Business Law

MGT: 204
POONAM SHREE ADHIKARI
 UNIT 4
CONTRACT OF SALE OF GOODS
Meaning
Sale of goods is the fusion of two term ‘sale’ and ‘goods’.
Therefore it is very important to understand these two terms
separately first. The term goods generally means movable
property. Goods include every kind of movable property other
than money and actionable claims. Accordingly the term
movable goods refers to those property which are not
attached to the earth or which cannot be separated from the
earth. Likewise term actionable claims refers to such a debt or
claim for money, which can be recovered only by means of
suit or by an action in the court of law. And the term sale
means selling of thing of any kind for price.
 Contract of Sale of Goods
The term contract of sale of goods is a contract under
which one party transfers or agrees to transfer his/her
goods for a price and other agrees to pay or pays price
for same goods. Thus a contract to sale and purchase of
goods for price, made between two person- buyer and
seller is called a contract of sale of goods.
According to Indian Sale of Goods Act 1930 Sec 4
(1) “A contract of sale of goods is a contract whereby
the seller transfer the property in goods to the buyer
for a price”.
 Contract of Sale of Goods

According to Contract Act 2056 Sec 40 (1) “A contract

of sale of goods is deemed to have been conducted if
an seller agrees to handover the goods to the buyer
either immediately or in the future for a price”.
On the basic of these definition, it is clear that contract of
sale of goods, like any other contract result by an offer
made by one party and its acceptance by the other. Thus,
being a general type of contract, the contract of sale of
goods may be either absolute or conditional, which
depends upon the will of the seller and buyer.
 Contract of Sale of Goods

Feature /characteristics/ essential

element of contract of sale of goods
a.Two Parties - The primary characteristics of contract of
sale is two parties seller and buyer, Because a person
cannot buy his own goods. So there should be two
different parties who agrees with free consent.
b.Transfer of Ownership - For the sale of goods, the
ownership should be transferred. Only transfer of
possession cannot be termed as transfer of ownership.
There should be actual transfer or agreement to
transfer the goods to the buyer so as to constitute a
contract of sale.
 Contract of Sale of Goods
c.Goods- Goods means every kind of movable property other
than money and actionable claims such as bill of exchange,
promissory notes as well as stock and shares, crops, goodwill,
patent, trademark, copy right etc.
d.Price – The price performs the role of consideration in the
sale of goods. It is managed in the money. The exchange of
goods for other goods cannot be governed by the sale of good.
But if an exchange is made for goods and partly for money, the
contract is one of sale.
e.A sale and an agreement to sell – A contract of sale of goods
includes immediate and actual sale as well as agreement to
sale. Under contract to sale, the property is goods i.e. the
ownership is transferred immediately. And when the sales
occurs after some event or subject to some
 Contract of Sale of Goods
condition after to be fulfilled the contract is called
agreement to sell.
f.Verbal or written contract – The contract of sale of
goods may be either express or implied. No standard
form of contract of sale of goods is designed. Therefore
it can be prepared in writing by applying any
appropriate design of contract or by spoken words by
the conduct of the parties.
 Contract of Sale of Goods

Types of Goods
a.Existing Goods- Existing goods means goods either
owned or possessed by a person while making a
contract of sale. Existing goods are those which are
physically present in some person’s possession and or
ownership. This kind of goods is again subdivided into
the following :
 Specific or ascertained goods
 Generic or unascertained goods
b.Future Goods- Future goods are those goods which are
to be made or bought into existence after the
formulation of the contract of sale of goods. Thus, the
 Contract of Sale of Goods

goods which does not exist at the time of forming

contract is called the future goods.
c.Contingent Goods – This is one of the form of future
goods. Here also parties agrees to buy and sale goods
in future time and the goods are delivered in the day
ahead. Thus, goods comes into existence under the
contract only after meeting particular event of future.
So it can be defined as the goods that come into effect
in a future time following the certain contingent.
 Contract of Sale of Goods

CONDITION
A condition is the major term of the contract of sale of
goods. It is a kind of term or stipulation or a thing said
in respect of sale of goods. It relates with the main
purpose of the contract of sale of goods.
A condition has not been defined in the contract Act
2056. In this respect, the definition by the Indian Sale
of goods Act 1930 has to be adopted. Section 12(2)
of the act has defined the term as “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”.
 Contract of Sale of Goods
The definition reveals that a condition is a contract of
sale is a stipulation of primary nature. Thus, such a
stipulation of primary nature. Thus, such a stipulation
or term which remains essential for obtaining the main
purpose of such contract. In case of non fulfillment , the
contract is assumed to be breached. Every Contract of
Sale contains the express or implied condition either
party has not to break it. If either party breaks such
condition, other party can rescind the contract and
claim compensation as well from the other for any loss
suffered by him/her. Therefore, when the condition is
broken, the contract is terminated.
 Contract of Sale of Goods

WARRANTY
A warranty is a kind of stipulation or term which is
secondary to the main purpose of the contract. This
stipulation is to support the main purpose of the
contract.
The Contract Act 2056 is silent even about the term
‘warranty’ But the Indian Sale of Good Act 1930 has
defined the term clearly. According to Section 12(3)
of the Act “A warranty is a stipulation collateral to the
main purpose of the contract the breach of which gives
rise to a right to claim for damages but not a right to
reject the good and treat the contract as repudiated”.
 Contract of Sale of Goods
From the above definition, it is clear that a warranty is
also a term, but not a major component. It is only a
secondary component, despite the fact that it is
necessary for the performance of the contract. Every
contract of sale contains warranty whether it is
expressed or implied. In case of breach of warranty,
the aggrieved party is entitled to claim damages from
the other party for any loss faced by him, but he/she
cannot return the goods or cancel the contract.
 Contract of Sale of Goods
Difference between Condition and Warranty
Basic of Condition Warranty
Difference

Essential Vs Condition is essential to the It is a term which is not

Collateral main purpose of the contract. subsiding or collateral to the
The contract cannot be main purpose of the contract.
performed without prior The prior fulfillment of which
fulfillment of the condition. is not compulsory.

Right of In case of breach of condition In case of breach of warranty,

Aggrieved party the aggrieved party is entitled the aggrieved party is entitled
to repudiate the contract and to claim damage only.
to claim for damage.

Performance of In case of breach of condition In case of breach of warranty,

Contract the aggrieved party is not the aggrieved party is entitled
bound to perform the to claim damages only.
contract

Basic of Condition
Difference
Transfer of In case of non-fulfillment of
ownership condition, property in goods
(ownership) does not get
transferred to the buyer.
Liability Under condition, the party ha s
much liability to fulfill it.
Contract of Sale of Goods
Warranty
In case of repudiation of
warranty the property in goods
gets transferred to the buyer.
Under warranty the party has
less liability to fulfill it.
 Contract of Sale of Goods
Difference between sale & agreement to sell
Basic of Sale Agreement to sale
Difference
Transfer of Transfer of ownership of Transfer of ownership takes
Ownership goods takes place place at a future time or
immediately. subject to fulfillment of some
condition .

Executed Vs It is executed contract It is an executory contract

Executory because nothing remains to because something remains to
Contract be done. be done.

Conveyance of Buyer gets a right to enjoy
Property the goods against the whole
world, including seller.
Therefore a sale creates
right against property.
Buyer does not get such right
to enjoy the goods. It only
creates right against the
person.
 Contract of Sale of Goods
Basic of Sale Agreement to sale
Difference
Transfer of Transfer of risk of loss of Transfer of risk of loss of goods
Risk goods takes place does not takes place because
immediately because ownership is not transferred. As
ownership is transferred a result, in case of destruction of
immediately. As a result, in goods, the loss shall be borne by
case of destruction of goods, the seller even though the goods
the loss shall be borne by the are in the possession of the
buyer. buyer.
Right of seller Seller can sue the buyer for Seller can sue the buyer for
against the the price even though the damages even though the goods
buyer’s breach goods are in his possession. are in the posession of the buyer.

Rights of the Buyer can sue the seller for Buyer can sue the seller for
buyer against damages and can sue the damages only.
the seller’s third party who bought
breach those goods.
 Contract of Sale of Goods
Basic of Sale Agreement of Sale
Difference
Effect of Buyer can claim the goods Buyer cannot claim the goods
Insolvency of from the official receiver or even when he has paid the price
Seller having assignee because the because the ownership has not
Possession of ownership of goods has been transferred to the buyer.
Goods transferred to the buyer. The buyer who has paid the price
can only claim ratable dividend.

Effect of Seller must deliver the goods Seller can refuse to deliver the
Insolvency of to the official receiver or goods unless he/she is paid full
the Buyer assignee because the price of the goods because the
before Paying ownership of goods has ownership has not been
the Price. transferred to the buyer. He transferred to the buyer.
can only claim ratable
dividend for the unpaid price.
 Contract of Sale of Goods
CAVEAT EMPTOR
The term ‘caveat emptor’ means let the buyer beware.
The doctrine of caveat emptor has been given in the
first paragraph of Section 16 which reads as “ Subject
to the provision of act and 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”.
In other words, it is not part of the seller’s duty to point
out defect of the goods which has been offered for sale,
rather it is the duty of the buyer to satisfy himself
about the quality as well as the suitability of the goods.
 Contract of Sale of Goods
For example:- Pigs were sold subject to all faults and the seller
knew that the pigs were suffering from swine- fever but he
did not inform the buyer about this defect. The seller was not
liable for damages because there was no implied warranty.
EXCEPTION
The doctrine of caveat emptor is subject to the following
exception:-
a.In case of misrepresentation-Where the seller makes
misrepresentation and the buyer buys believing the
misrepresentation to be true.
b.In case of concealment of Latent Defect- Where the seller
knowingly conceals a defect which would not be discovered
on a reasonable examination.
 Contract of Sale of Goods
c.In case of sale by description- Where the goods are sold by
description and the goods supplied by the seller does not
correspond to the description.
d.In case of sale by sample- Where the goods are sold by
sample and the goods supplied by the seller does not
correspond with the sample.
e.In case of sale by description and sample- Where the
goods are sold by description and by sample and the goods
supplied by the seller does not correspond to the description
and sample both.
f.Fitness for a particular purpose- Where the seller or a
manufacturer is a dealer of a type of goods sold by him and
the buyer has disclosed the purpose for which goods are
require and relied upon the seller’s skill or judgment.
 Contract of Sale of Goods
g.Merchantable Quality- Where the goods are bought by
description from a seller who deals in goods of that
description(whether he is the manufacturer or producer or
not), there is an implied condition that goods shall be of
merchantable quality.
 Contract of Sale of Goods
TRANSFER OF OWNERSHIP
One of the fundamental characteristics of the contract of
sale is transfer of ownership. The primary purpose of sale
is to transfer ownership by the seller to the buyer. The
ownership gets transferred or passed from the seller to
the buyer as soon as the seller sells his goods to the
buyer. Actually the contract of sale will not be regarded
as performed unless and until the ownership passes to
the buyer even though the goods have been delivered to
him. The property must be distinguished from
possession because property implies ownership to the
buyer and not possession. The possession is a question
of fact. It refers to the physical custody over the goods.
 Contract of Sale of Goods
For instant an agent entrusted with goods has
possession of the goods but is not having ownership of
goods. The agent is having possession of goods but is
not the owner of the goods.
Similarly, at the time of passing of property or transfer
of ownership the risk of the property also passes from
the seller to the buyer. The risk means the liability to
bear the loss if the goods are lost or damaged. The
goods subject to certain exception remains at the
seller’s risk unless and until the ownership is
transferred to the buyer whether delivery has been
made or not.
 Contract of Sale of Goods
Rules Regarding Transfer of Ownership
a.Where the goods is unascertained- Where there is a contract
for a sale of unascertained goods, no property in the goods is
transferred to the buyer unless the goods are ascertained.
b.Where the goods is ascertained goods – Where there is a
contract for the sale of ascertained goods the property in them
passes to the buyer at the time when the parties intend it to pass
and if no intention expressed in the contract, it shall be in
accordance with the condition of the contract, the conduct of the
parties and their intention expresses through the concerned
circumstances.
c.Contract for ascertained goods with expression as to
passing the property-Where there is a contract for the sale of
specific goods but no such intention expressed in expressed in
 Contract of Sale of Goods
The contract as to the passing of property, the property in such goods
passed under the following rules:-
 Passing of property at the time of contract- When there is a
unconditional contract for the sale of specific goods in a deliverable
state, the property in such goods passes to the buyer immediately
when a contract is made. The payment and delivery is not essential.
 Passing of property in goods after the date of contract- Where
there is a contract for specific goods not in deliverable state, the
property does not pass until the seller put them into deliverable state.
 Where the price of goods is to be ascertained by weighting,
measuring, printing, etc- Where there is a contract for the sale of
specific goods in a deliverable state but the seller is bound to weight,
measure test or do something to ascertain the price the property in
goods passes when the sellers completes the remaining work and
informs the buyer.
 Contract of Sale of Goods
d.Contract of future goods – Where there is a contract for
future goods, the property passes from the seller to buyer
when the future goods is made and informed the same to
the buyer.
e.Contract for contingent goods – Where there is a
contract for contingent goods, the property in such goods
passes to the buyer only after happening or non-happening
of the future specified in the contract.
f.Goods sold on sale or return – Where goods are delivered
to the buyer on approval or on sale or return, the property
therein passes to the buyer when he signifies his approval
or acceptance to the seller, or when he does other act
adopting the transaction.
 Contract of Sale of Goods
TRANSFER OF OWNERSHIP BY NON-OWNER
Exceptional rule to the transfer of ownership are:-
a.Sale by a mercantile agent- A mercantile agent who has
the authority either to sale goods or to consign goods for the
purpose of sale or to buy goods or to raise money on the
security of goods, can transfer the title.
b.Sale by one of the joint owner – If the goods belong to
more than one owner, co-owner can give a valid title to the
buyer. However for that following condition has to be
fulfilled:-
• The joint must have possession of the goods.
• The buyer must have bought the goods with good faith.
 Contract of Sale of Goods
c.Sale by person in possession of goods under voidable
contract- A person who has obtained possession of goods
under a contract voidable can give a valid title to the buyer
before such a contract is rescinded.
d.Sale by seller in possession of goods after sales –
Although the ownership of the goods passes to the buyer as
soon as goods are bought, if they are in seller’s possession
and he sells then to the buyer, he gets a good title.
e.Sale by a buyer in possession of goods before sale- After
making agreement to goods possessed with the consent of
the seller, generally cannot be sold because the ownership
remains with the seller till the goods are sold however the
new buyer must have bought the goods in good faith.
 Contract of Sale of Goods
f.Sale by unpaid seller- If the goods are resold by an
unpaid seller the buyer gets a good title over the goods.
g.Sale by a finder of lost goods – Another important
exception to the general rule is that a finder of lost
goods can also transfer a valid title to the buyer.
However, following condition need to be fulfilled:-
• The owner cannot be found out with reasonable
diligence.
• The owner, if found refuses to pay the lawful charge.
• If the goods are of perishable nature.
• If the lawful charge of the finder in respect of thing
found amounts two-third of its value.
 Contract of Sale of Goods
h.Sale by pledgee – In case of failure of repaying the
debt or performing the promise by the pledgor the
pledgee can sell the goods but pledgee must have given
reasonable notice to the pledgor.
i.Sale by a official assignee/receiver – An official
receiver or liquidator is not the true owner of the
goods but can also sale the goods of the insolvent
person or company.
 Contract of Sale of Goods
UNPAID SELLER
Meaning- The act of getting the value of goods hand to
hand is not always possible in the mercantile
transaction. Under cash sale payment is made
immediately after the purchase of the goods and mo
question as to unpaid seller arises in case of payment
made by cash fully. But this question arises in case of
payment made by cheque and when the cheque gets
dishonored by bank. A seller becomes unpaid seller
when he fails to get the whole payment from the buyer
on time or when the bank dishonors the negotiable
instrument received by him for payment.
 Contract of Sale of Goods
According to Indian Sale of Goods Act 1930 Sec 45 (1)
“The seller is deemed to be an unpaid seller (a) when the
whole of the price has not been paid for or rendered or (b)
when a conditional payment was made by bill of exchange
or other negotiable instrument and instrument has been
dishonored”
Rights of Unpaid Seller
1.Right against the buyer personally:-
a.Right to suit for price.
b.Right to suit for damages of non-acceptance
c.Right to suit for damage in case of repudiation
d.Right to suit for interest
 Contract of Sale of Goods
2.Right against the goods:-
a.Right to lien- Lien is a kind of right which the unpaid
seller exercises to retain the possession of goods until the
full price is received. But he may exercise this right only in
the fulfillment of any the following cases:-
• Where the goods are sold for cash but no payment is yet
received from the buyer.
• Where the goods have been sold on credit but the term of
credit has expired.
• Where the buyer becomes insolvent.
b.Right to stoppage in transit- Another right, which is
available to an unpaid seller is right of stoppage of goods in
transit. According to Indian Sale of Goods Act Sec 50 the
 Contract of Sale of Goods
unpaid seller can enjoy this right only if following
conditions are satisfied:-
• The seller must be unpaid
• The seller must have the possession of goods
• The buyer must be insolvent
• The goods must be in course of transit
c.Right to resale- The third right of unpaid seller is the
right to resale the goods sold before. It means to resell
the goods, which has already been sold. The right of
resale is one of the most important right of the unpaid
seller because the former right are meaningless in
the absence of this right.
 Contract of Sale of Goods
According to Sec 54 of Indian Sale of Goods Act 1930
the unpaid seller has a right to resale the goods
retained or stopped in transit in following cases:-
• If the goods are of perishable nature, the unpaidseller
can sell the goods without any notice to the buyer.
• If the right is expressly reserved in the contract in favor
of the seller.
• If during exercise of right of lien or right of stoppage in
transit the given notice to the buyer of his intention to
resell but the buyer fails to pay the price within
reasonable time.