Law of Sales of

Goods

Module 3

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Sale of Goods Act, 1930
…………….minor amendments in 1963
Definition
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. Sec.4(1).

A contract of sale may be absolute or

conditional.
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Essentials of contract of sale
All essentials of valid contract applicable
Between two parties
To transfer or agree to transfer the property
Price, i.e. the consideration is money.
Goods
Includes both sale & an agreement to sell
No formalities to be observed: simple offer/
acceptance by either seller or buyer;
Orally/Written, by conduct of the parties, Neither
payment nor delivery necessary at time of making
contract of sale.

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Transfer of property
Transfer of property means transfer of
ownership.
Mere transfer of possession can not be termed
as a sale.
Sec.2 (11)- ‘Property means general property in
goods and not merely a special property.’
General property means all ownership rights
and special property means limited rights.

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Transfer of property
Mere transfer of possession can not be termed as a sale.
‘Property in goods’ is different than possession
of goods.
Possession of Goods- custody over goods-
property in goods may be passed to a buyer by a
seller but the property may still be in possession
of seller either as a Unpaid seller or Bailee for
the buyer

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Who is an Unpaid Seller?
A seller of the goods is deemed to be an unpaid
seller when:

The whole of the price has not been paid or

tendered.

A bill of exchange or other negotiable instrument

has been received as conditional payment.

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 Rights of unpaid seller

Against the buyer

Against the goods
personally

Where the property Where the property

In the goods has In the goods has not
passed passed

Stoppage Withholding Stoppage in

Lien Re-Sale delivery transit
In transit

Suit for Repudiation of Suit for

damages contract interest

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 Transfer of property
 Risk passes with the property, unless otherwise agreed
by the contacting parties.
 After passing of the property the buyer can exercise the
ownership rights.
 The seller is entitled to recover the price of goods only
after the property in goods is passed to the buyer.
 In case of insolvency of any of the parties, the
ownership of goods is the key issue and not the
possession of goods.

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 Rules for passing of property.
Goods must be ascertained. Sec.18
Intention of parties:- Sec.19(1). ‘Where there is a
contract for the sale of specific or ascertained
goods, the property in them passes to the buyer
at the time when the parties intend it to pass.’
For the purpose of ascertain intentions of parties
the terms of contract and the circumstances of
the case are considered.
Where intentions can not be ascertained Secs 20
to 24 apply.
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 Specific goods secs.20 to 22
Passing of property at the time of contract:-Where
there is an unconditional contract for the sale of
specific goods in a deliverable state, the property in
goods passes to the buyer when the contract is
made, and it is immaterial whether the time of
payment of the price or time of delivery of goods,
or both, is postponed.
Where the goods are not in a deliverable state, the
property does not pass until the seller puts them in
to deliverable state.
Where the price of goods is to be ascertained by
weighing, etc. the property does not pass until such
thing is done.
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Unascertained goods.
There can be no transfer of property of
unascertained goods. Until goods are
ascertained there is only an agreement to sell.
Sec 23(1) further provides that in case of a
contract of unascertained or future goods by
description and goods of that description in a
deliverable state are unconditionally
appropriated to the contract, the property in
goods thereupon passes to the buyer.

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Essentials of valid appropriation
1. The goods should confirm the description and the
quality as per the contract.
2. The goods must be in a deliverable state.
3. The appropriation must be unconditional.
4. The appropriation must be with the ascent of buyer
and the seller.
5. The ascent may be express or implied and may be
given before or after the appropriation.

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 Goods sent on approval or ‘sale or
return’ Sec.24
 When Goods are delivered to the buyer on
approval or ‘sale or return’ or other similar terms,
the property therein passes to the buyer –
a) When he signifies his approval or acceptance to the seller
or does any other act adopting the transaction;
b) If he does not signify his approval or acceptance to the
seller but retains the goods without giving notice of
rejection, then, when a time has been fixed for the return
of the goods, on the expiration of such time, and, if no
time has been fixed, after a reasonable time.

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Sale

of title by non owners.
Sec.27 provides that where goods are sold by a
person who is not the owner thereof and who
does not sell them under the authority or with
the consent of the owner, the buyer acquires
no better title to the goods than the seller had.
This rule has certain exceptions-
Sale by mercantile agent where
 he has the possession of the goods or the
documents of the title,
 he is acting in ordinary course of business, and the
buyer has acted in good faith, believing agents
authority to sell.
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Exceptions..
Sale by a joint owner
Transfer of title by estoppel.
Estoppel means that a person who by his conduct
or words leads another to believe that certain state
of affairs existed, would be estopped from denying
later on that such a state of affairs does not exist.
Sale by a person in possession under a voidable
contract.
Sale by seller in possession after the sale.
Sale by a buyer in possession before the sale.
Resale by an unpaid seller.
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Goods

Sec.2(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 contract of
sale.’

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Kind of goods…
1. Existing goods- Sec.6(1) these are the goods which are
in existence and are physically present in the sellers
possession. They are further classified as
Specific goods- 2(14) – these are the goods identified and
agreed upon at the time the contract is made.- A radio
with specific no./make, in sellers possession who agrees
to sell it to the buyer.
Ascertained goods- these are identified after the
formation of the contract.- I will buy a radio, the make I
will decide after learning about specification
Unascertained goods- these are the goods which are not
specifically identified or agreed upon at the time of the
contract of sale.- One laptop from a lot sent to Bhopal is
decided to be bought and sold. As soon as the laptop is
identified it becomes specific good.

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Kind of goods…
 Future goods -sec.2(6)- which do not exist
with the seller at the time of sale. the contract
thus is an agreement to sell.
 All mangos from my orchard will be sold to XYZ Ltd. for
a year.
 Contingent goods sec. 6(2)– a type of future
goods, the acquisition of which depends upon
a contingency which may or may not happen
(Uncertain).
 A enters into a contract with B to sell him Car owned by
Z only after A is able to acquire the car from Z.
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Perishing of goods
 The possible causes of perishing of goods:-
1. Physical destruction of goods.
2. Damage of goods in such a manner that they
loose their commercial value.
3. Loss of goods by theft.
4. Lawful acquisition of goods by government.

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Effect of perishing of goods
 Goods perishing before formation of the contract.- in
case of specific goods such contract is void ab initio
as the performance of the contract is impossible due
to destruction of subject matter.

 Goods perishing before the sale but after the

agreement to sell.:- in case of specific goods the
contract of sale becomes void and both parties are
excused from the performance. (Sec.8)

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Effect of perishing of goods…
Effect of perishing of future goods.:- Sec.8
applies in this case also which says
 ‘where there is an agreement to sell specific
goods, and subsequently the goods without any
fault on the part of the seller or buyer perish or
become so damaged as no longer to answer to
their description in the agreement before the
risk passes to the buyer, the agreement is
thereby avoided.’
 If the contract is still made it is at the risk of the Buyer.

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Price consideration
The consideration for the contract of sale must be
money. If goods are exchanged against goods the
transaction is barter and not covered by the act.
However consideration may be partly in money and
partly in goods.

NO SPECIAL FORMALITIES ARE REQUIRED FOR

CONTRACT OF SALE. IT MAY BE IN WRITING OR
ORAL OR IMPLIED.

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Price
Sec.2(10) defines the price as ‘the money
consideration for the sale of goods.’
Price has to be in terms of money.
All monitory payments do not amount to price.

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Fixing the price
Price is mentioned in the contract.
The manner of fixing the price is mentioned in the
contract.
It is determined by the course of dealings of the
parties. when price is not fixed by any of the above
modes a ‘reasonable price’ is considered as the price
of the contract.

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Time
 When time is stipulated regarding the payment of
price:-

 When time is stipulated regarding delivery of goods:-

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Sale and Agreement to Sale
When property is transferred from seller to
buyer at the time of formation of contract, an
absolute sale occurs.
When property in the goods is to be
transferred at some future date and not at the
time of contract, the contract of sale is termed
as an agreement to sell.

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 Points of distinction- sale and agreement to
sell.
Nature of contract- Rights of seller in case of
executed / executory. breach-suit for the price of
Transfer of property- goods / Damages.
Right to resell- not available. /
immediate / future date.
may resale but liable for
Rights of buyer in case of damages.
breach-recovery of goods, Insolvency of seller- buyer can
specific performance / recover goods / if price already
Damages. paid proportionate amount can
Risk of loss- buyer’s / be recovered.
seller’s Insolvency of buyer- if price is
not paid proportionate amount
can be recovered. delivery of
goods can be demanded./
seller can refuse delivery unless
full price is paid.
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CASE STUDY Harish v Manoj
Case Summary
 Harish bought a second-hand refrigerator from
Manoj for Rs 450.
 An agreement made between them that
refrigerator should be put in order at Rs 320.
 Harish took delivery.
 Harish found it is not working properly and gave
two parts for repair to Manoj.
 The full Bill for repair has not been paid.
 Manoj claimed Lien on two parts and refuse to
return until balance is paid.
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QUESTIONS

Is Manoj right what he did?

Is the Lien justified?

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JUDGEMENT
Manoj has no right of Lien.
 His refusal to return until payment is made is not
justified.
 The contract had been fully performed.
 Once the refrigerator is handed over, the Lien had
ended.
 The contract can’t revive.

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 CASE

‘A’, a jeweler was entrusted with a diamond by ‘P’

He was asked to obtain offers for it
‘A’ was asked to sell to the offeror only after approval
of ‘P’
‘A’ sold the diamond to ‘S’ without approval of ‘P’
‘A’ absconded with the money
‘P’ sued to recover the diamond

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 JUDGEMENT
‘P’ cannot recover the diamond from ‘S’
Sale was made by ‘A’ as a mercantile agent in the
ordinary course of business.
 Section 27 of Sale of Goods Act- Sale by person not the owner
and who does not sell them under the authority or with the consent
of the owner, the buyer acquires no better title to the goods than
the seller had,
 However the EXCEPTION says that the Seller acting as Mercantile
Agent should have the possession of the good with the consent of
the owner,
 Any sale made by him, when acting in the ordinary course of
business of a mercantile agent, shall be as valid as if he were
expressly authorized by the owner of the goods to make the same

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 CASE -
Muthu Kishan v Madhavji Devi Chand, 1953 Mad. 817

‘A’ ordered a certain quantity of new red chilies

from ‘B’
Goods were dispatched from Calcutta to Cuddalore
‘A’ paid for goods on presentation of shipping
documents
Goods were cleared at Cuddalore port by A’s agents
Goods were sent on rail to Alandur
On inspection, the goods were found to be
deteriorated.
‘A’ rejected the goods but retained them as security
for price already paid.
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 JUDGEMENT

Contract was for the delivery of new

chilies
Buyer can reject the goods as it is a
breach of contract (Section 37)
The buyer cannot retain the goods

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 CASE
Aluminium Industries v. R Aluminium Ltd.
The plaintiff was a company which sold aluminium foil to
the defendant, R company.
The plaintiff had elaborate standard conditions of sale
which provided, inter alia, that the property would not pass
to the buyer until they had paid all that was owing to the
seller and till then the buyer would keep the articles
manufactured with the foil as “fiduciary owner” of the seller.
The buyer, if necessary, was to store the articles in such a
way that it could be clearly recognized as the property of the
seller till the time of payment.
The buyer eventually became insolvent owing to the seller
over Rs.10,20,000.
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JUDGEMENT
The Court of Appeal held that the property had
not passed to the buyer and he resold the goods
only as the agent of the original seller (Refer
Section 19, Section 46(1) and Section 47 (1) for
Detail).

Hence the latter were entitled to the retail price in

preference to the other creditors of the insolvent
buyer.

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CONDITIONS
AND
WARRANTIES

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CONDITIONS AND WARRANTIES

CONDITIONS: Essential (basic term of contract)

to the main purpose of the contract and a breach
of which aggrieved party can terminate the
contract.

WARRANTIES: Collateral (subsidiary to contract)

to the main purpose of the contract and a breach
of which aggrieved party can claim damages only.
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Conditions vs. Warranties 
Two cases involving opera singers show the difference
between conditions and warranties .

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In Poussard vs Spiers and Pond,
Mrs. Poussard was an opera singer. She agreed to sing
in an opera starting on 28 November.  However, she
became ill and was unable to sing until 4 December.
The opera company had to hire another singer so that
the opera could start on 28 November.
They could only get another singer if they hired her
for all the performances of the opera.
They did this and refused the services of Mrs
Poussard once she was better
Mrs. Poussard raised a court action to try to make the
company pay her
However, the court said that Mrs. Poussard breached
a condition of the contract when she was unable to
perform on 28 November
This was a basic term of the contract
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 The position was different in Bettini v Gye
Bettini was an opera singer
He agreed to sing in London in a number of theatres
beginning on 30 March
He also agreed that he would arrive in London 6 days
before the first performance in order to practice.
Bettini became ill and did not arrive in London until 3
days before the first performance
The opera company refused to allow him to sing
They said he had breached the contract
However, the court said that the part of the agreement
about practicing was a warranty not a term .
That meant it was not a basic part of the contract. It was
subsidiary part.  

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 Types of Conditions and Warranties
 EXPRESS CONDITIONS AND WARRANTIES.- which
are expressly provided in the contract and are agreed to
by the parties.
 Express conditions are usually denoted by language such as
"if", "on condition that", "provided that", "I the even that", and
"subject to" to make an event a condition.
 But usually in a dispute it is the court which decides on the
basis of interpretations of terms, surrounding circumstances,
terms of contract and intentions
whether it is a condition or warranty.

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Implied Conditions
 -which the law implies into the contract unless the
parties stipulate to the contrary.
1. Condition as to title [sec.14(a)] - seller has the right to sell.
2. Sale by description (sec.15)- goods shall correspond with
the description.
3. Condition as to quality or fitness [sec16(1)] Buyer should make
known the seller about the purpose of the goods to be used
4. Condition as to merchantability [sec.16(2)]- sale must by
description- the goods must be of certain quality it speaks by description and
must be saleable.
5. Sale by sample (sec.17) the bulk shall correspond to the sample in
quality
6. Condition as to wholesomeness- implied only in
eatables and provisions- i.e. free from any defect.

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Implied Warranties
 As to quite possession, freedom from encumbrances,
quality or fitness for a particular purpose which may be
annexed by the usage of trade, to disclose dangerous
nature of goods.
1. Warranty of quiet possession [sec.14(b)]- the buyer shall have and
enjoy quiet possession of the good- Disturbance may arise due to defective title
of the seller.
2. Warranty of freedom from encumbrances [sec.14(c)]- goods if
afterwards found to be subject to a charge and the buyer has to discharge the
same there is a breach of warranty.
3. Warranty as to quality or fitness by usage of trade [sec16(4)]
4. Warranty to disclose dangerous nature of goods- certain
necessary warning may be given about the goods to buyer if seller perceives
and knows potential dangerous event that may occur due to the use of the
said good.
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CAVEAT EMPTOR- let the buyer beware

In a contract of sale of goods the seller is under no

duty to reveal unflattering truths about the goods
sold.
Therefore, when a person buys some goods, he must
examine them thoroughly.
If the goods turn out to be defective or do not suit his
purpose, he cannot blame anybody excepting himself.

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 Difference between
Condition & Warranty
Condition Warranty
 Essential  Subsidiary
 Affects the legality of  It does not affect
contract
 May be treated as  Warranty cannot
breach of warranty become a condition
 Contract can be  At best damages are to
cancelled be paid

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Remedies for Breach of Contract
1. Seller’s Suit:
 Suit for price
 Suit for damages for non acceptance of the goods
 Suit for interest

2. Buyer’s Suit:-
 Suit for damages for non-delivery of the goods
 Suit for specific performance
 Suit for breach of warranty

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CASE
L was shopping in a self-service super market. He
picked up a bottle of soft drinks from a shelf.
While he was examining it, the bottle exploded in
his hand and injured him.
He sued the Aerated Drinks Co., which has
bottled the drink, to recover damages for breach
of condition arising from the sale of food.

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JUDGEMENT
L would not succeed.
A warranty or condition does not arise unless
there is a sale.
No sale occurs when a customer in a self-service
super market takes an article from a shelf since he
may decide not to buy and pay for it and return it
to the shelf.
As there was no sale, there was no implied
condition.

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CASE
Case Summary
 A firm of confectioners’ materials agreed to sell
condensed milk in tins to a bakery.
 The milk should be of certain standard.
 The bakery received the shipping documents and
paid the price.
 The goods which arrived is of a different trade
mark of another manufacturer.
 The tins were detained by customer authority.

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QUESTIONS

 Is the seller responsible?

 Can the buyer get back the price?

 What is the right of buyer?

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JUDGEMENT
 The seller is responsible.
 The seller has broken the implied condition
relating to title to the goods.
 The seller has no right to sell other different milk
tins.
 The buyer could claim and get back the price.
 The buyer has also the right to sue for damages.

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