b)] :- It is presumed that the

buyer shall have enjoy the quiet possession of goods. This means that
where the buyer has obtained the possession of the goods he has right
to enjoy them the way he likes. If buyer’s right of possession and
enjoyment is disturbed by anyone having a superior title of the goods,
then buyer can recover the damages from the seller.
Example: X purchased a second hand typewriter from Y. X thereafter

spent some money on its repair and used it for months. The typewriter
was stolen one and X was compelled to return to its true owner. It was
held that X was entitled to recover damages from the Y amounting to
price paid for the breach of this warranty and the cost of repair.
2. Warranty as to free from encumbrance [Section 14 (c)] :- Goods sold

shall be free from the charge in the favour of any third party. If the
possession of the buyer is disturbed due to such charge in the favour of
third party he can claim for the damages from the seller.
Example: A, pledges his car with C for a loan of Rs.15,000 and

promises him to give its possession the next day. A, then sells the car
immediately to B, who purchased it on good faith, without knowing the
fact. B, may either ask A to clear the loan or himself may pay the
money and then, file a suit against A for recovery of the money.
3. Warranty to disclose dangerous nature of goods:- If the goods are

dangerous of likely to be dangerous and the buyer is ignorant of the
danger the seller must warn about the probable danger.
4. Warranty implied by custom [Section 16 (3)] :- An implied warranty are

also attached custom or usage of trade. This is so because parties enter
into an agreement subject to known custom or usage of trade.
Example: A Drugs was sold by an auction and according to the

usage of trade. It was to disclose in advance any sea- damage,
otherwise it will be taken as a breach of warranty if no such disclosure
has been made and the goods found to be defective.
The Doctrine of ‘CAVEAT EMPTOR’
Caveat Emptor is Latin expression ‘let the buyer beware’. In a contract of sale
there is no implied condition as to quality & fitness of goods, the buyer
purchases at his own risk relying upon his own skill & judgement. If buyer
makes wrong choice or makes wrong selection of quality he cannot blame the
seller and he can also not claim for damages if goods turn out to be defective
or do not suit his purpose.
Exceptions
1. When the buyer makes known to the seller the particular purpose for
which goods are required so as to show that the buyer relies on the
seller’s skill or judgement.
2. Where goods are bought by description, from a seller who deals in goods
of that description there in are implied condition that the goods shall be
merchantable quality & goods shall correspond with the description.
3. When seller sells the goods by making some misrepresentation or fraud

& the buyer relies on it or when the seller actively conceals some defect
in goods so that the same could not be discaovered by the buyer on
reasonable examination.
4. Where the goods are bought by sample, this rule of Caveat Emptor does
not apply if the bulk does not correspond with the sample.
5. Where the goods are bought by sample as well as description, the rule of
Caveat Emptor is not applicable in case the goods do not correspond
with both the sample and description.
6. In case where goods are purchased under its patent name or brand
name, there in no implied condition that the goods shall be fit for any
particular purpose.
7. An implied warranty or condition as to quality or fitness for particular

purpose may be annexed by usage of trade and if the seller deviates
from that, this rule of Caveat emptor is not applicable.
Unit 3 - Transfer of Ownership

Introduction
Transfer of General Property
Legal ownership of goods – Property in goods
Physical control over the goods – Possession of goods.
Transfer of ownership is very important in contract of sale:
 Risk passes with the ownership
 Proprietary rights over the goods (own property)
 Seller’ right for price
 Insolvency of seller or buyer
Transfer of Ownership in case of Sale of Specific Goods
1. Ownership is transferred at the time of making the contract [Section 20]

The ownership is transferred at the time of contract only if ALL the
conditions are fulfilled
 Sale must be of specific goods
 Goods must be in deliverable state seller is ready to deliver

unconditionally and buyer is bound to
take delivery
 Contract of sale must be unconditional
2. Ownership is transfer at some other time : If any of the above stated
condition is not satisfied, then ownership will not be transferred at time
of contract of sale
 Where specific goods are to be put in deliverable state: In this case

the ownership is transferred as soon as seller put the goods in
deliverable state and the buyer comes to know about the act of the
seller [Section 21]
Example:- packing, filling the goods in container, collecting the goods

etc.
 Where the specific goods in a deliverable state are to be weighted or

measured by seller to ascertain the price: In this case ownership is
transferred to the buyer as soon as seller has done the act of
ascertaining the price & buyer comes to know about the act of the
seller [Section 22]
Transfer of Ownership in case of Sale of Unascertained Goods
In case of sale of unascertained goods, the ownership is transferred to buyer

on fulfillment of BOTH the following conditions:-
 When goods are ascertained [Section 18] & BOTH

 When the goods are appropriated to the contract [Section 23]
Ascertainment of the goods: Where there is contract for the sale of

unascertained goods, no property in goods is transferred to the buyer until the
goods are ascertained (identified & set apart). It is unilateral act of seller alone
to identified & set apart the goods.
Appropriation of goods: Goods are appropriated means the act of

identification of goods by seller has come to the knowledge of buyer. It is a
bilateral act of seller & buyer to identify & set apart the goods. The
appropriation may be done either by seller with consent of the buyer, or by
buyer with consent of seller. Such consent may be express or implied.
Example: Mr. S agreed to purchase 100 bales of cotton from V, out of his
large stock and sent his men to take delivery of the goods. They could
pack only 60 bales. Later on, there was an accidental fire and the entire
stock was destroyed including 60 bales that were already packed. In
this case the property in the 60 bales has been transferred to buyer and
goods have been appropriated to the contract. Thus loss arising due to fire
in case of 60 bales would be borne by Mr. S. As regards 40 bales, the loss
would be borne by Mr. V, since the goods have not been identified and
appropriated.
Transfer of Ownership in case Sale On Approval Or Sale On Return Basis

[Section 24]
The term ‘sale on approval may be defined as sale in which the buyer may return
the goods certain reasonable time, if goods do not serve his purpose. This is also
known as ‘sale on return’ basis. Seller cannot ask for the return of goods. He can
only recover the price of the goods, if the goods are not returned within a
reasonable time. Ownership is transferred to the buyer in any of following three
ways:-
1. When buyer accepts the goods : Acceptance may be express or implied.
2. When buyer adopts the transaction : When buyer adopt the goods by
doing some act which shows that he has accepted the goods.
Example: where he further sells or pledges the goods.
3. When buyer fails to return the goods within fixed or reasonable time :
 When time is fixed : → On the expiry of such fixed time
 When no time is fixed → On expiry of reasonable time.
Reservation of Right of Disposal [Section 25]
Sometimes, the seller may like to retain the ownership of goods until the price
is paid or some condition are fulfilled. The seller may do so by reserving his
rights of disposal. The ownership of the goods is not transferred to the buyer
even if the goods are delivered to the buyer. The ownership is transferred to
the buyer only when condition imposed by the seller is fulfilled.
However in following two circumstances the seller is presumed to have

reserved the right of disposal.
 By taking the documents of title in his own name or his agent’s name.
 By sending bill of exchange for the price, to the buyer along with the
document of title.
Risk passes with the ownership [Section 26]
The general rule in the contract of sale is that the risk prima facie passes with
ownership i.e. the Risk and Ownership of goods go together. In other words
goods are at risk of the party who has the ownership of the goods. This means
that is case of loss of goods, the loss shall be borne by the party, who has the
ownership of the goods at the time of loss. Thus, the actual delivery of goods is
immaterial for the passing of the risk. It is ownership which is relevant for the
purpose.
Example: A bids for an antique painting at a sale by auction. After the bid,
when the auctioneer struck his hammer to signify acceptance of the bid, he
hit the antique which gets damaged. The loss will have to be borne by the
seller, because the ownership of goods has not yet passed from the seller to
the buyer
Example: A sells a motorcar to B on trial basis for a period of three days with
a condition that if B is not satisfied with the performance of the car, he can
return back the car. However, the car was destroyed in a fire accident at the
place of the B before expiry of three days. Motorcar was destroyed before
the transfer of property from the seller to the buyer. Thus the risk passes
only when the ownership is transferred to the buyer. Therefore, B is not
liable for the loss suffered due to the fire accident over which B has no
control. Thus A will have to bear whatever loss that has taken place due to
the fire accident.
Exceptions
 Agreement between the parties
 Goods are at the risk of party in default NEGLIGENCE OF OTHER PARTIES
 Trade customs
Transfer of title by Non-owners
“Nemo dat quod non-habet”. imp
This is Latin Expression which means that ‘no one can transfer a better title
than he himself has’. Thus, the buyer cannot get a better title than that of the
seller. If the seller’s own title is defective, the buyer’s title will also be defective,
Example:- Where a thief sells the goods, the buyer from such a thief gets no
title to the goods.
This rule is contained in Section 27 “Where goods are sold by a person who is
not the owner thereof & who does not sell them under the authority or with
the consent of the owner, the buyer acquires to better title to the goods than
that the seller had. “If the seller’s own title is defective, the buyer’s title will also
be defective.”
However, in the following exception circumstances a non-owners can transfer

a valid title :-
Title by Where a person makes a representation (whether

estoppels expressed or implied) to another person that certain state
of things exist, he can be estopped from denying the
validity of such representation if some person has,
believing such representation to be true, acted on the faith
of such representation.
Sale by a A sale by mercantile agent shall pass a valid title to the

mercantile buyer even though such sale is not made as per the
agent directions of the seller, if the following conditions are
satisfied:
(a) The sale is made by a mercantile agent in the

capacity of mercantile agent.
(b) The goods came into the possession of the

mercantile agent with the consent of the seller.
(c) The sale is made by the mercantile agent acting in

the ordinary course of business.
(d) The buyer buys the goods in good faith.
Sale by a joint A sale by one of the joint owners shall pass a valid title to
owner the buyer even though such sale is not made with the
consent of other joint owners, if the following conditions
are satisfied:
(a) The goods are in the sole possession of one joint
owner.
(b) The goods came into the possession of the joint
owner with the consent of other joint owner.
(c) The buyer buys the goods in good faith, i.e., the
buyer has no knowledge of the fact that the goods
are owned jointly.
Sale by a A re-sale of goods by a buyer shall pass a valid title to the

person in new buyer, if the following conditions are satisfied:
possession (a) A person buys the goods under an avoidable
under a contract.
voidable (b) Such buyer resells the goods to a new buyer.
contract (c) At the time of resale, the avoidable contract (under
which the buyer had acquired the goods) has not
been rescinded by the original seller.
(d) The new buyer buys the goods in good faith, i.e., the
new buyer has no knowledge of the fact that the
goods were acquired by the buyer under a voidable
contract.
Sale by a seller A seller, who has the possession of the goods already sold
in possession by him, may resell such goods to a new buyer, and the
of goods after new buyer shall have a valid title to such goods, if the
their sale following conditions are satisfied:
(a) The ownership of goods has been passed to the
buyer.
(b) The seller continues to be in the possession of goods,
even after their sale.
(c) The seller resells the goods to a new buyer.
(d) The new buyer buys the goods in good faith, i.e., the
new buyer had no knowledge of the fact that the
goods being sold by the seller have already been

sold to some other buyer.
Sale by the A buyer in possession of goods , sells the goods to new

buyer in buyer even though property is not vested with him and the
possession of new buyer shall have a valid title to such goods, if the
goods before following conditions are satisfied:
property in (a) The ownership of goods is still with seller.
goods is (b) The buyer obtains the possession of goods, with the
passed consent of seller.
(c) The buyer resells the goods to a new buyer.
(d) The new buyer buys the goods in good faith.
Sale under the (a) Sale by an Official Receiver or Liquidator of the

provisions of Company will give the purchaser a valid title.
other Act (b) Purchase of goods from a finder of goods will get a
valid title under circumstances.
(c) A sale by pawnee can convey a good title to the
buyer pledgee
Delivery
Delivery means voluntary transfer of possession by one person to another

[Section 2(2)].
Delivery may be of three kinds, which may be enumerated as follows:
 Actual delivery: When the goods are physically delivered to the buyer.
 Constructive delivery: When it is effected without any change in the

custody or actual possession of the thing as in the case of delivery by
attornment (acknowledgement) e.g., where a warehouseman holding the
goods of A agrees to hold them on behalf of B, at A’s request.
 Symbolic delivery: When there is a delivery of a thing in token of a

transfer of something else, i.e., delivery of goods in cause of transit may
be made by handing over documents of title to goods, like bill of lading or
railway receipt or delivery orders or the key of a warehouse containing
the goods is handed over to buyer.
the expenses of and incidental to putting the goods in deliverable state must be
borne by the seller in the absence of contract to contrary, Further if not agreed in the
contract the buyer has to pay the amount for delivery of the goods after getting it in
deliverable state
Unit 4 - Unpaid Seller

Introduction
Unpaid Seller – Meaning [Section 45)
Seller is deemed to an unpaid seller within the meaning of Act.
 When the whole of price has not been paid or tendered.
 When a bill of exchange or other negotiable instrument has been received

as conditional payment & the condition on which it was received has not
been fulfilled by reason of the dishonor of the instrument or otherwise.
However if buyer has offered to pay the price & the seller has refused to
accept it in such case the seller loses all rights of unpaid seller.
Example:- X solds certain goods to Y for Rs 5,000.Y paid Rs 4,000 but fails to
pay the balance. X is an unpaid seller.
Example:- P sold some goods to R for ` 6,000 and received a cheque for a
full price. On presentment, the cheque was dishonoured by the bank. P is an
unpaid seller.
Rights of unpaid seller
Rights of unpaid seller
Against the goods Against the buyer
Suit for Price

Property in goods Property in goods has
has transferred not been transferred Suit for Damages
[Section 46 (1)] [Section 46 (2)]
Withholding the Repudiation of contract

Right of Lien
delivery of goods
Suit for Interest
Right stoppage in
Right of Lien
transit
Right stoppage in
Right of Resale
transit
Right of Resale
Right against Goods
Where the ownership of goods has been transferred to the buyer
1. Right of Lien [Section 47]:- Right of Lien means Right to Retain the
possession of the goods.
The unpaid seller of goods who is in possession of them is entitled to

retain his possession until the payment or tender of the price in following
cases.
(i) When the goods have been sold without any stipulation as to credit.
(ii) When the goods have been sold on credit, but the term of credit has
expired &
(iii) Where buyer becomes insolvent.
This right can be exercised by the seller of the following conditions are
satisfied:-
(i) The unpaid seller must be in actual possession of goods sold &
(ii) The unpaid seller can retain the goods only for payment of price of
goods.
Legal provision :
 Cash Sales - Retain the goods – If the buyer fails to pay the whole
price.
 Credit Sales - Retain the goods – If the buyer fails to pay after the
expiry of credit period
 Buyer becomes insolvent – Retain the goods until whole price is paid.
 Delivered a part of goods, he (seller) may exercise his lien on

remaining part of goods. But where the part delivery is made under
the circumstances which shows agreement to waive a lien the seller
cannot retain the goods. [Section 48]
 The right of lien is indivisible in nature. And, the seller cannot be

compelled to deliver a part of the goods on payment of proportionate
price of the goods
Termination of Lien
(i) By delivery of goods to carrier: - Seller loses possession of the goods

by delivering them to carrier. Thus he loses the right of lien over the
goods. However if the seller reserves his Right of Disposal, the lien is
not lost.
(ii) By delivery of goods to buyer :- The unpaid seller also loses his right
of lien, when he delivers. the goods to the buyer. If after obtaining
lawful possession of goods are delivered back to the seller for some
specific purpose e.g. repair, etc., the seller’s lien does not revive, i.e.
he can not exercise the right of lien again.
(iii) By waiver of lien:-If he likes he may give up his right. And by the
waiver, the lien is lost.
2. Stoppage in transit [Section 50]
Stoppage in transit means stopping of the goods while they are in course
of transit.
Essentials condition for stoppage in transit
i. The seller must be unpaid.
ii. He must have parted with the possession of goods.
iii. The goods are in transit.
iv. The buyer has become insolvent.
Duration of Transit [Section 51]
It is a period between commencement & end of transit
Starts – Goods delivery to the carrier
Ends – Buyer or agents take the delivery
(i) When the goods are rejected by buyer and carrier continues to have
possession of goods then transit does not comes to an end.
(ii) When goods are delivered to a ship chartered by buyer then

question arise.
 Carrier is acting independently – transit comes to an end as

soon as goods are unloaded.
 Carrier is acting as agent of buyer – transit comes to an end as

soon as goods are loaded on board of step.
(iii) Sometimes the buyer takes the delivery of goods before the goods
arrive at the appointed destination. In such case transit comes to an
end.
(iv) Sometimes after goods arrived at the appointed destination, the

carrier acknowledges to the buyer & now he is holding the goods on
buyer & behalf. In such case the transit comes to an end.
(v) Sometimes the carrier wrongfully refuses to deliver the goods to the
buyer. Carrier refusal should be wrongful i.e. without any just cause.
In such case transit comes to an end.
(vi) Where the goods are delivered in parts, the seller may stop the
remainder of goods unless the delivery of part of goods shows an
intention to give up the possession of the whole of the goods.
Example: Rarm sells 200 bales of cloth to Shyam and sends 100
bales by lorry and 100 bales by Railway. Shyam receives delivery
of 100 bales sent by lorry, but before he receives the delivery of
the bales sent by railway, he becomes bankrupt. Ram being still
unpaid, stops the goods in transit. The official receiver, on Shyam’s
insolvency claims the goods. In this case, Ram being still unpaid,
can stop the 100 bales of cloth sent by railway as these goods are
still in transit.
3. Right of Re-sale [Section 54)
Seller can re-sale the goods under following circumstances:-
(i) Where goods are of perishable nature:- When goods are of

perishable nature & buyer fails to pay the price within reasonable
time, then the seller may resell the goods.
(ii) Where the unpaid seller has exercised his right of lien or stoppage in
transit & gives a notice to the buyer of his intention to re-sell the

goods :- After the receipt of notice the buyer does not pay the price
seller may resell the goods. Seller is entitled to:-
 Recover the difference between the contract price & resale

price from original buyer as damages.
 Retain the profit if the resale price is higher than the contract
price.
However, if the goods are resold by the seller without giving any
notice to the buyer, the seller cannot recover the loss suffered on
resale. Moreover, if there is any profit on resale he must return it
to the original buyer, i.e., he cannot keep such surplus with him
this sense, the notice of resale becomes obligatory, i.e. legally
compulsory
(iii) Where the unpaid seller has expressly reserved his right of resale:-
Sometimes, it is expressly agreed between seller & buyer, that in
case the buyer makes default in payment of price the seller will
resell the goods to some other person. In such case, the seller is not
required to give notice of resale. He is entitle to recover damages
from are original buyer even if no notice of
resale is given.
Difference between Lien and Stoppage in transit
Lien Stoppage in transit
Retain the possession of goods Regain the possession of goods
Right can be exercised even if buyer Right cannot be exercised unless the
is not insolvent buyer is insolvent.
Possession of goods is essential. Seller parting with possession –

Possession with carrier – buyer
having not acquired the possession.

Right of lien ends Right of stoppage Right begins after termination of

in transit begins right of lien.
Where the ownership of goods has not been transferred to the buyer
Right of withholding the delivery:- When ownership of goods is not transferred

to the buyer, and if buyer fails to pay the price, the unpaid seller may refuse to
deliver the goods to the buyer. [Section 46 (2)]
Right Against Buyer
1. Suit for price:- Where property has passed to the buyer and he
wrongfully neglects or refuses to pay for the goods, the seller may sue
him for the price of the goods. [Section 55 (1)]
Where property has not passed under the contract of sale and the price
is payable on a certain day irrespective of delivery and the buyer
wrongfully neglects or refuses to pay such price, the seller may sue him
for the price although the property in the goods has not passed and the
goods have not been appropriated to the contract. [Section 55(2)].
2. Suit for damages for non-acceptance of goods :- When seller is ready &
willing to deliver the goods to the buyer, but the buyer wrongfully
neglects or refuses to accept the goods and pay for them then seller
may bring a legal action against the buyer for recovery of damages
suffered due to non-acceptance of goods. [Section 56]
3. Suit for repudiation of contract :- When buyer repudiates the contract

before due date of delivery of the goods, the seller has following option
[Section 60] :-
 Immediately treat the contract repudiated and bring legal action

against buyer for recover of damages.
 Immediately not take action against the buyer & treat the contract
as subsisting & wait till the date of delivery of goods.

4. Suit for interest :- In such suit the seller may also claim for the interest
on the amount of price payable by the buyer.
interest like a loan
Auction Sale
Meaning
Auction sale means a public sale where intending buyer assemble at one place
and offer the price at which they are ready to buy the goods. The offer of the
price is known as 'bid' and the person making the bid is known as the 'bidder.'
The owner of the goods may himself sell them by auction or appoint a person
to sell the goods by auction on his behalf. The person so appointed is known as
'auctioneer.'
The relationship between the owner of the goods and the auctioneer is that of
the principal and agent. In an auction the goods are sold to the highest bidder.
It may be noted that an advertisement to sell the goods by auction is simply an
invitation to the public to make offers and not an offer to sell. That is why the
intending buyers have no right to sue the auctioneer if auctioneer cancels 'or
postpones the sale by auction.
Rules Regarding Sale by Auction [Section 64]
The various rules regarding sale by auction arc given as follows:
1. Where goods are put up for sale in lots, each lot is prime facie deemed to
be the subject of a separate contract of sale [Section 64(1)]
2. A sale is complete when the auctioneer announces its completion by the

fall of the hammer or in other customary manner. For example, by
saying one, two and three, or by shouting going, going, gone etc. [Section
64(2)]
3. Until the announcement of completion of sale is made, any bidder may

withdraw his bid [Section 64(2)]

4. A right to bid may be reserved expressly by or on behalf of the seller and,
where such right is expressly so reserved, the seller or anyone person on
his behalf may bid at the auction [Section 64(3)].
5. Where a sale is not notified to be subject to a right to bid on behalf of the

seller, it shall not be lawful for the seller to bid himself or to employ any
person to bid at such sale, or for the auctioneer knowingly to take any
bid from the seller or any such person, and any safe contravening the
rule may be treated as fraudulent by the buyer [Section 64(4)].
6. A sale may be notified to be subject to a reserve or upset price [Section

64(5)]. The term 'reserve' or 'upset' price may be defined as the minimum
price below which the auctioneer will not sell the goods put up for
auction sale.
7. If a seller makes use of pretended bidding to raise the price, the sale is
voidable at the option of the buyer [Section 64(6)].
8. An auctioneer can refuse to accept even the highest bid because 'bid' is
only an offer which may or may not be accepted by the auctioneer.
Example: P sold a car by auction. It was knocked down to Q who was

only allowed to take it away on giving a cheque for the price and
signing an agreement that owne`hip should not pass until the cheque
was cleared. In the mean while till the cheque was cleared, Q sold the
car to R. It was held that the property was passed on the fall of the
hammer and therefore R had a good title to the car. Both sale and sub
sale are valid in favour of Q and R respectively.
~~~~~~~~~~~

The Sale of Goods Act, 1930

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The Sale of Goods Act, 1930

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Chapter 2 THE SALE OF GOODS ACT, 1930

Unit 1 - Nature & Formation of Contract of Sale

Buyer [Section 2 (1)]

Seller [Section 2 (13)]

Contract of Sale [Section 4(1)]

Sale [Section. 4(3)] Agreement to Sell [Section 4(3)]

Transfer of Property in goods

Immediately (a) On future date (or)

(b) On fulfillment of certain condition

Example:- A sells his Yamaha Example:- X agrees with Y on 10th of April

Contract of Sale [Section 4 (1)]

A contract of Sale of goods is a contract whereby the seller transfer or agrees

Where under a contract of sale, property in goods is transferred from the

Agreement to sell [Section 4(3)]

When an Agreement to Sell becomes Sale [Section 4(4)]

Where the ownership of the goods, is to be transferred on the fulfillment of

Distinguish between Sale and Agreement to Sell

Basis of Sale Agreement to Sell

Transfer of The ownership of goods is The ownership of goods is

Nature of Sale is an executed contract. Agreement to sell is an

Loss Loss will be borne by Buyer Loss will be borne by seller

Following are the essential elements of Valid Contract of Sale:-

 All requirements of a valid contract must be fulfilled.

 There must be two parties to the contract of sale

 There must be goods as a subject-matter

 The property in goods must be transferred to buyer

 There must be some price for goods

 Unascertained goods means goods which are not specifically identified at

Example:- A, a manufacturer of fans, contracted to sell 100 fans to B @

Example:- P contracts to sell 50pieces of particular article provided the

 Goods perishing after agreement to sell: - The contract is void if the

Document of title to goods

"Document of title to goods" includes bill of lading, dock-warrant, warehouse

However, there is a difference between a ‘document showing title’ and

Price [Section 2 (10)]

Ascertainment of Price [Section 9]

 Fixed by the contract of sale

 Fixed in the manner provided in contract of sale.

 Fixed by the course of dealing between the parties.

Agreement to sell at valuation [Section 10]

1. A agreed to sell 100 bags of rice to B at a price to be fixed by C but C

2. A agreed to sell 100 bags of rice to B at a price to be fixed by C. But

A hire purchase agreement is an agreement whereby the seller of the goods

 Possession of goods is delivered by owner thereof to the person on the

The hirer has following option:-

Difference Between Sale and Hire Purchase

Basis of Sale Hire purchase

Transfer of The ownership of goods is Ownership does not pass until

Position of The position of buyer is The position of Hirer is that of

Right of the No right to terminate the He has all option to terminate

Hirer the price of the goods cannot be forced to pay the

Right Buyer has unrestricted Hirer cannot excise the right of

Difference Between Sale and Bailment

Basis of Sale Bailment

The ownership of goods is Only possession not ownership is

Buyer can deal with goods In bailment, the bailee is bound to

in any manner he likes. act as per the instruction of bailor.

The consideration in sale is The consideration in case of

In sale there is no question Goods must be returned after

Sale and Contract of work and materials / Labour and Skills

Whether a contract is a contract of sale or a contract of work and skill is a

The intention of the parties is the main criterion to determine whether a

If the dominant motive behind a contract is to transfer the goods, it is a