MODULE NO.

2: THE SALE OF GOODS ACT, 1930

Introduction - Definition of Contract of Sale, Essentials of Contract of Sale,

Conditions and Warranties, Transfer of ownership in goods including sale

by a non- owner and exceptions. Performance of contract of sale - Unpaid

seller, rights of an unpaid seller against the goods and against the buyer.
 SALES OF GOODS ACT 1930
Sale of Goods Act, 1930: In trade and commerce, sales and purchase of goods are very
common transactions. Originally, the transactions related to sale and purchase of goods was
regulated by Chapter VII (Sections 76 to 123) of the Indian Contract Act 1872 – which was
broadly based on English common law.
A separate act, the Sales of Goods Act 1930 came into force on 1st July 1930. It extends to
the whole of India. It does not affect rights, interests, obligations and titles acquired before
the commencement of the Act. The Act deals with the sale but not with mortgage or pledge
of the goods.
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. There may be a contract of sale between one part-
owner and [Link]. 4 (1), The Sale of Goods Act, 1930

Contract of Sale
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.
Definitions
✓ Buyer – Sec 2 (1): Buyer means a person who buys or agrees to buy goods.
✓ Delivery- Sec 2 (2): Delivery means voluntary transfer of the possession from one person
to another.
✓ Deliverable state- Sec 2 (3): Goods are said to be in a “deliverable state” when they are
in such state that the buyer would under the contract be bound to take delivery of them.
✓ Document of Title- Sec 2 (4): A document of the 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.
✓ Fault – Sec 2 (5): Fault means wrongful act or default.
✓ Future goods- Sec 2 (6): Future goods mean goods to be manufactured or produced or
acquired by the seller after the making of the contract of sale.
✓ Goods- Sec 2 (7): Goods mean 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 the contract of sale.
✓ Insolvent- Section 2 (8): A person is said to be “insolvent” who has ceased to pay his debts
in the ordinary course of business or cannot pay his debts as they become due, whether
he has committed an act of insolvency or not.
✓ Mercantile agent- Section 2 (9): 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.
✓ Price – Section 2(10): Price means the money consideration for a sale of goods.
✓ Property- Section 2(11): Property means the general property in goods and not merely a
special property.
✓ Seller- Section 2 (13): Seller means a person who sells or agrees to sell goods.
✓ Specific goods- Section 2(14): Specific goods mean goods identified and agreed upon at
the time a contract of sale is made.
Essentials/Elements of Contract of Sale

Essentials of a Contract of Sale

1. Two Parties: There must be at least two parties to constitute a valid contract of sale, where
the seller and the buyer must be different persons. In a contract of sale, one person can’t hold
the identity of both the seller and the buyer and in no condition shall sell his goods to himself.
2. Contract of Movable Goods: The subject matter of the contract of sale must be a movable
property. Goods can either be existing goods, owned or possessed by the seller, or future
goods. For immovable goods, provisions of the Transfer of Property Act are to be followed.
3. Contract for a Price: A price is the consideration that is being paid in exchange for the
goods. Price in money should be paid or promised in a contract of sale. The price can’t be in
kind in full. However, there is no restriction under the act for consideration being partly in
money and partly in kind.
4. Transfer of Goods: Under a valid contract of sale, the transfer of property in goods from
the seller to the buyer must necessarily take place. The goods that are to be transacted are
required to be clearly defined and mentioned in the sale contract as per the act.
5. Offer and Acceptance: The contract of sale is made by an offer to buy or sell goods for a
price by one of the parties; either buyer or seller, and the acceptance of such offer by the
other party. A contract of sale can be either absolute or conditional.
6. Elements of a Valid Contract shall be Present: Under a sale contract all other essential
elements of a valid contract shall be present; i.e., free consent of buyer and seller,
competency of buyer and seller, legality of subject matter, etc.
 FEATURES EXPLANATION EXAMPLE

Two parties There must by two parties, buyer You go to a dealer and buy a
and seller, to contract. computer and pay for it. The dealer is
the seller and you are the buyer.

Movable Goods Any goods that are movable and When you fly, the airline sells you the
the ownership is transferred. service to take you from one place to
(Immovable property does not another; it does not sell you the
come under the Sales of Goods aircraft. So also when you buy grain,
Act.) you only buy grain and not the land of
the farmer.

Price Sale is about exchange goods for You buy a computer and pay money
money. Under Contract Act it is for it as the price for the value you
termed as consideration, but this
consideration must be only in
money. Exchange of goods for
goods is barter and not sale.

Transfer of Property is distinguished as You own a clock. It is a general

General general property and special property. You pledge the clock to a
Property property. General property pawn shop—the shop owner is in
consists of as goods owned and possession of your property which is
special property as goods under owned by you; it is a special property
possession. for the shop owner.

Valid Contract The principles of contract that are

The principles of valid contract are enshrined in the Contract Act: offer,
applicable to sale of contract. acceptance, consideration,
communication, and competency to
contract.

FORMATION OF CONTRACT OF SALE / HOW THE CONTRACT OF SALE COMES ABOUT

As you have learnt in the Contract Act, no particular form is necessary to constitute a contract
of sale.
There are offer and acceptance, the communication may be formal, informal, or implied. The
sale and transfer may occur immediately before, after simultaneous, or payment in
instalments.
 In order to understand exactly how the contract of sale comes about, you must learn some
fundamental distinctions. Table: distinguishes between each of the following:
1. Sale and agreement to sell
2. Sale and hire-purchase
3. Agreement to sell and hire-purchase
4. Sale and bailment
5. Sale and contract for work and materials

Difference between Sale and Agreement to Sell

BASIS OF DISTINCTION SALE AGREEMENT TO SELL

Meaning When in a contract of sale, the When in a contract of sale the

exchange of goods for money parties to contract agree to
consideration takes place exchange the goods for a price at a
immediately, it is known as future specified date is known as an
Sale. Agreement to Sell.

Nature Absolute Conditional

Type of Contract Executed Contract Executory Contract

Transfer of risk Yes No

Title In sale, the title of goods In an agreement to sell, the title of

transfers to the buyer with the goods remains with the seller as
transfer of goods. there is no transfer of goods.

Right to sell Buyer Seller

Consequences of Responsibility of buyer Responsibility of Seller

subsequent loss or damage
to the goods

Tax VAT is charged at the time of No tax is levied.

sale.

Suit for breach of contract The buyer can claim damages Here the buyer has the right to
by the seller from the seller and proprietary claim damages only.
remedy from the party to
whom the goods are sold.

Right of unpaid seller Right to sue for the price. Right to sue for damages
 Difference between Sale and a Hire Purchase
BASIS OF DISTINCTION SALE HIRE-PURCHASE

Law A contract of sale is governed They are governed by Hire Purchase

by the Sale of Goods Act, 1930. Act, 1972

Nature of Contract It may be written, oral or It is an agreement to hire and an

implied. agreement to sell. It has to be in
writing.

Possession Possession may or may not Possession passes immediately

transfer immediately.

Transfer of ownership The ownership of goods is It transferred only when the option
transferred immediately. to purchase is exercised and the last
payment is made.

Buyer The buyer becomes the full The hirer is a bailee, and not the
owner of the goods owner until he pays all the
instalments of the price in full or
exercises the option to purchase.

Transfer to third parties The buyer can transfer a good The hirer cannot transfer a good
title to third parties because title to a third party as ownership
ownership of goods has been has not been transferred.
transferred.

Right to repossess The seller can sue for price but The hire vendor has a right to
he cannot repossess the goods. repossess the goods if the hirer
defaults in the payments.

Right to terminate In a sale, there is no option to The hirer can terminate the
the buyer to return the goods agreement before the ownership is
bought. transferred.

Sales tax In case of sale of taxable goods, Even if taxable goods are hired,
sales tax is levied. sales tax is not levied.
 Difference between Sale and a Bailment
BASIS OF SALE BAILMENT
DISTINCTION

Act Sale is defined under Sec. 4(3) of the Bailment is defined under Sec. 148 of the
Sale of Goods Act, 1930. Indian Contract Act, 1872.

Ownership of The buyer becomes the owner of The bailee does not become the owner of
Goods goods. goods.

Use of Goods In a sale, the buyer may use the In bailment, the bailee can use the goods
goods in any way he likes. only accordingly to the direction of the
bailor.

Consideration In a sale, the consideration is always In a Bailment, the consideration need not
in terms of money. be money as it may be the understanding
to return the goods bailed on
accomplishment of the purpose.

Return of In a sale, there is no return of goods In a bailment, the goods are necessarily
goods from the buyer to the seller, unless returned after the specified time or
there is a breach. accomplishment of the purpose.

THE SUBJECT MATTER OF CONTRACT OF SALE

1. The goods which form the subject of a contract of sale may be either existing goods,
owned or possessed by the seller, or future goods.
2. There may be a contract for the sale of goods the acquisition of which by the seller
depends upon a contingency which may or may not happen.
3. 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.
What is Goods?: Every kind of movable property is goods: shares, stocks, crops, trees,
goodwill, patents, trademarks, electricity, water, gas, etc.—all that can be exchanged for
money
What they are not? Money and actionable claims are excluded from the claim of goods.
• By money, the lawgiver understands that which a legal tender, the currency.
It considers old coins and also foreign currency as goods that can be bought and sold.
• The actionable claim implies any debt or beneficial interest in a movable property not
in possession, which can be recovered by means of a suit or an action. It is something
which is enforceable by the court of law but which cannot be sold as goods.
It must be noted carefully that although it would logically seem stocks and shares too
are actionable claims, yet the Act specifically considers them as goods.
 CLASSIFICATION OF GOODS

A. Existing goods: These are the goods which are owned or possessed by the seller at the
time of sale.
➢ Specific goods: Specific goods are identified and agreed upon at the time of sale.
Example: A contract to sell a Nokia cell phone of a particular model is a contract to sell a
specific good. In this case, the sale is for a specific good, as the phone has been identified.
➢ Unascertained goods: Unascertained goods are the goods that are not specifically agreed
upon at the time of entering into the contract. Example: 100 leather jackets are lying in
the godown out of this lot of 100 jackets 10 jackets are to be bought by X, this is a contract
for the sale of unascertained goods made by the leather jacket manufacturer.
➢ Ascertained goods: An ascertained good is a part of the goods that are available in bulk
are specially meant for sale. Example: X owns 20 Maruti Cars. Y enters into a contract with
X to buy one car out of those 20 cars. After the contract one car is given to X and this car
will then be an ascertained good.
B. Future goods: These are not possessed by the seller at the time of the contract but which
will be produced, procured, and supplied by him in the future. It is similar to the goods in
an agreement to sell. Example: X agrees to sell to Y the entire crop of sugarcane to be
grown at her farm in Uttar Pradesh for an amount of Rs. 2, 00,000. Such type of agreement
is not a sale but an agreement to sell future goods.
C. Contingent goods: Section 6(2) has defined ‘contingent goods’ as the goods “the
acquisition of which by the seller depends upon a contingency which may or may not
happen “. Such goods are therefore dependent upon an event or an occurrence which
may or may not happen. Example: X agreed to sell 100 cotton shirts he was importing
from China provided his ship arrived safely in time. In this example, the cotton shirts are
contingent goods as their sale is dependent upon the safe and timely arrival of the ship.

Effects of Destruction of Goods

1. Goods perishing before the contract
2. Goods perishing after the contract but before the sale
o Goods perishing before the contract: In the case of a contract for the sale of specific
goods, that have been damaged or perished without the knowledge of the seller the
contract is null and void. The reason for this being impossibility of performance. The
subject matter of the contract is perished or no more there; the contract cannot be carried
out. Example A trader in cement sells 100 bags of the product. He is, however, unaware
 that due to extreme moisture in the warehouse the cement is hardened and is of no use
for construction. The merchandise has lost its commercial value. The contract does not
stand.
Criteria
• Specific or ascertained goods.
• Goods must have perished before the contract is made.
• The seller has no knowledge of the perished goods at the time of contract.
o Goods perishing after the contract but before the sale: In an agreement to sell specific
goods, if subsequently, the goods perish without the fault of the seller and before the
ownership of the goods is transferred, the agreement is void. If the ownership or the title
is already passed to the buyer then it becomes his liability. Example: You go to the dealer
to buy a car and make an agreement for sale. You have been notified that your desired
car has arrived. In the meantime, someone takes it for a trial drive and crashes it. You
know naturally that that particular car is not yours.
Criteria
• It must be an agreement to sell and not an actual sale.
• Goods must be specific.
• Goods must have been damaged or perished beyond the recognition of the contract.
• The destruction must take place without the fault of either party. Document of

Document of Title to Goods

In the ordinary course of business, you may receive a voucher, bill, document, receipt, cash
memo, bill of lading, lorry receipt, railway receipt, dock warrant, and several such
acknowledgements with which you can prove—and prove so well in a court of law—that you,
and you alone, are the owner of such goods. With these you have a title to goods.
Examples with explanation
• Bill of loading: Acknowledgement receipt of goods on board of a ship which is signed
by the captain of the ship or his authorized representative.
• Dock warrant: Document issued by the dock owner.
• Warehouse-keeper’s or wharfinger’s certificate: Document issued by warehouse
keeper.
• Railway receipt: Document issued by railways acknowledging receipt of goods.
• Delivery order: Document of the owner of the goods to the holder of the goods asking
the latter to deliver the goods to the person named in the document.
Criteria
• Must be used in the ordinary course of business.
• The undertaking to deliver the goods to the possessor of the document should be
unconditional.
• The possessor of a document, by virtue of holding such a document, must be entitled
to receive the goods unconditionally.
 A stipulation in a contract of sale with reference to goods which are the subject thereof
may be a condition or a warranty. – Sec. 12, the Sale of Goods Act, 1930
CONDITION
Certain terms, obligations, and provisions are imposed by the buyer and seller while entering
into a contract of sale, which needs to be satisfied, which are commonly known as Conditions.
The conditions are indispensable to the objective of the contract.
A condition is a stipulation essential to the main purpose of the contract, the breach of which
gives the right to repudiate the contract and to claim damages. (Sec 12 (2)). We can
understand this with the help of the following example: Say ‘X’ wants to purchase a car from
‘Y’, which can have a mileage of 20 km/lt. ‘Y’ pointing at a particular vehicle says “This car will
suit you.” Later ‘X’ buys the car but finds out later on that this car only has a top mileage of
15 km/ liter. This amounts to a breach of condition because the seller made the stipulation
which forms the essence of the contract. In this case, the mileage was a stipulation that was
essential to the main purpose of the contract and hence its breach is a breach of condition.
There are two types of conditions, in a contract of sale which are:
• Expressed Condition: The conditions which are clearly defined and agreed upon by
the parties while entering into the contract.
• Implied Condition: The conditions which are not expressly provided, but as per law,
some conditions are supposed to be present at the time making the contract.
However, these conditions can be waived off through express agreement.
Following are the implied conditions which are contained in the Sales of Goods Act:
❖ Implied condition as to title (Sec. 14 A)
❖ Implied condition in a sale by description (Sec. 15)
❖ Implied condition in sale by sample (Sec. 17)
❖ Implied condition in a sale by sample as well as by description (Sec. 15)
❖ Implied condition as to fitness or quality (Sec. 16)
❖ Implied Condition as to merchantability (Sec. 16)
❖ Implied condition as to wholesomeness

WARRANTY
A warranty is a stipulation collateral to the main purpose of the said contract. The breach of
warranty gives rise to a claim for damages. However, it does give a right to reject the goods
or treat the contract as repudiated. (Sec 12(3)). Let us understand this with the help of an
example below. A man buys a particular car, which is warranted to be quite to drive and very
comfortable. It turns out that after some days the car starts to make a very
unpleasant noise every time it is operated. Also sitting inside it is also not very comfortable.
Thus the buyer’s only remedy is to claim damages. This is not a breach of the condition but
rather a breach of warranty, because the stipulation made by the seller was only a collateral
one.
Many times, if the warranty was given, proves false, and the product does not function as
described by the seller then remedies as a return or exchange are also available to the buyer
i.e. as stated in the contract. A warranty can be for the lifetime or a limited period. It may be
either expressed, i.e., which is specifically defined or implied, which is not
explicitly provided but arises according to the nature of sale like:
❖ Warranty as to quiet possession [Sec. 14(b)]
❖ Warranty as to the non-existence of encumbrances [Sec 14 (c)]
❖ Warranty as to quality and fitness by usage of Trade [Sec 16(3)]
❖ Warranty to disclose dangerous nature of goods

BASIS FOR
CONDITION WARRANTY
COMPARISON

Meaning A requirement or event that A warranty is an assurance given by

should be performed before the the seller to the buyer about the
completion of another action, is state of the product, that the
known as Condition. prescribed facts are genuine.

Defined in Section 12 (2) of Indian Sale of Section 12 (3) of Indian Sale of

Goods Act, 1930. Goods Act, 1930.

What is it? It is directly associated with the It is a subsidiary provision related

objective of the contract. to the object of the contract.

Result of breach Termination of contract. Claim damages for the breach.

Violation Violation of condition can be Violation of warranty does not

regarded as a violation of the affect the condition.
warranty.

Remedy available to Repudiate the contract as well as Claim damages only.

the aggrieved party claim damages.
on breach

DOCTRINE OF CAVEAT EMPTOR

Principle of Doctrine of Caveat Emptor
Subject to the provisions of this Act and of any other law for the time being in force, there is
no implied warranty or condition as to the quality or fitness for any particular purpose of
goods supplied under a contract of sale… – Sec. 16, The Sale of Goods Act, 1930
What is Doctrine of Caveat Emptor?
The doctrine of ‘Caveat Emptor’ means “let the buyer beware“.
In other words, the buyer must take care of his own interest while purchasing the goods.
While purchasing the goods the buyer should check the goods carefully.
If a buyer purchases the goods and after it, he comes to know that these are defective. In this
case, the seller will not be responsible for this defect.
The object of this principle is to make the buyer more careful in purchasing. It is his duty that
he should check the quality and fitness of the commodity which he needs. Example of
Doctrine of Caveat Emptor: Mr Anuj went to the market and purchased a Car to take a part
in Car race competition. But he did not tell the seller that for which purpose he is buying.
When he reached home, he came to know that this car is not suitable for car race competition.
Due to the principle of Caveat Emptor, Mr Anuj can neither reject the bike nor can claim for
compensation.
EXCEPTIONS OF DOCTRINE OF CAVEAT EMPTOR
1. FITNESS FOR BUYER’S PURPOSE – SEC. 16(1)
2. SALE UNDER A TRADE OR PATENT NAME – SEC. 16(1)
3. MERCHANTABLE QUALITY – SEC. 16(2)
4. USAGE OF TRADE – SEC. 16(3)
5. CONSENT BY FRAUD
6. GOODS SOLD BY DESCRIPTION
7. SALE BY SAMPLE
8. SALE BY DESCRIPTION AND SAMPLE
9. FRAUD OR MISREPRESENTATION BY THE SELLER

o Fitness for buyer’s purpose: When the seller is aware of the purpose for which the buyer
requires the product and when the buyer relies on the judgement and skill of the seller,
there is an implied condition that the product purchased serves the purpose for which it
was bought. When the goods are sold under a trade name or patent mark, this condition
does not apply.
o Sale under a trade or patent name: When the buyer purchases products from the seller
who sells goods of trade or patent mark, there is an implied condition that the product is
of merchantable quality.
o Merchantable Quality: There is a custom or tradition where a seller has been dealing in
goods which are according to the accepted description. For instance, a bicycle would be
one that is technically made for transport by peddling and that is in condition
corresponding to its product description. It is a reasonably good product and the buyer
may well assume it to be so.
o Usage of Trade: An implied warranty or condition as to its quality and fitness for a
particular purpose may be annexed by the usage of trade.
o Consent by Fraud: It happens when the seller knowingly conceals the defects which could
not be discovered by the buyer with the reasonable application of skill and judgement at
the time of purchase. The consent is obtained by fraud and, hence, the seller cannot
charge the buyer for his negligence to examine.
o Goods sold by Description: When the buyer buys the goods based only on the description
there will be an exception. If the goods do not match the description then in such a case
the seller will be responsible for the goods.
o Sale by Sample: If the buyer buys his goods after examining a sample then the rule of
Doctrine of Caveat Emptor will not apply. If the rest of the goods do not resemble the
sample, the buyer cannot be held responsible. In this case, the seller will be the one
responsible. For example, A places an order for 50 toy cars with B. He checks one sample
where the car is red. The rest of the cars turn out orange. Here the doctrine will not apply
and B will be responsible.
o Sale by Description and Sample: If the sale is done via a sample as well as a description
of the product, the buyer will not be responsible if the goods do not resemble the sample
and/or the description. Then the responsibility will fall squarely on the seller.
o Fraud or Misrepresentation by the Seller: This is another important exception. If the
seller obtains the consent of the buyer by fraud then caveat emptor will not apply. Also if
the seller conceals any material defects of the goods which are later discovered on closer
examination then again the buyer will not be responsible. In both cases, the seller will be
the guilty party.

TRANSFER OF PROPERTY/ OWNERSHIP

The transfer of property (or ownership) is important as it determines who owns the goods at
a particular point during the contract.
The term transfer of property implies transfer of ownership and not physical possession of
goods.
Transfer of Property Definition: In the following sections “transfer of property” means an act
by which a living person conveys property, in present or in future, to one or more other living
persons, or to himself and one or more other living persons; and “to transfer property” is to
perform such act.
In this section “living person includes a company or association or body of individuals,
whether incorporated or not, but nothing herein contained shall affect any law for the time
being in force relating to transfer of property to or by companies, associations or bodies of
individuals.
Essential elements of the Transfer of Property Act, 1882
• To be a living or juristic person: For a transfer of property, there must be a transfer
between living and a juristic person. In Shiromanigurudwara Prabhakar committee,
Amritsar v. Sri Somnath Dass (2000) the court defines a juristic person which can be
an individual firm, corporate, company society, association, but not a partnership.
Anyone who can sue or can be sued would satisfy this requirement.
• Transfer through Conveyance: Conveyance of property can be either done in the
present or in the future. It is necessary to ensure nothing is transferred before the
title.
 • The Property must be transferable: According to Section 6 of transfer of property Act,
1882 there are properties which cannot be transferred:
KINDS OF TRANSFER UNDER THE TRANSFER OF PROPERTY ACT, 1882
1. Sale of immovable property: There is a transfer of ownership from the buyer to the
seller in exchange for the price. Delivery of tangible property from the seller to the
buyer.
2. Mortgage of immovable property: The property gets transferred from the buyer to
the seller in the form of a mortgage where the immovable property is mortgaged to
secure a loan. The mortgagor has to pay the principal loan along with the interest to
release the immovable property from the mortgage.
3. Leases of immovable property: The possession of the property is being transferred
from one person to another person for a fixed price in this scenario there is no transfer
of ownership.
4. Exchange of immovable property: When two persons mutually decide to transfer
immovable property it would be referred to as an exchange of property.
5. Gift of immovable property: According to the transfer of property Act, 1882, gift
refers to a transfer of movable or immovable property violently or without the
consideration, by one person that is donee, to donor transfer is accepted by and on
behalf of the donee.
Sections 18 to 25 of Sales of Goods Act 1930 lay down the rules which determine when
ownership of the property passes from the seller to the buyer.
These rules may be summarised as follow:
1. Transfer of Property in Specific Goods i.e. Ascertained Goods
• Ownership is transferred at the time of making contract [Sec 20]
• Ownership is transferred when goods are put in deliverable state [Sec 21]
• Ownership is transferred when goods in the deliverable state put to weighted or
measured to ascertained price [Sec 22]
2. Transfer of Property in Unascertained Goods
• Goods are ascertained (valid appropriation)
3. Transfer of Property in Sale on approval [Sec. 24]
4. Transfer of Property When Right of Disposal is Reserved [Sec. 25]
• By taking a document of title in his own name or his agent’s name [Sec. 25(2)]
• When the bills of exchange along with the RR/bill of lading is sent to the buyer [Sec.
25(3)]

A. Transfer of Property in Specific Goods: In case of the sale of specific goods, the rules
relating to the transfer of ownership are contained in Sections 20-22 of the Sales of
Goods Act which may be discussed as under:
Ownership is transferred at the time of making contract: The ownership is transferred
immediately at the time of making the contract if all the following conditions are satisfied:
 a. the contract is for specific goods. b. The goods are in a deliverable state. c. The goods
are not required to be weight or measured for determining the price. Example: A sold to
B, 100 bales of cotton lying in his warehouse. Before the bales could be identified and
separated, all the bales were destroyed on the fire. Here, the seller is liable for damage
because the ownership is not transferred.
Ownership is transferred when goods are put in a deliverable state: If the goods are not
ready in the deliverable state at the time of making the contract of sale, the ownership of
goods is transferred after the formation of the contract of sale when the following
conditions are satisfied: a) The contract is for specific goods. b) The goods are put in a
deliverable state by the seller. c) The fact that the goods are put into a deliverable state
has come to the knowledge of the buyer. Example: A certain quantity of oil was purchased
by A. The oil was to be filled in tins. B filled up some of the tins and informed A to take the
delivery. In the meantime, a fire destroyed the entire quantity of oil. Held, A will bear the
loss of the oil which was filled in the tins and the seller must bear the loss of the balance.
Ownership is transferred when goods in the deliverable state put to weighted or
measured to ascertained price: If the goods are not weighed or measured at the time of
making a contract of sale, the ownership of the goods is transferred after the formation
of the contract of sale when the following conditions are satisfied: a) The contract is for
specific goods. b) At the time of formation, the price is not determined. It is determined
later by the weight or measurement. c) The goods are put in a deliverable state by the
seller. d) The fact that goods have been weighted or measured in order to determine the
price has come to the knowledge of the buyer. Example: A sold 10 Kg of sugar. The sugar
was to be weighted. Before the sugar was weighted, it was carried away by the flood.
Held, the ownership of the sugar was left with the seller and it did not pass to the buyer.

B. Transfer of Property in Unascertained Goods: The goods are not transferred to the
buyer until and unless they are ascertained. Example: You buy 100 bags of cement
and pay for it and take it away; you promise to take another 100, but you have not
ascertained unconditionally, that is, you may take them if you need—there is no
contract for the next 100 bags. How goods are ascertained? – By valid appropriation
❖ Appropriation: Appropriation means selection of goods with the mutual consent of the
parties. The following are the essentials of appropriation: The goods should confirm to
the description and quality stated in the contract. b) The goods must be in a deliverable
state. c) The goods must be unconditionally (as distinguished from an intention to
appropriate) appropriated to the contract either by delivery to buyer or his agent or the
carrier. Example: The cement dealer selected 100 bags that you approved, paid, and took
away. Upon your consent, he set apart another 100 bags, but you failed to take them away
and they got damaged. You are liable for the damage because you had consented to take
them although the payment was pending.
 C. Transfer of Property in Sale on approval: When the goods are delivered to the buyer
on approval basis, from the moment of approval or ‘on sale or return,’ or on other
similar terms, the goods transferred to the ownership of the buyer. Example: A
bookseller sends a consignment of books to the library; the librarian approves some
and keeps them and sends back the rest.

D. Transfer of Property When Right of Disposal is reserved: The object of reserving the
right of disposal of goods is to secure that the price is paid before the property passes
to the buyer. For example, under the VPP (Value Pre Paid) system the ownership
passes to the buyer when the price is paid against the delivery of goods, till then the
seller retains control over the goods.

Section 25(1) lays down that: — in a contract for the sale of specific goods or where goods
are subsequently appropriated to the contract,
• The seller may reserve the right of disposal of the goods until certain conditions are
fulfilled.
• In such a case, even if the goods are delivered to the buyer himself, or to a carrier or
other bailee for transmission to the buyer, the buyer does not acquire ownership until
the conditions imposed by the seller are satisfied. For example, X sends certain goods
by lorry to Y and instructs the lorry driver not to deliver the goods until the price is
paid by Y to the lorry driver. The property passes only when the price is paid.
— In the following circumstances, the seller is presumed to have reserved the right of
the disposal:
✓ By taking a document of title in his own name or his agent’s name [Sec. 25(2)]: When
goods are shipped or delivered to railways for carriage but the document of title i.e.
the bill of lading are taken by the seller in his own name or in his agent’s name, the
seller is presumed to have reserved the right of disposal. The property passes over to
the buyer only when the buyer pays the price in exchange of bill of lading or the
railway receipt.
✓ When the bills of exchange along with the RR/bill of lading is sent to the buyer. [Sec.
25(3)].: If the goods are delivered to a carrier (i.e. the shipping company or railways)
and the bill of lading or RR are taken in the name of the buyer. But the seller draws
a bill of exchange on the buyer for the price of the goods and sends the same to the
buyer along with the bill of lading or railway receipts to secure the payment of the
price. The property in goods does not pass to the buyer until he accepts the bill of
exchange or pays the price of the goods. If he retains the goods without accepting the
bill of exchange or payment of the price the property does not pass
C.I.F. CONTRACT
The words 'C.I.F.' stand for cost, insurance and freight.
A CIF contract is a type of contract wherein the price includes cost, insurance and freight
charges. Under a CIF contract the seller is required to insure the goods, deliver them to the
 shipping company, arrange for their affreightment and send the bill of lading and insurance
policy together with the invoice and a certificate of origin to a bank.
The documents are usually delivered by the bank against payment of seller since he continues
to be the owner of goods until the buyer pays for them and obtains the documents. The
property in the goods passes to the buyer on the delivery of documents. The buyer is equally
protected as he is called upon to pay only against the documents and the moment he pays,
he obtains the documents, which enable him to get delivery of the goods. If in the meantime
the goods are lost neither the buyer nor the seller is put to loss, whoever is the owner at the
time of the loss can recover it from the insurer.
As per Article 141 of the UAE Commercial Transactions Law Federal Law (18) of 1993, a CIF
contract is one in which the price of the goods sold, marine insurance charges, and freight via
vessel until the destined port, the expenses are all paid in one lump sum amount. The
products will be considered sold to the buyer once the vessel has completed its shipment,
and the buyer will be responsible for any perishing from that point on. The sale will be
regarded as a cost and freight sale if the seller fails to offer insurance coverage.

F.O.B. OR F.O.R CONTRACTS

F.O.B. OR F.O.R Contracts -- F.O.B. stands for 'Free on Board' and F.O.R. stands for 'Free on
Rail'. In a F.O.B. (or F.O.R.) contract, the seller is required to deliver the goods on board the
ship (or on rail), named in the contract. Thus, the seller has to bear all expenses up to and
including shipment of goods on behalf of the buyer, who is responsible for their freight,
insurance and subsequent expenses.
Thus, as soon as the goods are put on board the ship, the property in them passes to the
buyer. This will be so even if the goods are not specific or ascertained. The buyer is liable to
pay the price even if the goods are lost in transit. The property in goods shall, however not
pass if the seller reserves the right of disposal.
Difference between CIF contracts and FOB contracts
CIF contract FOB contract
Cash, Insurance and Freight contract is the Free on Board contract is the abbreviation for
abbreviation for CIF contract. FOB contract.
Under this contract, the seller will bear all Under this contract, the seller will pass all
transportation expenses and hazards until delivery, costs and risks to the buyer after the
at which point the buyer will accept responsibility. shipment is put on board the shipping vessel.
The CIF contract is preferred by the buyers. The FOB contract is preferred by the sellers.
The FOB contracts are cheaper and more
The CIF contract is expensive.
cost-effective.
In FOB contracts, the buyer has more control
In CIF contracts, the seller has more control as they
over choosing shippers and insurance
choose preferred shippers who may be more costly.
limitations.
 The FOB is considered a better way to buy
The CIF is considered a better way to buy goods for
goods for those who are familiar with
those who are new to international trade.
international trade.
The buyer makes profits from buying FOB.
The seller makes profits from the freight services.
This is advantageous in buying this contract.

PERFORMANCE OF CONTRACT OF SALE

Who is a seller
The definition of the seller is given in Section 2(13) of the Sale of Goods Act, 1930. The seller
can be defined as a person who agrees to sell goods.
Rights of the Seller (Section 31)
• He can reserve the rights of the goods until and unless payment of goods is done.
• He can assume that the buyer has accepted the goods or not.
• He will only deliver the goods when the buyer would apply for the delivery.
• He can make the goods delivered in instalments when so agreed by the buyer.
• He can have the possession of the goods until the buyer hasn’t paid for the goods.
• He can stop the delivery of goods and resume possession of the goods unless and until
the payment is done for the goods.
• He can resell the goods under certain conditions.
• He can bring the goods back if it is not delivered to the buyer.
• He can sue the buyer if the buyer fails to make the payment on a certain day, in terms
of the contract.
Duties of seller
• He should make an arrangement for the transfer of property to the buyer.
• He should check whether the goods are delivered properly or not.
• He should give a proper title to the goods which he has to pass to the buyer.
• He should deliver the goods according to the terms of the agreement.
• He should ensure that the goods supplied should be agreed to the implied condition
and warranties.
• He should keep the goods in a deliverable state and deliver the goods when the buyer
asks for it.
• He should deliver the goods within a specific time fixed in the contract.
• He should bear all the expenses for which the good should be delivered.
• He should deliver the goods as said by the buyer in the contract in an agreed quantity.
• To deliver the goods in instalments only when the buyer wants.
• He should make arrangements for the goods while they are in the custody of the
carrier.
Who is a buyer?
The definition of the buyer is given in Section 2(1) of the Sale of Goods Act, 1930. The buyer
can be defined as a person who buys goods from the seller.
Rights of the Buyer (Section 31)
 • He should get the delivery of the goods as per contract.
• He can reject the goods if the quality and quantity are not as specified in the contract.
• To deny the contract when goods are delivered in instalments without any agreement
to the effects.
• The seller should inform him when the goods are to be sent by sea route, so that the
buyer may arrange for their insurance.
• He can examine the goods for checking whether they are in the agreement with the
contract.
• If he has already paid, he can sue the seller for recovery of the price if the seller fails
to deliver the goods.
• He can also sue the seller for damages or the seller’s wrongful neglect or the seller
refuses to deliver the goods to the buyer.
• He can sue the seller for damages for breach of a warranty or for breach of a condition.
• He can sue the seller for the damages of breach of contract.
Duties of the Buyer
• He should accept the delivery of goods when the seller is prepared to make the
delivery as per the contract.
• To have possession on it he should pay the price for the goods as per the contract.
• He should apply for the delivery of the goods.
• He can ask to deliver the goods at a particular time.
• He should accept delivery of the goods in instalments and pay for it according to the
contract.
• He should bear the risk of failure of delivery of goods if the delivery point is a distant
place.
• He should pay the price on the transfer of possession of the goods as given in the term
of the contract.
• He has to pay for not accepting the goods.

What is Delivery?
Delivery of goods means the seller has delivered the goods to the buyer at his agreed-upon
place of delivery, and the buyer has paid the price and accepted the goods delivered. The
transfer of ownership is fundamental to a contract of sale. Under a contract of sale, there are
three types of transfers: the passing of property, the delivery of goods, and the passing of
risk. Delivery can also be seen as the last covered mile in a contract of sale, and the contract
gets discharged by the performance of both the seller and the buyer.
What is Delivery under Sale of Goods Act 1930?
As provided under Section 2(2), delivery is the voluntary transfer of possession from one
person to another. Physical possession is unimportant for delivery purposes. The buyer should
be placed in a situation where he may exercise his entitlement to the products. Delivery of
goods sold may be accomplished by doing anything that the parties agree will be viewed as
delivery or that has the effect of placing the products in the custody of the buyer or any person
authorized to keep them on his behalf.
Consequently, if ownership is obtained in an unjust manner, the commodities are not
delivered. Delivery of goods sold may be done by doing anything that the parties agree shall
be considered as delivery, or by putting the items in the custody of the buyer or any person
authorized to keep them on his behalf.
For example, Aman contracts with Raman to buy 200 units of shoes. Raman agreed to deliver
the shoes to Aman’s warehouse on 1/4/24 during business hours. On 1/4/24, Raman
delivered the goods to Aman’s warehouse. Aman accepted the goods and paid the price for
200 units of shoes. This is a simple example of delivery between two parties.
Modes of Delivery under Sale of Goods Act 1930
Delivery of goods is of three types:
1. Actual Delivery: It is known as physical delivery and occurs when the seller or his or her
authorized agency physically hands over the goods to the buyer or his or her agent, who is
allowed to take possession of them. For example, A, the vendor of a car, passes it over to B,
the buyer; this is an example of real delivery of goods.
2. Symbolic Delivery: When the items are too large and heavy to physically hand over to the
customer, they might be delivered by signifying or delivering a symbol instead. The things
themselves are not supplied in this case, but rather the means of acquiring control of
them. For example, providing the keys to the warehouse where the goods are held, the keys
to a purchased automobile to the buyer, or a bill of lading that entitles the holder to collect
the items upon the arrival of the ship.
3. Constructive Delivery: In this scenario, no physical or symbolic delivery is done. In
constructive delivery, the party who is in possession of the items acknowledges that he/she
retains the goods for the benefit and disposal of the purchaser. Constructive delivery is also
known as attornment.
Rules as to Delivery of Goods
1. Delivery: The parties may agree to regard anything as delivery if it results in the items being
in the buyer’s or authorized representative’s possession.
2. Effect of Part Delivery (Section 34): Delivering a portion of goods while the whole is being
delivered has the same implications as passing the property. However, delivering a portion of
goods with the objective of severing it from the whole does not operate as a delivery of the
remainder.
3. Buyer Must Apply for Delivery (Section 35): The seller of goods is not bound to deliver the
goods until the buyer applies for delivery, informing the time and place of delivery, apart from
the case of an express contract.
4. Delivery Locations [Section 36(1)]: Whether the buyer takes ownership of the products or
the seller sends them to the buyer is determined by the written or implicit contract between
the parties. Aside from any such contract, commodities sold are to be delivered at the location
at which they are at the time of the sale, and goods agreed to be sold are to be delivered at
the place at which they are at the time of the agreement to sell, or not then in existence, at
the location where they are made or produced.
5. Time of Delivery [Section 36(2) & (4)]: If the seller is required to transmit products to the
buyer but the time is not specified in the contract, they must send them within a reasonable
time frame.
6. Goods Held by a Third Party: Where the products are in the custody of a third party at the
time of sale, no delivery occurs until and unless such third party acknowledges to the buyer
stating that the goods are possessed on his behalf. This clause, however, has no bearing on
the procedure of issuing or transferring any document of title to goods.
7. Time for Tender of Delivery: Delivery must be made within a reasonable time frame or it
may be considered ineffective. What constitutes an acceptable hour is an issue of fact.
8. Expenses for Delivery [Section 36(5)]: The seller is responsible for all expenses related to
preparing the items for delivery, unless a contract states otherwise.
9. Delivery of Incorrect Amount (Section 37): If the seller delivers to the buyer a number of
goods smaller than he committed to sell, the buyer may reject them; nevertheless, if the
buyer accepts the products as provided, he must pay for them at the contract rate. When the
seller delivers to the customer more products than he agreed to sell, the buyer has the option
of accepting the commodities contained in the contract and rejecting the remainder, or
rejecting the entire transaction. If the buyer approves all of the products supplied, he will pay
for them at the negotiated rate.
10. Installment Deliveries (Section 38): The buyer of goods is not required to accept delivery
in installments, except in the case when the same has been agreed between the both parties.
The contracting parties may decide their rights and obligations in circumstances of installment
delivery and payments.
11. Delivery to Carrier (Section 39): According to the contract, delivering goods to the carrier
for transmission to the buyer is considered delivery to the buyer.
12. Deterioration During Transport: When products are sent to a remote location, the buyer
is responsible for any deterioration that occurs during transit, even if the seller agrees to
deliver at their risk.
Acceptance of Delivery by a Buyer
As established under Section 42 of the Sales of Goods Act 1930, acceptance occurs when the
buyer:
• Informs the seller that they have accepted the goods.
• Acts inconsistently with the seller’s ownership, or
• Retains the goods after a reasonable time without informing the seller of rejection.

RIGHTS OF UNPAID SELLER

Rights of Unpaid Seller
The seller of goods is deemed to be an ‘unpaid seller’ within the meaning of this Act —
(a) When the whole of the price has not been paid or tendered.
(b) When a bill of exchange or other negotiable instrument has been received as conditional
payment, and the conditions on which it was received has not been fulfilled by reason of the
dishonour of the instrument or otherwise. – Sec. 45(1), the Sale of Goods Act, 1930
Who is unpaid seller?
• Unpaid Seller If a seller, who is unable to get the payment even after delivering the goods
and also if the seller fails to receive either money or instrumental benefit in return of his
goods due to misleading of the buyer is known as an unpaid seller.
• The seller to whom the full price of the goods sold has not been paid the price is known
as an unpaid seller.
• Unpaid sellers are those sellers to whom the buyer has failed to pay or has refused to
pay for the goods.
A seller of goods is deemed to be unpaid in the following cases:
1. The price must be due but not paid.
2. A negotiable instrument like cheque and bill of exchange was received but the same
has been dishonoured.
3. The seller who has obtained a decree for the price of the goods will also be an unpaid
seller if the decree has not been satisfied.
4. When the seller has been paid a large amount but a small portion of the payment
remains to be paid.
5. When the price has been paid but some other expenses which were payable to the
seller has not been paid.
6. The seller must have an immediate right of action for the price.
Example: A sells goods worth Rs 1, 00,000 to B on the credit of six months. After six months,
B did not pay the price. A shall be regarded as an unpaid seller.
RIGHTS OF AN UNPAID SELLER
As per the Section 46 of the Sales of Goods Act, an unpaid seller has been given the following
rights both against the goods and the buyer:
 A. RIGHTS OF AN UNPAID SELLER AGAINST THE GOODS: In some cases, after the sale of
goods the seller continues to have possession of the sold goods. At such times, an unpaid
seller has certain rights against the goods. These can be further studied under two heads;
i. Property has passed to the buyer: When the ownership of goods is transferred to the
buyer, there are three rights of an unpaid seller. These are:
Right of Lien – [Sections 47-49]: The Right of Lien means, the right to retain the
possession of the goods until the charges or the full price has been paid. This right is
available to the unpaid seller where the goods have been transferred to the buyer.
This is because lien depends on possession. Even if the seller has handed over the
documents of title to the buyer, the lien is not affected. “According to Section 47, the
unpaid seller can exercise a lien, only when the following conditions are satisfied:
• Where the goods have been sold without stipulation as to credit; or
• Where the goods have been sold on credit but the term of credit has expired; or
• When the buyer has become insolvent.” “If in such case where the unpaid seller
has made only a part of the delivery of the goods he has the right of lien on the
rest of the goods unless such part delivery has been made under an agreement to
waive the lien” [Section 48].
Right of stoppage in transit – [Sections 50-52]: The right of stoppage in transit is an
extension of the right of lien. The right of lien is a right to retain the possession,
whereas the right of stoppage in transit is a right to regain the possession. The right
of stoppage in transit can be exercised if the goods are in transit and the buyer has
become insolvent in the meantime.
Conditions: unpaid Seller + possession of goods with carrier (independent) + insolvent
buyer. Duration of transit (Section 51): The goods are stopped to be in transit in the following
situations:
• As Seller’s Agent: In this case, the seller has a lien on the goods, so question of
right of stoppage in transit does not arise.
 • As Buyer’s Agent: In this case, the seller cannot exercise the right of stoppage in
transit.
• In an Independent Capacity: In this case, sit from the time they are delivered to a
carrier for the purpose of transmission to the buyer, until the buyer or his agent
takes their delivery.
Right of Re-sale: Section 54 indicates that “the unpaid seller has the right of resale.“
When the seller uses his right of lien or stoppage in transit, the contract continues to
remain in force and the buyer can claim delivery of goods by paying for the goods. The
seller is not expected to wait indefinitely for the buyer to make the payment.
However, just because the seller is unpaid, the property in the goods cannot pass to
the unpaid seller again. The buyer has the right to the property, and he has the option
to pay the price and take the delivery of goods at any time.
• Where the goods are of perishable and will lose value in a short time:
the unpaid seller can resell the goods, in such a situation where buyer fails to pay
the price within a reasonable time.
• Where the unpaid seller has used his right of lien or of stoppage in transit and
gives notice to the buyer of his decision to resell the goods: the unpaid seller may,
if the buyer does not pay or tender the price within a reasonable time, resell the
goods.
ii. Property has not passed: When the ownership of goods is not transferred to the buyer,
there are two rights of an unpaid seller. These are:
• Withhold Delivery Right to withhold Delivery of Goods: The right to withhold the
delivery of goods means the seller refuses to deliver the goods to the buyer. The right
to withhold the delivery of goods is in addition to the other remedies available to the
seller. The following conditions must be satisfied to exercise the right to withhold the
delivery of goods: The seller is an unpaid seller. The ownership of goods has not been
passed. * Stoppage in transit

B. Rights of unpaid seller against the buyer: Just as the seller can rescind the contract, then
so can the seller. When the seller breaches the contract the buyer also has certain
remedies against the seller. Let us take a look at some remedies that the Sales Act
prescribes for the buyer.
i. Suit for damages for non-delivery – [Sec. 56]: When the seller wrongfully neglects or
refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for
non-delivery. This is in addition to the buyer’s right to recover the price, if already paid, in
case of non-delivery.
ii. Suit for price – [Sec. 55]: Where the buyer has paid the price and the goods are not
delivered to him, he can recover the amount paid.
iii. Suit for specific performance: When the goods are specific or ascertained, a buyer may
sue the seller for specific performance of the contract and compel him to deliver the same
goods.
iv. The court orders for specific performance only when the goods are specific or ascertained
and an order for damages would not be an adequate remedy.
v. Suit for breach of warranty: Where there is a breach of warranty by the seller, or where
the buyer elects or is compelled to treat the breach of condition as breach of warranty,
the buyer cannot reject the goods. The buyer may, a) set up the breach of a warranty in
extinction of the price payable by him, or (b) sue the seller for damages for breach of
warranty.
vi. Suit for damages for repudiation of contract before due date – [Sect. 60]: Where the
seller repudiates the contract before the date of delivery, the buyer may adopt any of the
following two courses of action:
o Damages for anticipatory breach: He may treat the contract as rescinded and sue the
seller for damages.
o He may treat the contract as subsisting and wait till the date of delivery. The contract
remains open at the risk and for the benefit of both the parties. If the seller subsequently
chooses to perform there shall be no damages otherwise, he shall be liable to damages
assessed according to the prices on the day stipulated for delivery.
vii. Suit for interest – [Sec. 61]: The buyer may recover such interest or special damages, as
may be recoverable by law. He may also recover the money paid where the consideration
for the payment of it has failed.