Sale of Goods Act, 1930

*Students are required to refer notes given in the class first. This is the additional and detailed
notes for giving more information on the particular topic.

Definition clause of the Sale of Goods Act, 1930

Let us begin with a thorough understanding of the definition clause of the Act for a better
understanding. Section 2 of the Sales of Goods Act of 1930 deals with the definitions relating
to the subject. Some of the clauses of Section 2 are mentioned below:

 Buyer

In clause 1 of Section 2, the term ‘buyer’ is defined to include both a person who actually
purchases the goods and a person who is almost willing to do so. However, it was observed
in Helby v. Mathews (1895) that a person is not regarded as a buyer if an agreement
essentially grants him the option to purchase the products without subjecting him to any legal
obligation to do so.

 Delivery

Clause 2 defines the term ‘delivery’ to involve a transaction of a transfer of possession which
is done voluntarily. Delivery can be actual or constructive. It becomes ‘actual’ when the
buyer receives the actual products or receives the key to the warehouse where the goods are
kept. Whereas, when a delivery is made without affecting the custody or actual ownership of
the item, such as acknowledging a delivery or making a symbolic delivery, it is said to be a
constructive delivery.

 Goods

Clause 7 deals with the “goods,” which refers to any movable property that is neither money
nor actionable claims.

The following list of items is considered goods as per the interpretations given by the Indian
judiciary:

1. The shares of a company were considered goods by the court in Bacha F. Guzdar
v. CIT (1955).
2. The interest of the partners in the partnership assets which consists of any
immovable property was considered to be a movable property and thus good in the
case of Narayanaapa v. Bhaskar Krishnappa (1966).
3. Sugarcane which was supplied to a sugar factory was considered to be good in the
U.P. Coop. Cane Unions Federations v. West U.P. Sugar Mills Assn. (2004).

1
The following list of items was considered to be ‘not goods’ under this Section:

1. The goods supplied by a building contractor in the execution of building

construction are not goods as per the case of Mahadeo v. State of Bombay (1959).
2. Where a person entrusts documents to his lawyer, those documents will not be
considered goods under this Section as per the case of R.D. Saxena v. Balram
Prasad Sharma (2000).
3. The sale and purchase of lottery tickets are actionable claims which are excluded
from the definition of goods. Therefore, it will not be goods as was held in the case
of Union of India v. Martin Lottery Agencies Ltd. (2009).

Specific goods

Clause 14 of Section 2 deals with ‘Specific Goods.’ Specific goods are utilised as an
alternative to generic or unascertained goods. The items are specific if they are identified at
the moment of sale. However, they are unascertained goods if the items are not identified at
the moment of the sale. For example, the sale of a car in a person’s possession would be
considered to be the sale of a specific good. Whereas a sale of a car from a showroom that
contains different variants of a car is a contract for the sale of unascertained goods.

Formation of a contract

What is a contract of sale?

Section 4 of the Act discusses sales and the agreement to sell. The term “contract of sale” is
generic in nature. It tends to include both agreements to sell and sale. It was formerly called
“bargain and sale.”

Subsection 3 of Section 4 defines the sale and the agreement to sell. The contract of sale is
known as a sale when the property in the products is transferred from the seller to the buyer
under it, thereby transferring ownership from the seller to the buyer. A sale can also be called
an executed contract of sale. However, a contract is referred to as an agreement to sell when
the transfer of property in the goods is supposed to happen at a future date or is dependent on
the fulfilment of a subsequent condition. An agreement to sell may also be called an
executory contract of sale.

It was held in the State of Uttaranchal v. Khurana Brothers (2011) that when the time elapses
or the condition gets fulfilled, at that time an agreement to sell becomes a sale.

Subsection 1 also permits a person who owns the goods partially to sell the goods or transfer
the ownership to that extent.

2
In Camera House, Bombay v. State of Maharashtra (1969), the Bombay High Court ruled
that providing a print, processing film, and taking a picture in a studio are all separate
transactions. Therefore, it is obvious that the first two contracts call for the use of a
photographer’s artistic talent and labour. However, the final contract for providing copies of
it to clients is a contract of sale.

Absolute and conditional contracts of sale

A contract of sale may be either absolute or conditional. When the property is actually sold to
the buyer and transferred completely, it is considered absolute. If the parties annex conditions
to the contract, it is conditional. These situations could be either subsequent or preceding.
When a sale is to be completed subject to the fulfilment of a specific condition, the condition
is known as a “condition precedent.” It is common for an auction sale of goods to include a
clause stating that if the purchase price is not made within a certain period of time, the item
may be resold. In this scenario, there is a real sale when the property is transferred to the
buyer, but if the transaction is not completed, the seller retains ownership of the goods.

Difference between sale and agreement to sell

1. A sale results in the transfer of the buyer’s general ownership of the items, or it
generates a jus in rem. An agreement to sell does not transfer property; rather, it
creates a jus in personam that allows either party to take legal action against the
other’s person and general estate if the other fails to uphold his end of the bargain.
(Sales Tax Officer v. Buddha Prakash Jai Prakash (1954))
2. After a sale, if the purchaser does not pay for the items, the seller may file a lawsuit
under Section 55 (suit for price) to recover the purchase price. When there is just
an agreement to sell anything and the buyer refuses to take delivery of the goods
and pay for them, the seller may only bring a claim for damages under Section
56 (damages for non-acceptance).
3. If there is a sale agreement in place and the seller breaches it, the buyer alone has a
claim for damages as their own remedy. The seller is still the rightful owner of the
items, and he is free to dispose of them however he sees fit. But if a sale has
already been made and the seller breaches it, the buyer is likewise entitled to the
same legal recourse against the seller as an owner of the goods would have in
relation to the items themselves, such as a suit for conversion or detinue.
4. If there is a sale agreement and the products are destroyed, the seller is responsible
for the loss; nevertheless, if there has been a sale, the buyer is responsible for the
loss even though the things may not have actually been in his possession
Section 5 provides for the bare formalities for making “contracts of sale.”

The following prerequisites must be met for a contract to be formed:

1. The making of a purchase or sale offer and the acceptance of that offer.

3
 2. Delivery arrangements for goods or services may be immediate, simultaneous, in
instalments, or in the future.
3. Making provisions for the price paid. The fee may be paid in whole immediately,
in instalments over time, or all at once.

The basic requirements for a contract of sale are as follows:

1. It may be in writing.
2. It may be by word of mouth.
3. It may be partly oral or written.
4. It may be implied from the conduct of parties or by the course of their business.
5. The law allows for official written instruments to be sealed in the case of the
government and some statutory corporations “Subject to the provisions of any law
for the being in force” applies to this group.

Subject matter of a contract

Existing or future goods

As per Section 6, the following types of existing or future goods form a part of the subject
matter of the contract.

The goods may be existing or whose possession will happen in the future.

The goods whose acquisition is dependent on a contingency.

Where there is a present sale of future goods.

Goods perishing before making a contract

Only specific goods are covered under Section 7. It states that the contract is void if the goods
have expired at the time of the contract without the seller’s knowledge. This Section is based
on the principle that a contract is void if both parties are in error regarding a fact that is
material to it.

The Section further states that the contract is void if the products have been sufficiently
damaged that they no longer match the contract’s description without the seller’s knowledge.
The seller’s knowledge is crucial in this situation.

Goods perishing before sale but after an agreement to sell

Section 8 deals with the case where the goods perish, etc., after the agreement to sell is made
and before the risk passes to the buyer. It applies only to specific goods.

4
What are the conditions and warranties

Sections 14 to 17 of the Sale of Goods Act of 1930 deal with implied conditions and
warranties.

Implied conditions

Implied conditions as to title

According to Section 14(a), in every contract of sale, unless the circumstances of the contract
are such as to show a different intention, there is an implied condition on the part of the seller
that, in the case of a sale, he has a right to sell the goods.

The fundamental yet crucial implied terms on the part of the seller are as follows in any
contract of sale:

1. First off, he is legally authorised to sell the goods.

2. Second, if there is a sale agreement, he will have the right to sell the products when
the contract is fulfilled.

As a result, the buyer has the right to reject the products if the seller does not have the title to
sell them. He has the right to receive his entire purchase price back.

The case of Rowland v. Divall (1923) observed that if the seller has no title and the buyer has
to give up the goods to the real owner, he is entitled to a return of the price.

Implied condition in sales by description

Section 15 of the Act states that there is an implied condition that the products meet the
description in a sale of goods by description. There is a condition that the goods shall meet
the description. It is a fundamental requirement of the contract, and if it is breached, the
buyer is entitled to reject the goods regardless of whether they can be inspected.

Implied condition as to the quality of fitness

Section 16 lays down exceptions to the rule of caveat emptor. These are as follows:

Implied condition as to the quality or fitness [Section 16(a)]

The following are the essentials of this condition as mentioned in sub-section (1):

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 judgement.

5
 3. The goods are of a description dealt in by the seller, whether he be the
manufacturer or not.

Implied condition as to merchantability

The second exception, as stated in sub-section (2), is when the goods are purchased by
description from a seller, whether or not he is the manufacturer, who deals in goods of that
description. There is an implied condition that the goods must be of merchantable quality in
such circumstances.

Implied condition on sale by sample

When there is an express or implied clause in the contract to that effect, Section 17 considers
the sale to be by sample. The seller expressly assures that the goods sold on a sample sale
should match the description of a small parcel approved at the time of the transaction.

Implied warranties

Implied warranty of quiet possession

As per Section 14(b), every contract of sale contains an implied warranty that the buyer will
have and that they shall enjoy quiet possession of the goods unless the conditions of the
contract indicate a different condition. The seller is responsible for compensating the buyer
for any damages if this warranty is breached.

Implied warranty that goods are free from encumbrances

Section 14(c) states that there is an implied warranty from the seller that the goods are
unencumbered by any charge or encumbrance. The seller is responsible for compensating the
buyer for damages if it is later discovered that the goods are subject to a charge in the favour
of a third party.

Expressed conditions and warranties

A provision in a legal agreement that stipulates that something must be done or exist is how
the term is defined in the dictionary. The term “expressed conditions” refers to clauses that
both parties agree to include in the contract and that are necessary for it to work. Those
warranties that are included in the contract and are typically accepted by both parties are
referred to as “expressed warranties.”