BUSINESS LAW

SALE OF GOODS ACT

PRESENTATIONS 25-26-27
SPRING 2016

ASAD HASAN

Introduction
2

The law relating to sale and purchase of goods,

prior to 1930 were dealt by the Indian Contract
Act, 1872.

In

1930, Sections 76 to 123 of the Contract Act was

repealed and a separate Act known as the Sale of
Goods Act, 1930 was passed.

The

provisions of the Contract Act still apply to

contracts of sale of goods except where the Sale of
Goods Act, 1930 specifically provides for the
contrary.

Definition
3

A contract of sale of goods is a contract by which the seller

transfers or agrees to transfer the property in goods to the buyer
for a money consideration, called the price.
There may be a contract of sale between one part owner and
another.
A contract of sale may be absolute or conditional.
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.
Where under a contract of sale the transfer of the property in the
goods is to take place at a future time or subject to some condition
later to be fulfilled the contract is called an agreement to sell.
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.

Essential Features of Sale

4

Bilateral Contract

Money Consideration

Goods

Transfer of Property

Essential Elements of a Contract

Capacity to buy and sell

5

Capacity to buy and sell is regulated by the general law

concerning capacity to contract and to transfer and
acquire property.
Where necessaries are sold and delivered to a minor or
to a person who by reason of mental incapacity or
drunkenness is incompetent to contract, he must pay a
reasonable price for them.
In subsection above necessaries means goods
suitable to the condition in life of the minor or
other person concerned and to his actual requirements
at the time of the sale and delivery.

Goods
6

Goods means every kind of movable property

other than

actionable

claims and money

includes stocks 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. [Sec 2(7)]

Goods
7

(1) "Goods" means all things (including specially

manufactured goods) which are movable at the time of
identification to the contract for sale other than the money in
which the price is to be paid, investment securities (Article 8)
and things in action. "Goods" also includes the unborn young
of animals and growing crops and other identified things
attached to realty as described in the section on goods to be
severed from realty (Section 2-107).

Goods
8

(2) Goods must both exist and identified before any interest in
them can pass. Goods which are not both existing and
identified are "future" goods. A purported present sale of
future goods or of any interest therein operates as a contract to
sell.
(3) There may be a sale of a part interest in existing identified
goods.

Goods
9

(4) An undivided share in an identified bulk of fungible goods

is sufficiently identified to be sold although the quantity of the
bulk is not determined. Any agreed proportion of such a bulk
or any quantity thereof agreed upon by number, weight or
other measure may to the extent of the seller's interest in the
bulk be sold to the buyer who then becomes an owner in
common.
(5) "Lot" means a parcel or a single article which is the subject
matter of a separate sale or delivery, whether or not it is
sufficient to perform the contract.

Goods
10

(6) "Commercial unit" means such a unit of goods as by

commercial usage is a single whole for purposes of sale and
division of which materially impairs its character or value on
the market or in use. A commercial unit may be a single article
(as a machine) or a set of articles (as a suite of furniture or an
assortment of sizes) or a quantity (as a bale, gross, or carload)
or any other unit treated in use or in the relevant market as a
single whole.

Classification of Goods
11

a)

Existing goods - Goods which either owned or possessed

by the seller at the time of contract of sale.
i) Specific goods - Means goods identified and agreed upon at
the time a contract of sale is made.
ii) Ascertained goods - When, out of a mass or a lot of
unascertained goods, the quantity extracted is identified and
earmarked for a given contract.
iii) Unascertained goods: Items in a seller's inventory from
which a buyer's order will be picked (as and when it is
received) but which are not yet identified and selected for
sale.

Classification of Goods
12

b)

Future

goods

Means

goods

to

be

manufactured or produced or acquired by the seller

after making of the contract of sale.
c)

Contingent goods - The goods the acquisition of

which by the seller depends upon a contingent event
which may or may no happen.

d)

Sales Order/Invoice

Existing or future goods

13

The goods which form the subject of a contract of sale

may be either existing goods, owned or possessed by
the seller, or goods to be manufactured or acquired by
him after the making of the contract of sale, in this Act
called future goods.
There may be a contract for the sale of goods the
acquisition of which by the seller depends on a
contingency which may or may not happen.
Where by a contract of sale the seller purports to effect
a present sale of future goods, the contract operates as
an agreement to sell the goods.

Effect of Perishing of Goods [Sec 7]

14

A contract for the sale of specific goods is void if the

goods have perished at the time of contract.

Contract is void ab initio if

the goods perished

before the formation of contract.

In agreement to sell

it becomes void if

subsequently the goods have perished before the

risk passes to the buyer.

The Price
15

Price means the money consideration for a sale of goods. [Sec

2(10)]
Price can be fixed in the following ways :

by the contract or terms of agreement, or

may be determined by course of dealing between the parties.
It may be the price prevailing on a particular day, or
price to be fixed by a third party.

When price is not capable of being fixed by any of the above

modes, the buyer shall pay the seller a reasonable price.

Conditions and Warranties

16

As a general rule, a person buying something, is duty bound

to see whether that thing suits his propose.
This is called the doctrine of caveat emptor.
When a seller gives an express assurance regarding the
product, he is bound to honor that.
Law presumes that product should meet certain minimum
standards, breach of which has the same effect as the breach
of express assurances or stipulations.
Such legal presumptions are called implied conditions and
warranties.

Conditions and Warranties

17

Implied Conditions

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. [Sec
12(12)]

Implied Warranties

A

warranty is a stipulation collateral to the main

purpose of the contract, breach of which gives rise to
a claim for damages, but not a right to reject the
goods and treat the contract as repudiated. [Sec 12(3)]

Types of Implied Conditions

18

a)

Condition as to title

b)

Sale by description

c)

Sale by Sample

d)

Sale by description as well as sample

e)

Condition as to fitness or quality

f)

Condition as to Merchantability

g)

Conditions implied by trade usage

h)

Condition as to wholesomeness

i)

Marketability

Caveat Emptor
19

DEFINITION of 'Caveat Emptor' A Latin phrase for

"let the buyer beware." The term is primarily used in
real property transactions. Essentially it proclaims that
the buyer must perform their due diligence when
purchasing an item or service.
The seller is under no obligation to point out defects in
the goods.

Caveat Emptor & Exceptions [Sec16]

20

Where the seller makes a misrepresentation of fact;

where the seller actively conceals a defect in the
goods;
where goods are supplied by description and they do
not corresponds with the description;
where the goods are supplied by description and they
are not of merchantability quality;
when goods are sold by sample, and the goods do not
correspond with the sample;

Caveat Emptor & Exceptions

21

when the goods are sold by sample as well as

description, and the bulk of the goods do not
match either the sample or description, or both;
where the buyer relies upon the skill and judgment
of the seller;
where trade usages or customs implies some
condition or warranty and the seller deviates from
that.

Implied Warranties
22

Warranties as to Quiet Possession.

Warranties as to free from encumbrance.

Warranty as to disclosure of dangerous nature of

the goods.

Warranty implied by customs.

Conditions reduced to Warranty.

Waiver by Buyer.

Acceptance of the goods by the buyer.

Passing of property
23

Passing of property means passing of title and

ownership of the goods from seller to the buyer.
Passing of property is independent of passing of
possession. Property may pass to the buyer at any time
after or at the time of execution of the contract but
the possession in actual sense may never come with
the buyer, if according to the contract the goods are
transshipped to another destination in the same
transit

Passing of property
24

Passing of risk means passing of liability of loss and damage of

goods from seller to the buyer, irrespective of the fact whether
the title has yet passed or not.
Section 26 of the Act provides that the risk prima facia passes
with the property.
It is a general rule which is subject to exceptions, which can be
created through the agreement between the parties.
In a sales transaction where delivery of the goods is delayed
due to the fault of either party the risk of loss and damage,
which may occur due to that fault, is upon the faulting party.

Passing of Property
25

Transfer of property in the goods to the buyer is the

main object .
The significance of transfer of property is that risk
travels with property.
After the formation of the contract but before the
delivery of goods the questions regarding the rights
and obligation are very crucial in the wake of risk of
loss being associated with property.

Effect of Passing of Property

26

1. Risk Travels with Property

2. Action against third parties
3. Insolvency of seller or buyer
4.Seller's right for price

Rules regarding Passing of property

27

Goods must be specific or ascertained.

Property passes when intended to pass.

Sale of Specific Goods

a) Passing of property at the time of contract.
b) Goods to be put in deliverable state.
c) Goods to be weighed
ascertaining their price.
d) Sale on approval.

or

measured

for

Delivery to carrier
28

(1) Where in pursuance of a contract of

sale the seller is authorized or required to send
the goods to the buyer, delivery of the goods to a
carrier, whether named by the buyer or not, for
the purpose of transmission to the buyer, is prima
facie deemed to be a delivery of the goods to
the buyer.

Delivery to carrier
29

(2) Unless otherwise authorized by the buyer,

the seller must make such contract with the
carrier on behalf of the buyer as may be
reasonable, having regard to the nature of
the goods and the other circumstances of the
case. If the seller omits so to do, and the goods are
lost or damaged in course of transit,
the buyer may decline to treat the delivery to the
carrier as a delivery to the buyer, or may hold
the seller responsible in damages.

30

Delivery to carrier
31

(3) Unless otherwise agreed, where goods are sent

by the seller to the buyer by a route involving sea
transit under circumstances in which it is usual to
insure, the seller must give such notice to
the buyer as may enable the buyer to insure them
during their sea transit, and if the seller fails to do
so, the goods shall be deemed to be at the sellers
risk during such sea transit.

Delivery to carrier
32

Transfer of personal property by one party (the bailor) in

the possession, but not ownership, of another party
(the bailee) for a particular purpose. Such transfer is made
under an express or implied contract (called bailment contract
or contract of bailment) that the property will be redelivered
to the bailor on completion of that purpose, provided the
bailee has no lien on the goods (such as for non-payment of its
charges). The bailee is under an obligation to take reasonable
care of the property placed under its possession. Bailment
contracts are a common occurrence in everyday life: giving
clothes to a launderer, leaving car with an auto mechanic,
handing over cash or other valuable to a bank, etc.

Reservation of right of disposal

33

The seller may reserve the right of disposal until

certain conditions are fulfilled. For example
Where buyer is to pay for the goods before delivery,

Where by the BoL or R/R, the goods are deliverable to
the order of the seller or his agent,

Where the seller draws a BoE and send the same along
with the BoL or R/R to secure buyer's acceptance or
payment.

The property in the goods does not pass to the buyer

until the conditions are fulfilled.

Transfer of Title
34

The principle of Nemo dat quod non habet

Exceptions
Transfer of

title by Estoppel.

Sale by Mercantile Agent.

Sale by joint owner.

Sale by person in possession under voidable
contract.

Seller in possession after sale.

Buyer in possession before sale.

Resale by an Unpaid Seller.

Other Exceptions
35

Finder of lost goods can convey a better title under

certain circumstances.
Pawnee or pledgee of goods can transfer a better
title under certain circumstances.
Sale by Official Receiver or Assignee in case of
insolvency can transfer a better title in spite of not
being owner of the goods.
A holder in due course gets better title of a
negotiable instrument than the transferor.

Performance of Contract
36

It is the duty of the seller to deliver the goods and of the

buyer to accept and pay for them. [Sec 31]
Unless otherwise agreed, delivery of the goods and payment
of the price are concurrent conditions. [Sec 32]
Delivery may be made by doing anything that shall be
treated as delivery, or
which has the effect of putting the goods in the possession
of the buyer, or
of any person authorized to hold them on his behalf. [Sec
33]

Modes of Delivery
37

a)

Actual Delivery

b)
Constructive Delivery: a delivery not
accompanied by an actual transfer of possession of
the property delivered yet recognized as having
been intended by the parties and as sufficient in law
(as where one sells to another and agrees to hold the
goods as agent for the buyer or where one delivers
the documentary evidence of title to another).

Modes of Delivery
38

b)

Constructive Delivery

Constructive delivery may take place in either of the

three ways i)

seller in possession of goods after sale agrees to

hold them on behalf of the buyer; or

ii)
buyer is in possession of the goods and the seller
agrees to his holding the goods as owner; or

Modes of Delivery
39

iii) a third person in possession of goods

acknowledges to the buyer that he is holding them
on his behalf.
c)

Symbolic Delivery: The constructive conveyance

of the subject matter of a gift or sale, when it is
either inaccessible or cumbersome, through the
offering of some substitute article that indicates the
donative intent of the donor or seller and is accepted
as the representative of the original item.

Part Delivery
40

A delivery of part of goods, in progress of the

delivery of the whole, has the same effect, as a
delivery of the whole;

but a delivery of part of the goods, with an

intention of severing it from the whole does not
operate as a delivery of the remainder. [Sec 34]

Duty of buyer to apply for

delivery
41

In the absence of any express contract, the seller of

goods is not bound to deliver them unless the buyer
applies for delivery. [Section 35]
Even when the goods are to be acquired by the seller,
and when they are acquired, and the seller notifies
the buyer that the goods are in his possession, the
buyer must apply for the delivery.
The buyer has no cause of action against the seller if
he does not apply for delivery, unless otherwise
agreed.

Place of Delivery
42

The place of delivery of goods may be specified in the

contract itself.
Where no place is specified in the contract, the foll. shall
apply
a) in case of sale, goods sold are to be delivered at the place at which
they are at the time of sale,
b)in case of an agreement to sale, goods are to be delivered at the
place at which they are at the time of the agreement to sell,
c) if at the time of agreement to sell the goods are not in existence,
they are to be delivered at the place where they are manufactured
or produced.

Other conditions
43

Where the goods are in the possession of a third

person, there is no delivery by seller to buyer until
such person acknowledges to the buyer that he holds
the goods on his behalf.

Unless otherwise agreed, the expenses of and

incidental to putting the goods into a deliverable
state shall be borne by the seller.

44

Compromise is the best and cheapest

lawyer.

Delivery in wrong quantity [Sec 37]

45

Short delivery

Excess delivery

Delivery of mixed goods

Installment deliveries

Delivery of wrong quantity or mixed goods

46

(1) Where the seller delivers to the buyer a quantity

of goods less than the seller contracted to sell, the buyer may
reject them, but if the buyer accepts the goods so delivered
the buyer must pay for them at the contract rate.
(2) Where the seller delivers to the buyer a quantity
of goods larger than the seller contracted to sell,
the buyer may accept the goods included in the contract and
reject the rest, or the buyer may reject the whole. If
the buyer accepts the whole of the goods so delivered
the buyer must pay for them at the contract rate.

Delivery of wrong quantity or mixed goods

47

(3)
Where
the
seller
delivers
to
the buyer the goods the seller contracted to sell mixed
with goods of a different description not included in the
contract, the buyer may accept the goods which are in
accordance with the contract and reject the rest, or
the buyer may reject the whole.
(4)
The provisions of this section are subject to any usage
of trade, special agreement, or course of dealing between the
parties.

Delivery to Carrier/Wharfinger
48

Delivery of the goods to a carrier or to a wharfinger

(an owner or keeper of a wharf ) is deemed to be a
delivery to buyer.
The seller shall make such contract with the carrier
or wharfinger on buyer's behalf as may be
reasonable having regard to the nature of goods and
other circumstances.

Delivery to Carrier/Wharfinger
49

If the seller omit to do so, and the goods are lost or

damaged, the buyer may decline the delivery to
himself.
Where goods are sent by sea, the seller shall give
notice to the buyer to enable him to insure them, if
he fails to do so, the goods shall be deemed to be at
his risk.

Duties of the buyer

50

Duty to accept the goods and pay for them in exchange of

possession.
Duty to apply for delivery of goods.
Duty to demand delivery at a reasonable hour.
Duty to accept installment delivery and pay for it.
Duty to take risk of deterioration in the course of transit.
Duty to intimate the seller where he rejects the goods.
Duty to take delivery.
Duty to pay the price.
Duty to pay damages for non-acceptance.

Unpaid Seller
51

The seller of goods is deemed to be an "unpaid"

seller

when the whole of the price has not been paid or

tendered; or

when a bill of exchange or other negotiable instruments

has been received as conditional payment,

the conditions has not been fulfilled by reason of the

dishonor of the instrument or otherwise. [Sec 45(1)]

Rights of Unpaid Seller

52

Notwithstanding that the property in the goods may

have passed to the buyer, the unpaid seller, has, by
implication of lawa) a lien on the goods for price while he is in possession
of them;
b) in case of insolvency of the buyer a right of stopping
the goods in transit; and
c) a right of resale. [Sec 45(1)]

Rights against goods

53

1. Unpaid Seller's Lien [Sec 47]

a)
where the goods have been sold without stipulation as to
credit; or
b)
where the goods have been sold on credit, but terms of
credit has expired; or
c)
where the buyer becomes insolvent.

The right of lien exists only for the price of the goods.

Where part delivery of the goods has been made, he may
exercise his right of lien on the remainder.

Termination of lien [Section 49]

54

When he delivers the goods to a carrier or other

bailee for transmission to the buyer without
reserving the right of disposal;

when the buyer or his agent lawfully obtain

possession of the goods; and

by waiver thereof.

Right of Stoppage in Transit

55

Delivery to buyer

Goods are deemed to be in course of transit from
the time when they are delivered to a carrier or a
bailee, until the buyer or his agent takes delivery.

The transit ends when the buyer or his agent takes

delivery of the goods from the carrier before their
arrival at the appointed destination.

Right of Stoppage in Transit

56

Acknowledgement to buyer

When the goods have arrived at their destination
and the carrier acknowledges to the buyer or his
agent that he is now holding the goods on his
behalf, the transit is at the end.

Other conditionalities
57

Rejection by buyer

If the goods are rejected by the buyer, and the carrier or other
bailee continues in possession of them, the transit is not at
an end.
Wrongful refusal to deliver

Where the carrier wrongfully refuses to deliver the goods to
the buyer or his agent, the transit is at an end.
Part delivery

Where the goods have been delivered in part, the seller may
stop the remainder of the goods, unless the part delivery
shows an agreement to give up the possession of the whole.

When transit comes to an end

58

When the buyer or his agent takes delivery of the goods from
the carrier before their arrival at the destination.
When the goods have arrived at their destination and the
carrier acknowledges to buyer or his agent.
Where the goods are delivered to a ship chartered by the
buyer, the carrier is the agent of the buyer.
Where the carrier wrongfully refuses to deliver the goods to
the buyer or his agent.

Right of resale [Sec 54]

59

A contract of sale is not rescinded by mere exercise of right of

lien or stoppage in transit.
Where the unpaid seller gives notice to the buyer of his
intention to resell, he may resell the goods and recovers from
the buyer damages for any loss.
If no notice is given, the unpaid seller is not entitled to
recover damages and the buyer shall be entitled to the profit.
Where the seller reserves a right of resale and sells the goods,
the original contract is thereby rescinded, but without
prejudice to any claim by the seller.

Seller's remedies against Buyer

60

Suit for price.

Damages for non-acceptance.
Damages are assessed as follows:
Where the goods have a ready market, the buyer has
to pay the loss that the seller has sustained on
reselling the goods.

Seller's remedies against Buyer

61

If the seller does not resell the goods, the difference

between the contract and market price on the day of
breach is the measure of damages.
Where the goods are deliverable by installments, the
difference in prices is to be reckoned on the day that
a particular installment was to be delivered.

Buyer's Remedies against Seller

62

1.

Damages for non-delivery.

2.

Remedy for breach of warranty.

3.

Specific Performance.

4.

Anticipatory breach.

5.

Recovery of interest.

Auction Sales [Sec 64]

63

An auction sale is complete when the auctioneer

announces its completion by the fall of the hammer.
The bidder can withdraw before the acceptance of
his bid and his security amount cannot be forfeited.
The law does not prevent the seller from bidding
provided he expressly reserve the right to bid.

Auction Sales [Sec 64]

64

If the seller appoint a puffers (persons who make

bids in order to prompt bidding at higher prices),
the sale is voidable at the option of the buyer.
Auction subject to a reserve or upset price means a
price below which the auctioneer will not sell.

Knock out Agreement

65

An agreement among bidders not to bid against

each other.
It is a combination to prevent competition inter se.
An arrangement that only one of them will bid and
dispose of anything so obtained privately among
themselves.
Not illegal per se but if the intention is to defraud a
third party then knock out is illegal.

Damping
66

An unlawful act discouraging the intending

purchaser from bidding
by pointing out defects in the goods in the
auction sale; or
by taking away the intending purchaser from the
place of auction by some other method.
Damping is illegal and the auctioneer is entitled
to withdraw the goods from the auction.

Question
67

Sharif wanted to buy a gift for his wife Anum on her birthday.
He visited XYZ Electronics, who deal in all sort of kitchen
appliances. Sharif asked the salesman to show him a toaster.
The salesman showed him several models and said the store
did not have a policy of returns, but they seldom had any
complaints. Sharif bought one model for Rs. 1650.
After using it for one week, the toaster became overheated and
got burst injuring Anum.
State, giving reasons, the remedies available to Sharif in the
above circumstances under the provisions of the Sale of Goods
Act, 1930.

68