Sale of Goods Act

Sale of goods act

The law relating to the sale of goods is

contained in the sale of goods Act, 1930.

It contains 66 sections and extends to the

whole of India except the state of J&K.

Definition and essentials of a

contract of sale.
Act Deals with goods
Sec 4(1) contract of sale Contract of sale of

goods is a contract whereby the seller transfers

or agrees to transfer the property in goods to
the buyer for a price.

Essentials elements
Two parties - Seller and buyer
Goods
Transfer of property
Price
Essential elements of a valid contract

Sale and agreement to

sale
Sale
According to sec 4(3) when the right of

ownership of goods is transferred from the

seller to buyer under a contract, it is sale.
Agreement to sale
When the transfer of ownership is to be made

at some future date or is to be made on the

fulfillment of some condition, the contract is
called agreement to sell.

Agreement to sell
An agreement to sell spells out the terms and

conditions under which the seller is intending

to sell the property and the terms and
conditions under which the buyer is intending
to purchase it. This facilitates a smooth
culmination of the transaction without
disputes and hassles. An agreement to sell
protects the interests of both parties.

Sale and agreement to sale distinguished

Basis

Sale

Agreement to sale

Transfer of property

In a sale the transfer

of property passes to
the buyer
immediately at the
time of making
contract

In an agreement to
sale there is no
transfer of property to
the buyer at the time
of contract.

Risk of loss

Falls on the buyer

Falls on seller

Consequences of
breach

If the buyer
Seller can sue for
wrongfully neglects or damages only.
refuses to pay the
price, the seller can
sue for the price.

Right of resale

Seller cannot resell

the goods

Seller can resell the

goods and the
original buyer can sue
him for breach of
contract.

Contd
Basis

Sale

Agreement to sell

Insolvency of seller

If the seller is
adjudged insolvent,
the buyer is entitled
to recover the goods
from the official
receiver or assignee

If the buyer has

already paid the price
and the seller is
adjudged insolvent,
the buyer can only
claim a ratable
dividend & not the
goods.

General and
particular ownership
of property

Jus in rem right to the

buyer to enjoy the
goods against the
whole world.

Jus in personam ie a
right against the
other party who fails
to fulfil his part of
agreement

Type of contract

Executed

Executory

Type of goods

Existing and specific

goods

Future and contingent

goods

Goods & its types

Goods
Goods form the subject matter of a contract

of sale.
According to Sec2(7) 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 severed before sale or
under the contract of sale.

Kinds of goods
Goods may be classified into the following

types:
Existing goods
Future goods
Contingent goods

Existing goods
Existing goods are those goods that are

owned and possessed by the seller at the time

of sale. These may be of two types, which are
as follows:
(1) Specific goods
(2) Unascertained goods

Contd..
(1)Specific goods are those goods that are

identified and agreed upon at the time of a

contract of sale is made. Eg : a specific shirt,
watch etc
(2) Unascertained or generic goods: The
goods that are not identified and agreed upon
at the time of the contract of sale are the
unascertained or generic goods. Such goods
are defined by description only and may form
a part of a lot

Future goods
Future goods are those that are to be

manufactured, produced or acquired. A seller

does not actually possess the future goods at
the time of the sale.
These goods may be either not yet in
existence or be in existence but not yet
acquired by the seller.
Eg: A agrees to sell to B all the milk that his
cow may yield during the coming year.

Contingent goods
Goods, the acquisition of which by the seller

depends upon a certain contingency are

called contingent goods. Sec 6(2)
eg: X agrees to sell to Y 25 bales of cotton,
provided the ship which is bringing them
reaches the port safely. If the ship is sunk, the
contract becomes void and seller is not liable.

Effect of destruction of
goods
A)destruction before making of contract:
Where in a sale for contract of specific goods,

are so damaged as no longer to answer to

their description, the contract shall become
null and void. This is based on the rule of
impossibility of performance.
B) destruction after the agreement to
sell but before sale
Here, the agreement will become void,
provided the goods are perished before the
ownership and risk passes to buyer

Sale distinguished from other

transactions
Sale and barter: in a sale it is necessary that the goods

are exchanged for a money consideration called price.

Where the goods are exchanged for goods it is barter.
Sale and bailment
Bailment
A bailment is the delivery of goods by one person to another
for some purpose, upon a contract that they shall, when the
purpose is accomplished, be returned or other wise disposed
of according to the directions of the person delivering them.
Eg : hiring of good, furniture etc
Delivering vehicles for repair or safe custody

Sale vs. bailment

Basis

Sale

Bailment

Possession of
goods

Passes on to the
buyer

Passes to the bailee

Ownership

Transferred to the
buyer

No transfer of
ownership

Usage

The buyer may use

the goods as he likes

The bailee can use

the goods only
according to the
directions of the
bailor

Return of goods

There is no return of
good, unless in case
of breach

The goods are

returned after
specified time or
accomplishment of
the purpose

Sale Vs pledge, hypothecation and mortgage

Pledge

The bailment of goods as security for payment of a debt or performance of a

promise is called Pledge
Eg: Gold /Jewellery Loans, Advance against goods,/stock, Advances against
National Saving Certificates etc.

Hypothecation
It is used for creating charge against the security of movable assets, but here the

possession of the security remains with the borrower itself.

Mortgage
It is used for creating charge against immovable property which includes land,

buildings or anything that is attached to the earth or permanently fastened to

anything attached to the earth.
Eg: Home Loan. In this case house is mortgaged in favour of the bank / financer but
remains in possession of the borrower, which he uses for himself or even may give
on rent.

Contd..
Sale Vs Hire purchase agreement
Under hire purchase agreement the goods are

delivered to the hire purchaser for his use at

the time of agreement but the owner of the
goods agrees to transfer the property in goods
to the hire purchaser only when a certain fixed
number of instalments are paid.

Difference b/w sale and hire

purchase
Basis

Sale

Hire purchase

Transfer of property

Immediate transfer of
property

Property in goods
passes to the hirer
upon payment of the
last installment

Termination of
contract

Only on breach

Can terminate the

contract by returning
the goods to the
owner without any
liability to pay the
remaining
installments

Sales tax

Is applicable

Not applicable.