THE LAW RELATING TO SALE OF

GOODS
 GOODS
• Goods includes every kind of movable property
except:
I. Actionable claim
II. Money
• Classification of goods: Goods can be classified
as:
 Existing Goods: The goods which are already in
existence and which are physically present in
some person’s possession and ownership.
 Classification of Goods:
• Existing goods may be either
I. Specific & ascertained (can be identified or recognized as separate things)
II. Generic & unascertained (indicated by description & not separately
identified)

 Future Goods: Future goods are goods which will be manufactured or

produced or acquired by the seller after the making of the contract of sale.
• Example : P agrees to sell to Q all the mangoes which will be produced in
his garden next year. This is an agreement for the sale of future goods.

 Contingent Goods: There may be a contract for the sale of goods, the
acquisition of which by the seller depends upon a contingency which may or
may not happen. It comes within the class of future goods.
• Example : X agrees to sell to Y a certain ring provided he is able to purchase
it from its present owner. This is an agreement for the sale of contingent
goods.
Sale and an Agreement to Sell (Sec: 4)
• A contract for the sale of goods may be either a sale or an agreement to sell.
Where under a contract of sale the property in the goods (i.e. the ownership) is
transferred from the seller to the buyer, the contract is called a sale. The
transaction is a sale even though the price is payable at a later date or delivery is
to be given in the future, provided the ownership of the goods is transferred
from the seller to the buyer. Where the transfer of ownership is to take place at
a future time or subject to some condition to be fulfilled later, the contract is
called an agreement to sell.
• Examples : (i) A agrees to buy from B a haystack on B’s land, with liberty to
come on B's land to take it away. This is a sale because the property in the goods
has passed to buyer. (ii) P agrees to buy a quantity of soda to arrive by a certain
ship. This is an agreement to sell because the property in the goods will pass to
the buyer when the goods come and the agreement is naturally subject to the
condition that the ship arrives in port with the goods.
• An agreement to sell becomes a sale when the prescribed time elapses or the
conditions, subject to which the property in the goods is to be transferred, are
fulfilled.
 Differences between a Sale and an
Agreement to Sell
• (i) In an agreement to sell, the property in the goods remains with the
seller until the agreement 'to sell becomes a sale by the expiry of the
agreed time or the fulfillment of the agreed conditions.
• Till this happens the goods can be resold by the seller or attached in
execution of a decree against him. In case of a sale the property passes to
the buyer and the goods cannot be seized in execution of a decree against
the seller.
• (ii) Where the transaction amounts to a sale, the goods belong to the
buyer and he has to bear the loss if the goods are subsequently damaged
or destroyed. (Sec. 26).
• (iii) In the case of a sale, the unpaid seller has certain reliefs available, e.g.
lien, stoppage in transit and resale. In case of an agreement to sell, the
seller’s remedy for breach of contract by the buyer is a suit for damages.
 THE ESSENTIAL ELEMENTS OF A CONTRACT FOR THE SALE OF
GOODS

• 1. There must be a contract for the exchange of movable goods for money.
An exchange of goods for goods is not a sale. But it has been held that if
an exchange is made partly for goods and partly for money, the contract is
one of sale.
• 2. Since a contract of sale involves a change of ownership, it follows that
the buyer and the seller must be different persons. A man cannot buy from
or sell to himself. To this rule there is one exception provided for in Section
4(1) of the Sale of Goods Act. A part owner can sell to another part-owner.
• Example : P & Q are each of them owners of a certain stock of movable
goods. P can sell his rights to Q. After the sale Q becomes owner of share.
• 3. A contract of sale is made by an offer to buy or sell goods for a price and
the 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 and payment by installments, or that the delivery or payment
or both shall be postponed.—Sec. 5(1).
 Continued . . .
• 4. Subject to the provisions of any law for the time being in force, a contract of
sale may be in writing, or by word of mouth, or may be implied from the conduct
of the parties.—Sec. 5(2). (In England it is provided by statute that a contract for
the sale of goods of the value of £ 10 or over is not enforceable unless it is
evidenced by writing.)

• 5. The parties may agree upon any term concerning the time, place, and mode of
delivery. The terms may be of two types : essential and non-essential. Essential
terms are called Conditions, nonessential terms are called Warranties. The Sale of
Goods Act provides that in the absence of a contract to the contrary, certain
conditions and warranties are to be implied in all contracts of sale.

• 6. The Price. Price means the money consideration for the sale of goods. The price
in a contract of sale may be fixed by the contract of sale or may be left to be fixed
in a manner agreed between the parties. It may also be determined by the course
of dealing between the parties. Where there is no provision made in the contract
regarding price, the buyer must pay a reasonable price. What is reasonable is a
question of fact depending upon the circumstances of the case (Sec:9).
 Continued . . .
• Goods may be sold on a condition that the valuation is to be made by a third party. In
such cases if the third party cannot or does not make the valuation, the agreement to
sell becomes void. But if the goods or any part thereof had been delivered to and
appropriated by the buyer, he shall pay a reasonable price therefor.
• Where such third party is prevented from making the valuation by the fault of the
seller or buyer, the party not in fault is entitled to damages.(Sec:10).
• 7. A contract for the sale of specific goods becomes void if the goods without the
knowledge of (the seller, have perished at the time when the contract was entered
into or have become so damaged as no longer to answer to their description in the
contract. (Sec:7).
• The same rule applies if the goods perish, or are damaged after agreement to sell bull
before sale. But in this case, the agreement is not avoided if there is any fault on the
part of either the buyer or the seller or if the risk had passed to the buyer. (Sec: 8).
• The risk (of loss or damage to goods) passes to the buyer at the time agreed upon
between the parties or when the ownership passes to the buyer.
• 8. A contract for the sale of goods must satisfy all the essential elements necessary
for the formation of a valid contract e.g. the parties must be competent to contract,
there must be free consent, there must be consideration, the object must be lawful
etc.
 Earnest Money
• The payment of earnest money to mark the
formation of an agreement for sale is a long
standing custom.
• It is an understanding that if the contract is
broken by the buyer, the seller is to retain the
earnest money as compensation.
• If the contract is fulfilled the amount is created
to the purchase price payable.
• It is the security for the fulfillment of
agreement