MODULE-III

SALE OF GOODS ACT

Contract of sale
The contract of the sale of goods is governed by The Sale of Goods Act,
1930. Till 1930, all the transactions related to the sale of goods was
regulated by The Indian Contract Act, 1872. In 1930, Sections 76-123
were replaced by the Act of 1930.

What is Contract of Sale: meaning & concept

Contract of the sale is an agreement between the buyer and the seller
intending to exchange property. Section 4(1) defines the contract of the
sale as – a contract of the sale of goods is a contract whereby the seller
transfers or agrees to transfer the property in goods to a buyer for a price.

In other words, the essentials to constitute a contract of the sale

are as follows:

Two parties

There must be 2 distinct parties i.e. a buyer and a seller, to effect a

contract of the sale and they must be competent to contract. ‘Buyer’ as
defined under Section 2(1) means a person who buys or agrees to buy
goods. ‘Seller’ has been defined under Section 13 which states that a
person who sells or agrees to sell goods.

For example, A is the owner of a grocery shop. If he supplies the goods

(from the stock meant for sale) to his family, it does not amount to a sale
and there is no contract of sale. This is so because the seller and buyer
must be two different parties, as one person cannot be both a seller as
well as a buyer.

Goods

There must be some goods, the property which is or is to be transferred

from the seller to the buyer. The subject-matter as to the goods under the
Contract of Sale must be movable property. This Act does not concern the
immovable property as its subject-matter.

Where goods are offered as consideration for goods, it will not amount to
sale, but it will be called barter or exchange, which was prevalent in
ancient times.

Price

The most important essential for the enforceability of the Contract of Sale
of goods is the price. The price can be termed equivalent to the
consideration. In the absence of such price or consideration, the transfer
cannot be termed as a sale. The transfer by way of the sale must be in
exchange for a price.

Where goods are offered as consideration for goods, it will not amount to
sale, but it will be called barter or exchange, which was prevalent in
ancient times.

However, the consideration can be partly in money and partly in valued

up goods. Furthermore, payment is not necessary at the time of making
the contract of sale.

Transfer of OWNERSHIP

Ownership must transfer from seller to buyer. If ownership is not transferred it will be
bailment or pledge

Essential elements of a valid contract

All essential elements of a valid contract must be present in the contract

of the sale, i.e.,

 An offer,
 An acceptance,
  An intention to create a legal relationship, and
 A consideration

SALE AGREEMENT TO SELL

In the contract of sale, the In the agreement to sell the parties agree to exchange the
exchange of goods takes place goods for a price depending on the fulfilment of certain
immediately. conditions at a future specified date.

The nature in the sale is

The nature of the agreement to sell is conditional.
absolute.

It is an executed contract. It is an executory contract.

Transfer of risk takes place Transfer of risk doesn’t take place, until and unless the
immediately. goods are transferred.

The right to sell remains with the

The right to sell remains with the seller.
buyer

Here the seller has the right to

Here the seller has the right to sue for damages.
sue for the price.

The seller has the right to resell the same goods if the
The seller has no right to resell.
conditions are not fulfilled.

On the off chance that the

products are annihilated, the The loss falls on the seller .
misfortune is borne by the buyer.

Sale and Agreement to Sell

Conditions And Warranties Under Sale Of Goods Acts 1930
The term condition get defined under the sale of goods act 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 contact repudiated.'

The term warranty is define as a warranty, is a stipulation collateral to the main purpose of
the contract, the breach of which gives rise to a claim for damages but not to a sight to
reject the goods and treat the contract as repudiated. As I mention earlier that warranty as
stipulation is not essential to the main purpose of the contracts, but it is the subsidiary, so in
case of breech, buyer cannot repudiate the contract but can claims the damages.

Conditions
A condition can be termed as one of the crucial term in agreement of sale which is mention
by the buyer to the seller which can me implied or expressed. The buyer can cancel the
proposal in case of non- compliance with the condition mentioned by the seller. Condition
may be expressed or implied. If there is a breech of conditions then there is a right to
aggrieved party to treat the contract as repudiated. In case if the buyer had paid, then he is
also having the right to recover the price and can also claim the damages for breach.

Warranties
As the term warranties is an additional stipulation over the main purpose of contract. If
there is a breech of warranty then the aggrieved or suffered party cannot repudiate the
contract and claim the contract. In other words warranty is a stipulation which is not
essential to the main purpose of contract and if it will get breach then buyer can only claim
the damages.

Difference Between Condition And Warranty:

Conditions Warranties
In this the stipulation can be consider In this the stipulations is additional to
as the basis of contract the main contracts
If the condition get breach then it leads If the warranty got breach then the
 injured party will et the compensation
to termination of contracts
only
If the buyer get agree so the condition Warranty cannot be treated as
can be treated as warranty condition
The injured party can refuse to accept Only damages can be claimed by
the goods as well as claim damage in injured party in case of breach of
case of breach of condition warranty

Caveat emptor(section 16)

The principle of Caveat emptor is explained in Section 16 of the Sale of

Goods Act 1930 which states that there is no implied condition or
warranty as to quality or fitness for any particular purpose of goods
supplied.”

The History of Caveat emptor

In the 19th century, the attitude of common law towards the buyer can be
understood by the maxim Caveat emptor which means let the buyer
beware. This maxim explains that a purchaser must carefully examine and
judge what is best for him. The purchaser should not take the risk of the
condition and quality of the object which he needs to buy, he must protect
himself by a warranty

Let us see an example. 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 lame. But A did not inform
B of his intentions. So B will not be responsible for the defects of the horse. The Doctrine of
Caveat Emptor will apply.

The reason against the rule of Caveat emptor, is the need for providing
protection to the buyer who purchases the goods in good faith, that is,
where the buyer purchases goods from the seller by relying on his skill
and judgment. Thus the rule was subsequently diluted so as to give
proper recognition to the relationship between the seller and the buyer
and in order to give rise to a scenario wherein commercial transactions
are encouraged.

Exceptions To The Rule Of Caveat Emptor- Section 16 of The Sale of

Goods Act, 1930

1. Section 16(1) – Fitness for buyers purpose

Sub section (1) of Section 16 of the said Act prescribes the

circumstances in which the seller is obliged to supply goods to the
buyer as per the purpose for which he intends to make a purchase.
It states that when the seller either expressly or by necessary
implication is aware of the purpose for which buyer makes purchase
thereby relying on seller’s skill and judgment and the goods to be
purchased are of a description which the seller in his ordinary
course of business supply, then there is as implied condition that
the goods shall be reasonably in accordance with the purpose

In Priest v Last [xi], B went to S, a chemist and demanded a hot water bottle from
him, S gave a bottle to him telling that it was meant for hot water, but not boiling
water. after few days while using the bottle B's wife got injured as the bottle burst
out, it was found that the bottle was not fit to be used as hot water bottle. The court
held that the buyer's purpose was clear when he demanded a bottle for hot water
bottle, thus the implied condition as to fitness is not met in this case.

in Grant v Australian Knitting Mills [xiii] Dr Grant purchased two pairs of woollen
underwear and two singlets from John Martin & Co. There was nothing to say the
underwear should be washed before wearing and Dr Grant did not do so. He
suffered a skin irritation within nine hours of first wearing them. It was held that
because of such a defect the underwears were not of merchantable quality.
 2. Merchantable quality [Section 16(2)]

The second important exception to the doctrine of caveat emptor is

incorporated in Section 16(2) of the Act. The Section provides that
the dealer who sells the goods has a duty to deliver the goods of
merchantable quality.

Sub-Section (2) which contains this exception says:

“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 the goods shall
be of the merchantable quality.”

In Ranbirsingh Shankarsingh Thakur vs. Hindustan General Electric

Corporation Ltd, it was held that Section 16(1) applies where the buyer
requires goods for a specific purpose and he expressly or impliedly makes
that purpose known to the seller, he relies on the skills of the seller and the
seller’s usual course of business is to sell such goods whether he is the actual
producer or not.

In this case plaintiff bought a radio set. It worked well for few days and then
started giving problem. It was held that it was not of the merchantable quality.

The rule of nemo dat quod non habet1

Meaning of the Nemo dat rule

The legal rule ‘Nemo dat quod non habet’ literally means ‘no one gives
what he doesn’t have’. It is equivalent to the civil rule Nemo plus iuris ad
alium transferre potest quam ipse habet which translates to ‘one cannot

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transfer to another more rights than he has’. The rule is associated with
the transfer of possession of a property in law. The Sale of Goods Act,
1930 (hereinafter SOGA) and the Indian Contract Act, 1872 are associated
with underlying provisions of this rule.

It also has a jurisprudential aspect to it with regard to ownership and

possession. For instance, if A owns a car and he has a driver, the driver
would only have the possession of the car during the course of business,
but he would not have the authority to transfer the title of the car because
he only has the title to possess the car during work hours. The title to
transfer the ownership is a greater title than he has and could only be
performed by the owner because his title is authoritative.

IMPLEMENTATION OF MAXIM IN INDIA2

Section 27: Sale by person not the owner.- Subject to the provisions

of this Act and of any other law for the time being in force, 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, unless the owner

of the goods is by conduct precluded from denying the seller’s authority

to sell.

Provided that, where a mercantile agent is, with the consent of the

owner, in possession of the goods or of a document of title to the goods,

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 authorised

by the owner of the goods to make the same, provided that the buyer act

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is good faith and has not at the time of the contract of sale notice that

the seller has no authority to sell.

Section 27, as a general rule, tries to protect the interest of the true

owner when it provides that where the 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 has.

If the title of the seller is defective, the buyer’s title will also be subject to

the same defect. The rule does not imply that buyer’s title will always be

a bad one. What it means is that the buyer cannot acquire a superior title

to that of the seller. If a thief disposes of stolen goods, the buyer of such

goods has the same title as the seller had. Similarly, where a person

taking goods on hire- purchase basis sells them before he had paid all the

instalments, the owner can recover the goods from the transferee, on

default of payment, in the same way as he could have recovered them

from the person to whom they had been given on the hire purchaser

basis.

EXCEPTIONS

1. 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

( precluded ) from denying later that such as state of affairs did not exist.
Sometimes the doctrine of estop or preclude the owner from denying the

seller’s right to sell the goods and thus an innocent buyer may have a

good title despite the want of authority of the seller. When the true

owner of goods by his conduct or word or by any act or omission leads

the buyer to believe that the seller is the owner of the goods or has the

authority to sell them, he cannot after wards deny the seller’s authority

to sell.

2. Sale By A Mercantile Agent (Section 27)

If a mercantile agent has an authority to sell the goods and he does so,

no difficulty arises because according to the general rule, an agent

having the authority to sell them can convey a good title. The difficulty

arises when the mercantile agent disposes of the goods without having

authority to do so

For the application of this proviso, the following condition are to be

satisfied,-

1. That the seller is a Mercantile agent as defined in Sec. 2(9)

of the Act. Section 2(9) states that “ 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;

 2. The said mercantile agent got the possession of the goods or

documents of title to the goods with the consent of the

owner, and in his capacity as a mercantile agent;

3. While selling the goods he must have been acting in the

ordinary course of his business of a Mercantile agent;

4. The buyer of the goods must have acted in good faith without

having any notice that such a Mercantile agent did not have

an authority to sell.

In Folks v King,[ix] he plaintiff delivered his car to a mercantile

agent to sell it for not less than 575 pounds. But the mercantile

agent sold it to the defendant for pound 140 and misappropriated

the amount. In an action by the plaintiff it was held that the

defendant (buyer) had a good title to the goods.

Pearson v. Rose & Young, Ltd

Judgement

The plaintiff gave possession of his motor car to Hunt., a motor car

dealer and a mercantile agent within the Factors Act, 1889, s. 2(1), for

the purpose to see Car can be sold or not.. By means of a trick Hunt,

induced the plaintiff to hand him the registration book relating to the car.

Later the same day Hunt., acting without the authority or knowledge of

the plaintiff, sold the car and handed the registration book to the X who
acted in good faith without notice of any absence of authority. The X

subsequently sold the car to Y, and the Y sold it to the defendants. In an

action by the plaintiff against the defendants claiming damages for the

conversion of the car.

Held: Though the plaintiff consented to HUNT’s having possession of the

car as a mercantile agent, within the meaning of s. 2(1), he did not

consent to his possession in that capacity of the registration book; the

sale of a car without the registration book relating to it was not a sale of

goods “in the ordinary course of business” therefore, HUNT. was unable

to pass a good title to the fourth party.

3. Sale By Joint Owner

If one of several joint owners of goods has the sole possession of them by

permission of the co-owners of goods has the sole possession of them by

permission of the co-owners, the property in the goods is transferred to

any person who buys them from such joint owner in good faith without

notice of the fact that the seller has no authority to sell.

4. Sale By A Person In Possession Under A Voidable

Contract-

According to section 19 and 19- A of the Contract Act, if the consent of a

party to the contract has been obtained by coercion, fraud,

misrepresentation or undue influence, the contract is voidable at the

option of the party whose consent has been so obtained. Section 29

provides that if a person has obtained the possession of some goods

under a contract which is voidable under section 19 or 19 – A of the

contract Act and he sells those goods before the contract has been

avoided by the party entitled to do so, the buyer of such goods acquire a

good title to them. It is, however, necessary that such buyer must have

purchased the goods in good faith and without the notice of the seller’s

defect of title.

Phillips v Brooks Ltd

Facts

A man entered the claimant’s jewellery shop and offered to buy a ring.

He produced a cheque for £3000 and told the claimant: ‘You see who I

am, I am Sir George Bullough.’ He then gave an address in St James’s

Square. The claimant was familiar with the name and confirmed that

someone with that name lived at the address. The man took the ring with

him. The man was not George Bullough. The cheque was dishonoured. By

the time the claimant realised that he had been swindled, the man had

pawned the ring to the defendant.

The claimant sued the defendant for the return of the ring. He claimed

that he would not have sold the ring if they had known who the man truly

was. This meant, he claimed, that the contract was void for mistake. If

true, this would mean that the ring still belonged to the claimant.

Held
It was found that whilst the fraudster had indeed fraudulently purchased

the ring there was no mistake as to identity due to the fact this contract

was made face-to-face. Whilst fraudulent statements were made, the

identity of the fraudster could not be considered ‘mistaken’. Importantly,

a fraudulent contract is voidable (not void) and permits property to pass

to bona fide third-party meaning Brooks Ltd was the legal owner of the

ring.

5. Sale By The Seller In Possession

If a seller has sold the goods and the property in the goods has passed to

the buyer, the seller cannot deal with such goods. If he is still in

possession of the goods and deals with them, the buyer can sue him for

the tort of conversion, Sec 30 (1), however, provides that if seller having

sold the goods is still in possession of the goods or of the documents of

title to them, the delivery or transfer of the goods or of the documents of

title to them, the delivery or transfer of the goods or of the documents of

title under any sale, pledge or other disposition thereof by the seller or

by a Mercantile agent on his behalf will convey a good title to the buyer

provided the buyer has been acting in good faith and he has no notice of

the previous sale.

6. Sale By The Buyer In Possession –

This section says that if a buyer has obtained the possession of the goods

or the documents of title to them with the consent of the seller, any sale,

pledge or other disposition thereof to any person will convey s good title
and without any notice as regards any lien or other right of the original

seller in respect of those goods.

7. Resale By An Unpaid Seller –

According to this section, if an unpaid seller has exercised the right of

lien or stoppage in transit and the buyer does not pay him he may resell

the goods after a notice to the buyer. If such a notion is not given, the

seller is neither entitled to claim from the buyer any loss if the goods

bring lower than the contract price nor can he retain the benefit if the

goods are sold at a higher price.

8. Sale By Finder Of Goods-

According to sec 71, Indian Contract Act, the finder of goods is subject to

the same responsibility as the bailee. He is to take due care of goods

while they are in his possession and also to return them when their

owner has been found. According to Sec 169 of ICA, however, if the

owner cannot with a reasonable diligence be found or if he refuses upon

demand, to pay the lawful charges of the finder, the finder may sell the

goods,- also he may sell the goods

• When the things is in danger of perishing or of losing the greater part

of its value, or

• When the lawful charges of the finder, in respect of the thing found,

amount to 2/3 of its value

9. Sale By Pawnee-

According to this section, if the pawnor makes a default in the payment

of the debt, the pawnee may either sue him for the debt or may sell the

goods pledged on giving the pawnor reasonable notice of the sale.

Unpaid Seller(SEC 45.)

In every contract of sale, a seller is under an obligation to deliver the

goods sold and buyer is under an obligation to pay the requisite amount

set or quid pro quo i.e something in return, under the contract of sale, by

them. This is known as reciprocal promise as per Section 2(f) of the Indian

Contract Act. In other words, any set of promises made which forms the

consideration or part of the consideration for each other are called

reciprocal promises and every contract of sale of goods consists of

reciprocal promises.

In certain cases, when a buyer refuses or fails to pay the requisite amount
to the seller, the seller becomes an unpaid seller and can exercise certain
rights against the buyer.

According to Section 45(1) of Sale of Goods Act, 1930, the seller is

considered as an unpaid seller when:

a- When the whole price has not been paid and the seller has an
immediate right of action for the price.

b- When Bills of Exchange or other negotiable instrument has been

received as conditional payment, and the pre-requisite condition has not
been fulfilled by reason of the dishonour of the instrument or
otherwise. For instance, X sold some goods to Y for $50 and received a
cheque. On presentment, the cheque was dishonoured by the bank. X is
an unpaid seller.

Rights of an Unpaid Seller

1. Lien
Lien is a right which seller of goods can exercise when a buyer has not
paid the price of goods, under this right seller can retain the possession of
goods as an agent or bailee for the buyer. The seller can retain his
possession as per Section 47 under the following circumstances:

1- In case the buyer is insolvent.

2- When the term of goods sold on credit is expired.

3- Goods sold on cash.

Under following circumstances right of lien is terminated-

a. Waiver of lien-

The right of lien is an implied right attached by law in every contract of

sale, the seller has the autonomy to waive this right, it may be
expressed or implied from the conduct of the seller.

b. When buyer or agent lawfully obtains possession of goods.

Once the buyer got the possession of goods from the seller, all the
rights of the seller in respect to goods are ceased even if the price is
not paid. The seller can recover the price as a normal debt because the
acceptance of possession gives absolute, unqualified and indefeasible
 right of goods to the buyer. When the goods are given again to the
seller for repair he can not access the right of lien.

c. When the seller delivers goods to a carrier or other bailee for

the purpose of transmission to the buyer without reserving the
right of disposal of the goods.
When the seller has delivered goods to the carrier for transmission, his
right of lien is ceased but the right to stoppage in transit is still
accessible by him. In case seller regains possession of goods in transit
by stoppage his right to lien is revived.

d. With payment

Right of lien is lost the moment buyer pays the

consideration to seller

 Stoppage

When the goods have been transferred to carrier or bailee for the purpose
of transmission to the buyer, who has become insolvent, the seller has the
right to stop the goods in transit in order to protect himself against the
loss that may arise due to insolvency. As per Section 50, there are four
essential requirements for stopping the goods in transit:

1. Unpaid seller.
2. Buyer insolvent.
3. Property should have passed to the buyer.
4. Property should be in course of transit.

The course of transit depends upon the capacity of middleman to hold the
goods. Middleman should be an intervening person between the seller
who has parted with the goods and the buyer who has not yet received
the goods

 Resale
Exercising the right of lien or stoppage does not rescind the agreement
but reselling of goods does and without this right, the other two rights of
lien and stoppage would not be of much usage because he can only retain
goods under these right till the buyer pays back the money.

The unpaid seller can exercise his right under following conditions and
circumstances-

Seller before reselling the goods needs to send a notice to the buyer
except in the case of perishable goods, giving him last chance to pay the
price and take back the goods within a reasonable time. If the buyer does
not pay the money back seller has the right to resell the goods. If the
seller fails to give notice of his intention to resell, he cannot claim
damages from the buyer and he has to give any profit.