SALE OF GOODS ACT, 1930

66 sections
Applies to all states except J&K
Object of Legislation: Regulation of commerce and benefit of
merchants in pre-independence India
 LEARNING OUTCOMES
• (1) What is a contract of sale of goods? What is the distinction between a contract of sale and one of
hire-purchase?
• (2) What are conditions and warranties?
• (3) What is caveat emptor, and what are its exceptions?
• (4) When does property, and risk, pass from seller to the buyer?
• (5) What are the rights and duties of the seller and buyer?
• (6) What are the seller’s remedies against the buyer, and vice versa?
• (7) How can a party to a contract exclude implied terms and conditions?
• (8) How does one execute a valid auction sale?
 SALE DEFINED (S.4)
• Chapter II titled “Formation of the Contract” of Sale of Goods Act,
1930 defines ‘Sale and Agreement to Sell’ in Section 4(1) as:

“A 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.”
 RELATED DEFINITIONS U/S.2
Section 2 states In this Act, unless there is anything repugnant in the subject or
context,—
(1) “BUYER” means a person who buys or agrees to buy goods;
(2) “DELIVERY” means voluntary transfer of possession from one person to
another;
(3) goods are said to be in a “DELIVERABLE STATE” when they are in such
state that the buyer would under the contract be bound to take delivery of them;
 RELATED DEFINITIONS U/S.2
(4) “DOCUMENT OF TITLE TO GOODS” includes a 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 as proof of the possession or control of goods, or
authorising or purporting to authorise, either by endorsement or by delivery, the
possessor of the document to transfer or receive goods thereby represented;
(5) “FAULT” means wrongful act or default;
(6) “FUTURE GOODS” means goods to be manufactured or produced or acquired by
the seller after the making of the contract of sale;
 RELATED DEFINITIONS U/S.2
(7) “GOODS” means every kind of moveable 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;
(8) a person is said to be “INSOLVENT” who has ceased to pay his debts in the ordinary
course of business, or cannot pay his debts as they become due, whether he has committed an
act of insolvency or not;
(9) “MERCANTILE AGENT” means a mercantile agent having in the customary course of
business as such agent authority either to sell goods, or to consign goods for the purposes of
sale, or to buy goods, or to raise money on the security of goods;
 RELATED DEFINITIONS U/S.2
(10) “PRICE” means the money consideration for a sale of goods;
(11) “PROPERTY” means the general property in goods, and not merely a
special property;
(12) “QUALITY OF GOODS” includes their state or condition;
(13) “SELLER” means a person who sells or agrees to sell goods;
(14) “SPECIFIC GOODS” means goods identified and agreed upon at the
time a contract of sale is made;
 MORE ON S.4…
• Section 4 of the Sale of Goods Act.-
(1) There may be a contract of sale between one part-owner and another.
(2) A contract of sale may be absolute or conditional.
(3) 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, but where the transfer of the property in the
goods is to take place at a future time or subject to some condition thereafter to be
fulfilled, the contract is called an agreement to sell.
(4) An agreement to sell becomes a sale when the time elapses or the conditions are
fulfilled subject to which the property in the goods is to be transferred.
 ESSENTIALS OF SALE
• 1. There must be at least two parties; one is the buyer, and other is the seller.
• 2. The subject matter of the sale is the goods.
• 3. The goods should pass from seller to buyer.
• 4. Payment should be made in money (the country’s legal currency).
• 5. All the necessary conditions of a valid contract* should be present like
free consent, consideration, a lawful object, capacity of parties etc.
Hence, contract of sale is a consensual, bilateral and commutative contract.
 SALE VS. HIRE PURCHASE
Sale
• Meaning: Sale implies a transaction between
buyer and seller under a contract, wherein the
buyer acquires goods or services, in exchange
for money;
• Illustration: A looking for a second-hand
motorcycle finds B’s ad online selling the same.
B quotes Rs. 60,000, A agrees and pays upfront.
B transfers the motorcycle along with its papers.
Sale is complete.
Hire Purchase
• Meaning: Hire Purchase refers to a form of purchase
in which the buyer acquires the asset by making down
payments, however, the entire purchase price of the
asset can be paid over the stipulated time through
periodical instalments.;
• Illustration: A Ltd. purchased a machine on hire
purchase from Z Ltd. on January 1, 2020, paying Rs.
80,000 immediately and agreeing to pay three annual
instalments each year on December 31 with an
interest @5%p.a.
 SALE VS. HIRE PURCHASE
Sale
• Governing Provision: Sale of
Goods Act, 1930;
• Parties: Buyer and Seller;
• Timing of transfer of property:
Immediate;
Hire Purchase
• Governing Provision: Hire Purchase
Act, 1972;
• Parties: Hire Purchaser and Hire
Vendor;
• Timing of transfer of property: On the
payment of the last instalment;
 SALE VS. HIRE PURCHASE
Sale
• Position of Buyer: The buyer's
position is that of the owner;
• Payment: Lump-sum;
• Nature of Payment: Price of the
goods;
Hire Purchase
• Position of Buyer: The hire purchaser's
position is that of the bailee, till he pays
the final instalment due;
• Payment: Instalments;
• Nature of Payment: Hire charges for the
use of the asset, until the purchase option
is exercised by the hire purchaser;
 SALE VS. HIRE PURCHASE
Sale
• Consequence of Non-payment: The seller
can take legal action against the buyer;
• Termination: The buyer cannot terminate
the contract, and he/she is obligated to
pay the price.
Hire Purchase
• Consequence of Non-payment: The
vendor can repossess the goods;
• Termination: The hire purchaser can
terminate the contract by returning the
asset to the vendor and has no liability to
pay the instalments in full;
 SALE VS. HIRE PURCHASE
Sale
• Insolvency: If the buyer becomes
insolvent, the seller has to bear the risk
of loss;
• Repair of goods: Buyer;
• Transfer of title to the third party: As
ownership is transferred, the buyer can
transfer a good title to the bona fide
purchaser;
Hire Purchase
• Insolvency: If the purchaser becomes
insolvent, the seller can repossess the
asset;
• Repair of goods: Hire vendor;
• Transfer of title to the third party: As
ownership is not transferred, the hire
purchaser cannot transfer a good title to
the bona fide purchaser;
 SALE VS. HIRE PURCHASE
Sale
• Insolvency: If the buyer becomes
insolvent, the seller has to bear the risk
of loss;
• Repair of goods: Buyer;
• Transfer of title to the third party: As
ownership is transferred, the buyer can
transfer a good title to the bona fide
purchaser;
Hire Purchase
• Insolvency: If the purchaser becomes
insolvent, the seller can repossess the
asset;
• Repair of goods: Hire vendor;
• Transfer of title to the third party: As
ownership is not transferred, the hire
purchaser cannot transfer a good title to
the bona fide purchaser;
 SALE VS. HIRE PURCHASE
Sale
• Mode of Communication: The contract
of sale can be oral or written, that means
there is no compulsion as to the writing
of the contract;
• Resale : The buyer can resell the goods.
• Taxation: Sales Tax may be levied.
Hire Purchase
• Mode of Communication: In case of hire
purchase, the contract has to be in
writing and must be signed by both the
parties – hire purchaser and hire vendor.
• Resale: The hirer does not enjoy such
right to resell the goods unless he has
paid all the instalments.
• Taxation: Hire-purchases are not taxable.
 CONDITIONS AND WARRANTIES
• Section 11 to 17 of the Sale of Goods Act embodies the provisions relating to Conditions and
Warranties.

Broad meaning: “Statements during negotiation or Stipulations”.

• Contract includes various stipulations these may be classified as conditions or warranties.

• Stipulations forming very basis of the contract, of is essential to the main purpose of contract, are called
Conditions.
• Stipulations only of secondary importance, or is collateral to the main purpose of contract, it is called
warranty. Their breach do not frustrate the purpose of the contract.
 CONDITIONS AND WARRANTIES
BASIS FOR COMPARISON CONDITION WARRANTY

It is a stipulation which forms the very basis of the It is additional stipulation complementary to the main
Meaning
contract. purpose of the contract.

Section 12(2) of the Sale of Goods Act, 1930 defines Section 12(3) of the Sale of Goods Act, 1930 defines
Provision
Condition. Condition.

Purpose Condition is basic for the formulation of the contract. It is a written stipulation for assuring the party.

Result of Breach of Contract The whole contract may be treated as repudiated. Only damages can be claimed in case of a breach.

Remedies available to the aggrieved party Repudiation, as well as damages, can be claimed. Only damages can be claimed.
 RIGHTS OF BUYER

• 1. Right to have delivery of goods (Ss. 31 & 32):

It is the basic right of the buyer to take the delivery of goods from the seller
at or after payment of consideration.
 RIGHTS OF BUYER

• 2. Right to Reject (S.37):

It is the right of the buyer to reject the goods if it is found that the seller has
delivered him the goods of other quantity or quality or if the buyer notices
any defects in the goods, he may refuse to take those defective goods.
 RIGHTS OF BUYER

• 3. Right to cancel/repudiate (S.38(1)):

It is another right of the buyer to cancel the contract if the seller does not
perform his part in the stipulated time or otherwise if the seller commits any
negligence as to the performance of a contract in that situation it is the right
of the buyer to cancel the contract.
 RIGHTS OF BUYER

• 4. Right to sue for/claim damages (S.57 & 59):

If there is any defect in the goods which may cause loss to the buyer or if
due to the negligence of a seller, the buyer sustains a loss, in such
circumstances, it is the right of the buyer to be compensated or the buyer
may claim unliquidated damages. Under S.60, a party may also sue for
damages for anticipatory breach of contract.
 RIGHTS OF BUYER

• 5. Right to examine (S.41):

It is the right of the buyer to examine the goods before their purchase and be
duly satisfy with the quality of goods.
 RIGHTS OF BUYER

• 6. Right to sue for performance:

If the seller refuses to obey the terms and conditions of the contract which
causes irreparable loss to the buyer, the buyer has the right to approach the
competent court of law to compel the seller for specific performance.
 RIGHTS OF BUYER

• 7. Right to insurance for transport (S.39(3)):

It is the duty of the seller to give notice to the buyer to be ensured the goods
if the seller delivers in a reasonable and safe way, whether by sea or by any
other means. Since it is a common source of apprehension that the goods
may be destroyed if not dealt with appropriately, it is the right of the buyer
to ensure the goods before its delivery.
 RIGHTS OF BUYER

• 8. Right to sue for recovery of price:

It is the right of the buyer to file a suit* for recovery of the price which he
has already paid to the seller but even then, the seller refuses to perform his
part.
 RIGHTS OF BUYER

• 9. Right to claim interest (S.61):

It is the right of the buyer to claim an interest in the situation if the delay is
caused by the seller in the delivery of goods.
 DUTIES OF BUYER

• 1. Duty to accept goods (S.31):

After the execution of the agreement if the seller delivers the goods to the
buyer to accept the goods without any delay. If the buyer refuses to take the
goods from the seller and the goods sustain any damage, the seller cannot be
held responsible for the same.
 DUTIES OF BUYER

• 2. Duty to pay the consideration (S.55):

It is the basic duty of the buyer to pay seller the price, where the property in
the goods are passed to the buyer, in accordance with the terms of the
contract.
 DUTIES OF BUYER

• 3. Duty to pay damages (S.56):

It is the duty of the buyer to pay damages to the seller if due to the refusal of
buyer receives goods from the seller and the seller sustains any injury or for
maintenance if the seller incurs any cost over the goods.
 DUTIES OF BUYER

• 4. Duty to perform as per agreement:

It is the duty of the buyer to perform his part/obligation in true spirit as

agreed between buyer and seller and in case of his non-performance, the
buyer can be held liable for any loss to the seller.
 DUTIES OF BUYER

• 5. Duty to perform as per agreement (S.40):

Another duty of the buyer is to bear the risk of deterioration in the course of
transit, when the goods are to be delivered at a place other than where they
are sold.
 DUTIES OF BUYER

• 6. Duty to apply for goods (S.35):

It is another duty of the buyer to apply for delivery of goods to the seller. If
it was agreed that the seller would only deliver the goods if the buyer applies
for its delivery. It is also incumbent upon the buyer to take the delivery of
the goods within a reasonable time after the seller tenders the delivery (S.44)
 RIGHTS OF SELLER

• 1. Right to have acceptance of goods:

It is the right of the seller that goods delivered by a seller as per terms of the
contract of sale must be accepted by the buyer.
 RIGHTS OF SELLER

• 2. Right to claim loss:

If the buyer unlawfully refuses to accept the delivery of goods, the seller has
a right to claim from the buyer the loss caused to him due to non-acceptance
of the goods and also reasonable charges for the care and custody of the
goods.
 RIGHTS OF SELLER

• 3. Right to receive the price of goods:

It is the right of the seller to receive the price of goods from the buyer as per
terms of the contract.
 RIGHTS OF SELLER

• 4. Right to take legal action:

It is the right of a seller to take legal action against the buyer if the price is
not paid to him. He may approach any appropriate forum and seek
appropriate remedy.
 RIGHTS OF SELLER

• 5. Right to interest:

Seller is entitled to interest at a reasonable rate on the total unpaid price of

goods sold, from the time it was due until it is actually paid to him.
 RIGHTS OF SELLER

• 6. Right to assume acceptance:

To assume that the buyer has accepted the goods, where the buyer:
(i ) Conveys his acceptance;
(ii) Does an act adopting the sale; or
(iii) Retains the goods without giving a notice of rejection, beyond the
specified date (or reasonable time), in a sale on approval (S.24).
 DUTIES OF SELLER

• 1. Duty to deliver goods (S.31):

It is the duty of a seller to deliver the goods to the buyer according to the
terms and conditions of the contract. If the seller refuses to deliver the goods
to the buyer, he may sue the seller for damages for non-delivery.
 DUTIES OF SELLER

• 1. Duty to deliver goods (S.31):

It is the duty of a seller to deliver the goods to the buyer according to the
terms and conditions of the contract. If the seller refuses to deliver the goods
to the buyer, he may sue the seller for damages for non-delivery. Moreover,
To deliver the goods within the time specified in the contract or within a
reasonable time and a reasonable hour. (Ss.36(2) and (4))
 DUTIES OF SELLER

• 2. Duty to ascertain the goods (S.35):

To ensure that the goods supplied conform to all the conditions and
warranties especially deliver the goods in the agreed quantity S.37(1) pass
an absolute and effective title to the goods, to the buyer.
 DUTIES OF SELLER

• 3. Duty to refund the price:

Where the seller fails to deliver the goods to the buyer, he must pay back the
price of the goods to the buyer which he had received in advance.
 DUTIES OF SELLER

• 4. Duty to pay interest:

Where the seller has already received the price but fails to deliver the goods
to the buyer, he must pay interest at a reasonable rate on the total received
price, from the date of receiving such price until it is actually paid back to
the buyer.
 DUTIES OF SELLER

• 4. Duty to pay damages for breach:

Where there is a breach of warranty or condition on the part of a seller, the

seller is bound to pay the damages to the buyer for the breach of contract of
sale.
 REMEDIES OF SELLER

• Thus, from the rights of the seller against the buyer, we can conclude that
the Seller has the following remedies against the Buyer:

1) Suit for Price (S.55).

2) Damages for non-acceptance of goods (S.56).
 REMEDIES OF BUYER

• Thus, from the rights of the Buyer against the Seller, we can conclude that
the Buyer has the following remedies against the Seller:

1) Damages for non-delivery of goods (S.57).

2) Specific Performance (S.58).
3) Remedy for breach of warranty (S.59).
caveat emptor
/ˌkavɪat ˈɛmptɔː/
 DOCTRINE OF CAVEAT EMPTOR

• Caveat emptor is a Latin phrase that translates to “let the buyer beware”
and used in legal contracts as a type of disclaimer.
• In most jurisdictions, it is the contract law principle that places the onus
on the buyer to perform due diligence before making a purchase.
• A caveat emptor disclaimer precludes post-purchase disputes despite the
seller having more information than the buyer about the quality of a good
or service (information asymmetry).
 CAVEAT EMPTOR IN INDIAN LAW

• Section 16 of Sale of Goods Act embodies “Implied conditions as to

quality or fitness.”—

Subject to the provisions of this Act and of any other law for the time
being in force, there is no implied warranty or condition as to the
quality or fitness for any particular purpose of goods supplied under a
contract of sale.
 CAVEAT EMPTOR IN INDIAN LAW

• Illustration:
A bought a horse from B. A wanted to enter the horse in a race. Turns out the
horse was not capable of running a race on account of being old and
domesticated. Since A did not inform B of his intentions, B will not be held
responsible for the defects of the horse. The Doctrine of Caveat Emptor will
apply.
 EXCEPTIONS OF CAVEAT EMPTOR

1. Fitness of Product for the Buyer’s Purpose--

• When the buyer informs the seller of his purpose of buying the goods, it is
implied that he is relying on the seller’s judgment. It is the duty of the seller
then to ensure the goods match their desired usage.
Illustration: A goes to B to buy a bicycle. He informs B he wants to use the
cycle for mountain trekking. If B sells him an ordinary bicycle that is incapable
of fulfilling A’s purpose the seller will be responsible.
 EXCEPTIONS OF CAVEAT EMPTOR

2. Goods Purchased under Brand Name--

• When the buyer buys a product under a trade name or a branded product
the seller cannot be held responsible for the usefulness or quality of the
product. So there is no implied condition that the goods will be fit for the
purpose the buyer intended.
 EXCEPTIONS OF CAVEAT EMPTOR

3. Goods of Merchantable Quality--

• Section 16 (2) deals with the exception of merchantable quality. The sections state that
the seller who is selling goods by description has a duty of providing goods of
merchantable quality, i.e. capable of passing the market standards.

• So if the goods are not of marketable quality then the buyer will not be the one who is
responsible. It will be the seller’s responsibility. However if the buyer has had a
reasonable chance to examine the product, then this exception will not apply.
 EXCEPTIONS OF CAVEAT EMPTOR

4. Goods sold by Description--

• When the buyer buys a product under a trade name or a branded product
the seller cannot be held responsible for the usefulness or quality of the
product. So there is no implied condition that the goods will be fit for the
purpose the buyer intended.
 EXCEPTIONS OF CAVEAT EMPTOR

5. Sale by Sample--

• If the buyer buys his goods after examining a sample then the rule of Doctrine of
Caveat Emptor will not apply. If the rest of the goods do not resemble the sample, the
buyer cannot be held responsible. In this case, the seller will be the one responsible.
Illustration: A places an order for 50 toy cars with B. He checks one sample where the
car is red. The rest of the cars turn out orange. Here the doctrine will not apply and B
will be responsible.
 EXCEPTIONS OF CAVEAT EMPTOR

6. Sale by Description and Sample--

• If the sale is done via a sample as well as a description of the product, the
buyer will not be responsible if the goods do not resemble the sample
and/or the description. Then the responsibility will fall squarely on the
seller.
 EXCEPTIONS OF CAVEAT EMPTOR

7. Usage of Trade--

• There is an implied condition or warranty about the quality or the fitness of

goods/products. But if a seller deviated from this then the rules of caveat
emptor cease to apply.
Illustration: A bought goods from B in an auction of the contents of a ship. But
B did not inform A the contents were sea damaged, and so the rules of the
doctrine will not apply here.
 EXCEPTIONS OF CAVEAT EMPTOR

8. Fraud or Misrepresentation by the Seller--

• This is another important exception. If the seller obtains the consent of the
buyer by fraud, then caveat emptor will not apply. Also, if the seller
conceals any material defects of the goods which are later discovered on
closer examination, then the buyer will not be responsible. In both cases,
the seller will be the guilty party.
 CAVEAT EMPTOR IN INDIAN LAW

• In Indian context, the buyer may shift the responsibility to the seller
on fulfillment of the following three conditions:

(i) if the buyer shares with the seller his purpose for the purchase; (ii) the
buyer relies on the knowledge and/or technical expertise of the seller;
and (iii) the seller ordinarily sells such goods.
 CAVEAT EMPTOR IN INDIAN LAW

• However, following suit of the UK* and the USA, India has overruled
the archaic rule of ‘Caveat Emptor’ with ‘Caveat Venditor’.

• Caveat Venditor is a Latin maxim meaning 'let the seller beware'.

The maxim fosters consumer welfare by making the seller,
manufacturer, and service providers accountable for the quality of
goods produced or services offered.
 Passing of Risk

• Section 26--
“When goods are sold, they remain at the seller’s risk until the property
in the goods is transferred to the buyer. Once the property is passed, the
goods are at the buyer’s risk even if the delivery has not been made.”
 Passing of Risk

• There are some points that you need to remember about the passing of risk:

1) It holds true unless the buyer and seller have agreed to some other terms to the contrary.
2) In cases where the delivery has not been made, if the delay in delivery is due to the fault of
the seller, then the risk lies with the seller. If the delay is due to a fault of the buyer, then the
goods are at the buyer’s risk.
3) Regardless of the buyer or the seller bearing the risk, the duties and responsibilities of both of
them as a bailee of goods for the other party, remain unaffected.
 Passing of Risk

Illustration.-
Peter is auctioning his great-grandfather’s wristwatch at a function. In a true
auctioneer style, he manages to get a gavel (hammer used by auctioneers) and
sets up a table inviting bids for the antique watch. He manages to get the highest
bid of Rs 25,000.
As he strikes the gavel to signify acceptance of the bid, he accidentally damages
the watch.