Sale of Goods Act

Sale of Goods Act

• A dentist makes a set of false teeth for his patient
with material wholly found by the dentist and the
buyers agrees to pay Rs. 2000 when they are
properly fitted into his mouth.

• A customer gives his tailor a length of suiting and

requires him to make a suit for him, the lining
materials and the buttons to be supplied by the
tailor.

• A dealer in bicycles gives a ‘Hercules’ bicycle to a

customer on the term that Rs. 100 should be paid by
him then and there and balance Rs. 375 in five equal
monthly installments.
• A agrees to sell to B his two second-hand cars on the terms
that the price was to be fixed by C. B takes delivery of one car
immediately. C, however refuse to fix the price. A asks for the
return of the car already delivered whereas B insists on the
delivery of the second car to him for a reasonable price of
both the car. Decide?

• A sold 100 quintals of groundnut oil to B. Before it could be

delivered to B, the Government of India requisitioned the
whole quantity laying with A in public interest. B wants to sue
A for breach of contract. Advise B

• A hirer, who obtains possession of a refrigerator from its

owner under a hire-purchase agreement, sells the refrigerator
to a buyer who buys in a good faith and without notice of the
right of the owner. Does this buyer get a good title to the
refrigerator
 Contract of Sales
• 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)
• 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, 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
• 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 contract of sales
• Two parties
• Goods
• Price
• Transfer of general property
• Essential elements of a valid contract
 Essential Elements of Valid Contract
• Offer and Acceptance
• Intention to create legal relationship
• Lawful consideration
• Capacity of parties – competency (Minor, Drunk, Lunacy)
• Free and genuine consent (undue influence, coercion)
• Lawful object (not illegal, immoral, opposed to public policy)
• Agreement not declared void (not against public policy)
• Certainty and possibility of performance
• Legal formalities
 Contract of Sale how made
• A contract of sale is made by an offer to buy or
sell goods for a price and the acceptance of such
offer. The contract may provide for the
immediate delivery of the goods or immediate
payment of the price or both, or for the delivery
or payment by installments, or that the delivery
or payment or both shall be postponed.
• Subject to the provisions of any law for the time
being in force, a contract of sale may be made in
writing or by word of mouth, or partly in writing
and partly by word of mouth or may be implied
from the conduct of the parties.
 Understand the Difference
• Sale of Goods Act V/s Contract Act
• Sale V/s Agreement to Sales
• Sale V/s Bailment
• Sale V/s Pledge
• Sale V/s Hire purchase
• Sale and contract for work & material
• Sale and barter
• Sale and Lease
• Sale and gift
• Sale and mortgage & hypothecation
 Agreement to Sell
• Where under a contract of sale the property in
the goods in 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.
• 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.
 Sales and agreement to sell- distinction
Sale Agreement to Sell
A sale is an executed contract It is an executory contract
Since the ownership has passed to the buyer, the In case of breach, the seller can only sue for
seller can sue the buyer for the price of the goods, damages, unless the price was payable at a stated
if the latter makes a default in payment date
It creates a right in rem, i.e., against the whole It creates a right in personam, i.e., against
world specified person only
In case of loss of goods, the loss will fall on the In case of loss, it shall be born by the seller, even
buyer, even through the goods are in the though the goods are in the possession of the
possession of the seller. It is because the risk is buyer
associated with ownership
In case, the buyer pays the price and the seller In this case, the buyer cannot claim the goods but
thereafter becomes insolvent, the buyer can claim only rateable dividend for the money paid
the goods from the official receiver or assignee, as
the case may be
If the buyer become insolvent without paying the Under this, the seller can refuse to deliver the
price, the ownership having passed to the buyer, goods to the official receiver or assignee as the
the seller shall have to deliver the goods to the case may be
official receiver or assignee, as the case may be,
except where he has a lien over the goods
 Contract of Bailment
• Bailment is defined as the “delivery of goods
by one to another person for some purpose,
upon a contract that they shall, when the
purpose is accomplished, be returned or
otherwise disposed of according to the
directions of person delivering them.
• The person delivering the goods is called the
‘bailor’ and the person to whom the goods are
delivered is called the ‘bailee’
 Illustrations of Bailment Contract
1. A deliver some clothes to B, a dry cleaner, for
dry cleaning
2. A delivers a wrist watch to B for repairs
3. A lends his books to B for reading
4. A delivers a suit-length to tailor for stitching
5. A delivers some gold biscuits to B, a jeweler, for
making jewelry
6. Delivery of goods to a carrier for the purpose of
carrying them from one place to another
7. Delivery of goods as security for repayment of
loan and interest thereon i.e., pledge
 Contract of Pledge
• Section 172, defines a pledge as the bailment
of goods as security for payment of a debt or
performance of a promise. The person, who
delivers the goods as security, is called the
‘pledgor’ and the person to whom the goods
are so delivered is called the ‘pledgee’
• The ownership remains with the pledgor. It is
only a qualified property the passes to the
pledgee
 Sales and Bailment
• In a sales, the property in goods is transferred
from the seller to the buyer. In a bailment,
there is only transfer of possession from the
bailer to the bailee.
 Work and Material
• A contract of sales contemplates the delivery
of goods whereas a contract for work and
material involves exercise of skill and labour
by one party in respect of materials supplied
by another, the delivery, of goods being only
subsidiary or incidental
 Contract of hire purchase
• Typically, this is a means by which someone can buy
goods by making payments over a period of time.
However, it is not a sale because, while the intention is
that the buyer will own the goods when all the
payments have been made, the passing of property will
only occur if the buyer chooses to exercise an option
under the contract to that effect. There is no obligation
on the buyer to exercise this option.

• This does mean that there will be a sale if the contract

stipulates that property will pass at some specified
time in the future This will be an agreement to sell
(s.2(5)) as opposed to a contract of sale where the
property passes at the time of the contract
 Sales V/s Hire-purchase agreement
Sales Hire-purchase
Ownership is transferred from the seller to Ownership is transferred from the seller to
the buyer as soon as the contract is entered the hire-purchaser only when a certain
into agreed number of installments is paid

The position of the buyer is that of the The position of the hire-purchaser is that of
owner the bailee

The buyer cannot terminate the contract The hire-purchaser has an option to
and as such bound to pay the price of the terminate the contract at any stage, and
goods cannot be forced to pay the further
installments

If the payment is made by the buyer in The installments paid by the hire-purchaser
instilments, the amount payable by the are regarded as hire charges and not as
buyer to the seller is reduced, for the payment towards the price of the goods till
payment made by the buyer is towards the option to purchase the goods is exercised
price of the goods
 What is GOODS
• ‘Goods’ means every kind of movable property,
other than actionable claims and money; and
includes stocks and shares, growing crops, grass
and things attached to or forming part of the land
which are agreed to be served before sale or
under the contract of sale.
• Thus things like trade marks, patents, copyrights,
goodwill, water, gas, electricity are all goods and
therefore may be the subject matter of a contract
of sale.
• Landed property, therefore, does not constitute
goods
• Goods includes stock and shares of companies
incorporated under the Companies Act, 1956
 Goods excludes
• Money – means legal tender and not the rare
coins which can be sold and purchase as
goods
• Actionable claims – things which a person
cannot make use of but which can be claimed
by him by means of a legal action e.g., a debt
 Document of Title to Goods
• A document of title to goods may be described as
any document used, as proof of the possession or
control of goods, authorizing or purporting to
authorize, either by endorsement or by delivery,
the possessor of the document to transfer or
receive goods thereby represented
• Bill of lading, dock warrant, werehousekeepr’s
certificate, wharf certificate, railway receipt,
warrant or order for the delivery of goods and
any other document used in the ordinary course
of business as a document of title
• A bill of lading (BL - sometimes referred to as BOL or B/L) is a
document issued by a carrier to a shipper, acknowledgement
receipt of goods on board as ship and is signed by the captain of
ship
• Dock warrant: It is a document issued by a dock owner giving
details of the goods and certifying that goods are held to the
order of the person named in it or endorsee. It authorizes the
person holding it to receive possession of the goods.
• Warehouse-keeper’s or wharfinger’s certificate: Documents
issued by a Warehouse-keeper or a wharfinger stating that goods
specified in the documents are in his warehouse
• Railway receipt: Documents issued by a railway company
acknowledging receipt of goods. It is to be presented by the
holder or consignee at the destination to take delivery of the
goods.
• Delivery order: Document containing an order by the owner of
the goods to the holder of the goods on his behalf, asking him to
deliver the goods to the person named in the document
 Classification of Goods
Goods Descriptions
Existing Owned or possessed by the seller the seller at the time of sale. Only existing
goods be the subject of a sale

1. Specific goods: identified and agreed upon at the time of a contract of sale is made
2. Ascertained goods: Similar in meaning to specific goods, which becomes ascertained
subsequent to the formation of a contract of sale
3. Unascertained goods: not identified and agreed upon at the time of contract of sale.
They are defined only by description and may from part of lot

Future A seller does not possess at the time of the contract but which will be
manufactured or produced or acquired by him after making of the contract of
sale ( It is agreement to sell)

Contingent Though the type of future goods, there are the goods the acquisition of which
by the seller depends upon a contingency which may or may not happen (If
ship arrive)

Contingent The procurement of contingent goods depends upon a contingency whereas it

and Future is not so in case of future goods. On non-acquisition of contingent goods, the
parties are discharged whereas on non-acquisition or non production of
future goods the parties are not discharged
 The Price
• The ‘Price’ in a contract of sale means the
money consideration for sale of goods. It must
be expressed in money.

• It is not essential that the price should be

fixed at the time of sale. It must, however, be
payable, though it may not have been fixed
 Ascertainment of Price
1. Fixed by the contract itself
2. Left to be fixed in an agreed manner
3. Determined by the course of dealing
between the parties
In the absence of this, the buyer must pay to
the seller a reasonable price
Agreement to sell at valuation: The parties may
agree to sell and buy goods on the terms
that price is to be fixed by the valuation of a
third party
 Earnest
• Quite often in a contract of sale the buyer may
give some tangible thing as a token of good
faith as a guarantee or security for the due
performance of the contract. If contract is
dully performed, the earnest is retuned or if it
is in the form of money it is adjusted against
purchase price.
 Practical Problems
• A dentist makes a set of false teeth for his
patient with material wholly found by the
dentist and the buyers agrees to pay Rs. 2000
when they are properly fitted into his mouth.

• The contract is the sale of goods act.

• A customer gives his tailor a length of suiting
and requires him to make a suit for him, the
lining materials and the buttons to be
supplied by the tailor

• Contract is not sale of goods act

• A dealer in bicycles gives a ‘Hercules’ bicycle to
a customer on the term that Rs. 100 should be
paid by him then and there and balance Rs. 375
in five equal monthly installments.

• If The contract is a sale the customer cannot

terminate the agreement at his will, and is
bound to pay the price. If It is hire-purchase
agreement he can terminate the agreement at
his will and is not bound to pay the balance
installment
• A agrees to sell to B his two second-hand cars
on the terms that the price was to be fixed by
C. B takes delivery of one car immediately. C,
however refuse to fix the price. A asks for the
return of the car already delivered whereas B
insists on the delivery of the second car to him
for a reasonable price of both the car. Decide?

• B shall have to pay for the car already

delivered a reasonable price. A cannot ask for
its return. As regard second car, B cannot insist
on its delivery to him since the contract has
become void.
• A sold 100 quintals of groundnut oil to B. Before
it could be delivered to B, the Government of
India requisitioned the whole quantity laying
with A in public interest. B wants to sue A for
breach of contract. Advise B

• The contract becomes void. It also becomes

void because of supervening impossibility
 Practical Probles

• A purchase a car from B and uses it for some

time. It turns out that the car sold by B to A
was a stolen one and had to be returned to
the rightful owner. A brings action against B
for the return of the price. Will he succeed?
• A, a farmer, simply exhibits oat in his farm. B
buys the oats in the belief that they are old
oats. In fact they are new oats. B wants to
return the oats and refuse to pay the price.

• A purchased hot water bottle from a retail

chemist. The bottle could stand hot water but
not boiling water. When it was filled by A with
boiling water, it burst and injured his wife. A
sues for damages, Decide.
• A purchase some chocolates from a shop. One
of the chocolates contains a poisonous matter
and as a result A’s wife who has eaten it falls
seriously ill. What remedy is available to A
against to shop keeper?

• Worsted cotton cloth of quality equal to sample

was sold to tailors who could not stitch it into
coats owing to some defect in its texture. The
buyers had examined the cloth before effecting
the purchase. Are they entitled to damages?
• M asked for a bottle of Stone’s Ginger wine at F’s
shop which was licensed for the sale of wines.
While M was drawing the cork, the bottle broke
because of defect in the glass and M was injured.
Can M claim damages for the injury?
• A seller agrees to supply to the buyer timber of
½’’ thickness for being made into cement barrels.
The timber actually supplied varies in thickness
from ½’’ to 5/8’’. The timber is merchantable and
commercially fit for the purpose for which it was
ordered. The buyer rejects the timber. Is his
action justified?
• The sale of pure ghee was warranted
(acceptable) only equal sample. The ghee
tendered corresponded to the sample, but was
adulterated with 25% groundnut oil. Are the
buyers bound to accept?
• A lady buys synthetic pearls for a high price
thinking that are natural pearls. The seller does
not correct her mistake. Has she any remedies
against the seller? Would your decision be
different if the lady had told the seller; “I think
they are natural pearls and, therefore, agree to
buy them at your price,’’ and the seller was
silent?
 2. Condition and Warranties
• A Condition is a stipulation (when someone says
exactly how something must be done) which is
essential to the main propose of the contract. It
goes to the root of the contract. Its non-
fulfillment upsets the very basis of the contract
• Defined by Fletcher Moulton L.J in Wallis V. Pratt
(1910)2 K.B. 1012 as an “Obligation which goes
so directly to the substance of the contract or, in
other words, is so essential to its very nature
• Warranty is a stipulation which is collateral to the
main purpose of the contract. It is not so such
vital importance as a condition is
When condition to be treated as warranty
• Voluntary waiver of condition
• Acceptance of goods by buyer
 Implied Condition
1. Condition as to title- right to sell and will have
a right to sell
2. Sale by description
A. Where the buyer has not seen the goods and relies
on their description given by the seller
B. Where the buyer has seen the goods but he relies
not on what he has seen but what was stated to
him and the deviation of the goods from the
description is not apparent
C. Packing of goods may sometimes be a part of the
description
D. Sales by description as well as by sample
3. Condition as to quality or fitness
a. The buyer expressly or by implication, makes known to seller
the particular purpose for which he needs he goods and
depends upon the skill and judgment of the seller
b. If the buyer purchasing an article for a particular use
suffering from an abnormality and it is made known to the
seller at the time of sale, implied condition of fitness does
not apply.
c. If the buyer purchase an article under it patent or other
trade name the implied condition are for a particular
purpose shall not apply
d. In case the goods can be used for number of purposes, the
buyer must tell the seller the particular purpose for which he
requires the goods.
 4. Condition as to merchantability
Goods should be such as are commercially
saleable under the description by which they are
known in the market at their full value.

Reasonable to expect having regard to any

description applied to them, the price (if
relevant) and all the other relevant
circumstances
 5. Condition implied by the customs

• The propose for which it is purchased is

implied in the things itself
• An implied condition as to quality or fitness
for a particular purpose may be annexed
(appropriated or assumed) by the usage of
trade
6. Sales by sample
• A that the bulk shall correspond with sample
in quality
• Buyer shall have reasonable opportunity of
comparing the bulk with the sample
• The goods shall free from any defect
7. Condition as to wholesomeness
 Implied warranties
• Warranty of quiet possession: Buyer shall have and
enjoy quite possession of the goods
• Warranty of freedom from encumbrance: Goods
are not subject to any charge or right in favour of a third party
• Warranty to quality or fitness by usage of trade:
quality or fitness for a particular purpose may be annexed
(appropriated or assumed) by the usage of trade
• Warranty to disclose dangerous nature of goods
 CAVEAT EMPTOR
used for saying that buyers must take
responsibility for the quality of goods that
they are buying
Exceptions
1. Fitness for buyer
2. Sale under a patent or trade name
3. Merchantable quality
4. Usage of trade
5. Consent by fraud