Module 3

Sale of Goods Act, 1930

Buyer and Seller

Buyer – Section 2(1)

“Buyer” means a person who **buys or agrees to buy goods.”
Seller – Section 2(13)
“Seller” means a person who **sells or agrees to sell goods.”

Key Concepts and Features

Aspect Buyer Seller
Nature One who buys or agrees to buy goods One who sells or agrees to sell goods
Intention Intends to acquire ownership of goods Intends to transfer ownership of goods
Consideration Pays or promises to pay a price Accepts or agrees to accept a price
Type of Involves a contract of sale (Section 4) Also a party to a contract of sale
Contract
Status May be actual (buyer) or prospective May be actual (seller) or prospective
(agrees) (agrees)
Right to Reject May reject goods not conforming to Must deliver goods according to
contract contract

Mutual Relationship: Buyer vs Seller

The buyer and seller are contracting parties in a contract of sale of goods, where:
 Seller agrees to transfer ownership of goods
 Buyer agrees to pay price for those goods
Example:
A agrees to sell 100 pens to B for ₹500.
A is the seller, B is the buyer.

Legal Obligations
Duties of Buyer:
1. To accept goods if they conform to contract
2. To pay for the goods as agreed (Section 31)
3. To take delivery within reasonable time (Section 33)
Duties of Seller:
1. To deliver goods as per contract (Section 31)
2. To ensure goods match the description/sample
3. To pass good title and not breach warranty

Rights of Buyer:
 To receive delivery of goods
 To reject defective or late goods
 To sue for damages or specific performance
Rights of Seller:
 To receive payment
 To sue for price or damages
 Right of lien, stoppage in transit, and resale in some cases
Important Case Law
Rowland v. Divall (1923)
A buyer of a stolen car was allowed to recover the price from the seller, even though he used the car for
some time, because ownership never passed.

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 certain price Section 4(1)

Section 4(3)
Sale = When the ownership of goods is transferred from the seller to the buyer under a contract

Agreement to Sell = transfer of ownership is to be made on the fulfilment of some condition

When the condition in such agreement has been fulfilled, or the transfer of ownership of goods has
occurred, the agreement to sell becomes a sale

Essentials
1. Valid Contract
- A contract of sale is just like any other contract under ICA, 1872
- Should satisfy essentials namely:
1. Valid offer
2. Valid Acceptance
3. Valid and lawful consideration
4. Parties must be competent to contract
5. Lawful object etc.
- Contract of sale can be express or implied

2. Two Parties
- Two parties – Buyer and Seller
- Buyer = buys goods or makes agreement to buy
- Seller = sells goods or makes an agreement to sell
- Buyer and seller must be different persons
- Exceptions to rule above:
o Where a person’s goods are sold in execution of a decree, he may himself buy them
o A part owner can sell his share to the other part owner so as to make the other part owner
the sole owner of the goods
o Where a pawnee sells the goods pledged with him on non-payment of bill money, the
pawnor may himself buy such goods
o A partner may also buy the goods from the firm in which he is a partner and vice versa
o In case there is a sale by auction, the seller may reserve right of making a bid at the auction
and may thus purchase his own goods

3. Goods
- The subject matter of the contract of sale is essentially the goods
- Goods = movable property other than actionable claims and money and includes stocks and
shares, growing crops, grass, trees and things attached to or forming part of the land which are
separated from land which are agreed to be separated before sale under the contract of sale
- Ancient rare coins also goods
 - Case: Kurseer vs. Timer Operators and Contractors Ltd – where the trees were sold so that they
were to be cut out and separated from land and taken away by the buyer. Contract was for sale of
trees as movable goods.

4. Price
- Goods always sold for a price
- Must be consideration for sale of goods and must be in terms of money
- Barter = not a sale
- But in the case of Aldridge vs Johnson, it was held that a transaction partly for money and partly for
goods was a sale

5. Transfer of Ownership
- Essential that ownership is transferred from seller  buyer
- Transfer of ownership can be at the time of making the contract or can be at a future date
- Transfer at time of contract = sale
- Transfer at future date = agreement to sell

Difference Between Sale and Agreement to Sell

Basis Sale Agreement to Sell
Sec 4(3)  where under a
Sec 4(3)  where under a contract of sale, the transfer of
contract of sale, the property property in goods is to take place
Definition
in goods is transferred from at a future date or subject to
the seller to the buyer some conditions thereafter to be
fulfilled
Executory contract (property
Nature of Contract Executed contract
passes in the future)
Transfer of Takes place in future or subject
Takes place immediately
Property/Ownership to fulfilment of some condition
Seller is to bear risk of loss even
Transfer of risk Seller to buyer though goods are in possession
of the buyer
Only agreement between the
Buyer has the right to use the
buyer and the seller and doesn’t
goods he buys  sole owner
Right of Usage give the buyer the right to use
and can use them in any
the goods till ownership of goods
manner
is transferred to the buyer
Only existing and specific
Type of Goods goods can be subject matter of Future or contingent
sale
Rights of Seller Seller can sue the buyer for Seller can sue the buyer for
Against Buyer’s the price even if goods are in damages even though goods are
Breach his possession in the possession of the buyer
Buyer can sue for damages
Rights of Buyer
and can sue the third party Buyer can sue the seller for
Against Seller’s
who bought those goods, for damages for breach
Breach
goods
Buyer gets a right to enjoy the
Buyer doesn’t get such right to
goods against the whole world
Conveyance of enjoy the goods creates a jus
including seller  sale creates
Property in personam (right against the
a jus in rem (right against
person)
property)
 Property in the goods remains
The property is with the buyer
with the seller and hence he can
Right of Resale and as such the seller cannot
resell the goods if buyer commits
resell the goods
breach of contract
If the seller becomes insolvent
If seller becomes insolvent after
after sale but before the
agreement to sell  buyer can
Effect of insolvency delivery of goods  buyer can
claim rateable dividend for the
of seller having claim the goods from official
price of the goods if he has
possession of goods assignee/receiver of the seller
already paid and not the goods
because the buyer is legal
owner
If the buyer becomes
insolvent, the official receiver The seller is not bound to deliver
Effect of insolvency can claim the goods from the the goods unless the full price of
of the buyer before seller because the buyer is the the goods is paid to him because
paying the price owner. Seller is entitled to the ownership of the goods is
rateable dividend for the price still with the seller
only
If the seller defaults in
delivering goods to the buyer Buyer can sue for damages only
 buyer can claim damages in case the seller defaults in
Default by Seller
and can also file suit against delivering goods because seller is
third party as owner of the owner
goods
Right Jus in Rem Jus in Personam
Effect Present Sale Future sale

Conditions and Warranties

- A contract of sale contains some stipulations (conditions or requirements that form a part of
agreement)

Condition
1. Essential to main contract
2. If conditions are not performed, contract can be repudiated

Warranty
1. Collateral/connected to the main contract
2. if warranty not performed, contract cannot be repudiated but can claim damages

Implied Conditions
1. Implied Condition as to Title
- There is an implied condition on the part of the seller that the seller has the right to sell the goods
and that he has title to the goods.
- If the seller has no title and the buyer has to give up the goods to the real owner then buyer is
entitled to get return to the price of the goods

2. Implied Condition on Sale by Description

- There is an implied condition for the sale of goods by description that the goods shall correspond to
the description
- If the goods don’t correspond to the description, then the buyer has the right to repudiate the
contract
 3. Implied Condition on Sale by Sample
- There is an implied condition for the sale of goods by sample that the goods shall correspond to the
sample provided
- If the goods don’t correspond to the sample provided, then the buyer can repudiate the contract

4. Implied Condition as to Quality or Fitness

- Generally, there is no implied warranty or condition as to the quality or fitness of any goods
except:
i. If the buyer makes the seller know the particular purpose for which the goods are required
ii. The buyer relies on the skill and judgement of the seller
iii. There is an implied condition that the goods are of merchantable quality
Here the maxim “Caveat Emptor” i.e. “Let the buyer be aware” applies.

Caveat Emptor (Section 16)

- Means buyer must take care/buyer beware
- General rule is that the buyer purchases the goods at his own risk relying upon his own skill and
judgement
- In contract of sale, there is no implied warranty and condition as to the quality and fitness of the
goods

Case: Andrew Yule & Co.

- Buyer purchased a cloth for the purpose of packing
- Seller didn’t know purpose
- Cloth had a particular type of smell
- Was not for packing
- Buyer filed a case but court rejected his claim due to this doctrine

Exceptions:
i. Custom or Usage of Trade
o There is implied condition as to the quality or fitness for a particular purpose by usage or
trade or custom
o Eg: A bought goods from B in an auction of the contents of a ship. But B didn’t inform A that
the contents were sea damaged. Doctrine will not apply here

ii. Fraud
o Where the seller is guilty of fraud
o Conceals defects in the goods
o Gives false statement
o Seller is liable

iii. For Specific Purpose

o When the buyer makes the seller know the particular purpose for which the goods are
required or the buyer relies on the skill and judgement of the seller
o Seller liable for wrong delivery of goods
o Case: Raghava Menon vs Kuttapan Nair
 A bought expensive watch from B
 Watch was defective and didn’t work properly
 Court held seller liable since goods couldn’t fulfil basic purpose
 iv. Merchantable Quality
o Means commercially saleable quality
o Implied condition
o In case damaged/defective  seller shall be liable
o Case: Frost Aylesbury Dairy Co.
 In this buyer bought milk from seller
 Buyer’s wife consumed milk and died
 Milk wasn’t fit to consume
 Breach of mercantibility

Implied Warranty
1. Implied Warranty of Quiet Possession
- There is an implied warranty under the contract of sale, that after sale the buyer shall enjoy quiet
and peaceful possession of the goods
- If there is a breach of this warranty, the seller is liable to pay damages to the buyer

2. Implied Warranty that Goods are Free from Encumbrances

- The word ‘encumbrances’ include pledge, charge, lien, interest on the goods
- If there is a breach of this implied warranty, the seller is liable to pay damages

Remedies in Case of Breach

1. Breach of Condition – Repudiate the contract
2. Breach of Warranty – Claim damages

Rights of Unpaid Seller

Section 45-48

Section 45 – Definition
- One who has not been paid or received the whole price OR
- One who receives a bill of exchange or other negotiable instrument as conditional payment and
the same has been dishonoured OR
- One who has been partly paid

Rights
1. Where the property in goods HAS PASSED (from buyer to seller)
a. Lien (47-49) – to retain or take back
i. According to Section 47, if the seller hasn’t been paid but ownership has been transferred but
possession still with seller then he can retain
ii. He can exercise lien only when:
1. Goods not sold on credit
2. Even if sold on credit, then credit period should’ve expired
3. Buyer has become insolvent
iii. Termination of lien (49):
1. When seller delivers good to carrier for purpose of transmission
2. Buyer or his agent lawfully obtains possession of goods
3. Waives right of lien against buyer

b. Stoppage in Transit – stop goods been transferred. Tells carrier to stop

i. When seller has delivered goods to carrier for transmission and goods are in transit  if
seller receives information that the buyer has become insolvent  seller has right to stop the
goods in transit and retain possession until payment
 ii. Seller has right of stoppage when:
1. Seller must be unpaid
2. Buyer has become insolvent before payment
3. Goods are in transit
4. Property must’ve passed from seller to the buyer
iii. Section 51 – when seller has delivered the goods to carrier for transmission to the buyer until
the goods are received by the buyer or agent = duration of transit
iv. Carrier may hold the goods:
1. As seller’s agent  no transit because goods are in seller’s lien
2. As buyer’s agent  seller cannot exercise his right of stoppage in transit because
buyer has acquired possession
3. As an independent contractor  seller has and can exercise right of stoppage in
transit, not necessary goods should actually be moving
v. Transit comes to an end:
1. If the buyer/agent obtains delivery before arrival at appointed destination
2. If after the arrival of the goods at the appointed destination, the carrier or other
bailee acknowledges to the buyer or his agent that he holds them on his behalf
3. In case the carrier or other bailee wrongfully refuses to deliver goods to the
buyer/agent

c. Re-Sale – waits for some time for payment but if buyer takes too long, after reasonable notice
seller can resell to new buyer
i. Sec 54 defines when seller can resell the goods:
1. If goods are perishable
2. Unpaid seller has acquired goods by lien or stoppage and has given notice to buyer
 buyer still doesn’t pay  he can resell  seller can also claim any loss he has
suffered in reselling the goods from the buyer  if seller makes any profit on
reselling  defaulting buyer has no claim on such profit
3. Seller has expressly reserved a right of re-sale in case buyer makes a default (in
agreement)
ii. When unpaid seller plans to resell  he is obliged by law to give one last opportunity to the
buyer by informing him of his intention
iii. If the unpaid seller doesn’t inform the buyer of his intention to re-sell and suffers any loss 
cannot later claim such loss from defaulting buyer

2. Where the property in goods HAS NOT PASSED (from buyer to seller) Sec 54
a. With-hold delivery – keep goods with himself until buyer makes payment

3. Against Buyer Personally

a. Suit for price (Sec 55) – file case and ask for price of the goods
i. Ownership has been transferred to the buyer and he refuses to make payment  seller can
file suit
ii. Sec 55(2)  if according to the terms of the contract of sale  payment for the goods is to
be made by a certain time or date by the buyer and such payment has not been made  the
seller has the right to sue the buyer even if the ownership of goods has been transferred to
the latter
b. Suit for damages – claim expenses for preservation of goods
i. Sec 56  buyer refuses to accept goods or defaults in making the payment for them with
mala fide intention  seller can sue for damages
ii. Measure of damages (Sec 73 and 74 of ICA):
1. Where there is an available market for the goods in question, measure is difference
between the contract price and the market price at the date of the breach
 2. Where there is no such market, the measure is estimated loss directly and naturally
resulting in the ordinary course of events from the breach of contract
c. Repudiation of contract – seller can repudiate the contract if buyer refuses to pay
i. Sec 60 – if buyer repudiates the contract before the due date for delivery of goods and seller
doesn’t accept it and waits for the due date  he reserves the right to sue the buyer for
repudiating the contract
d. Suit for interest – seller can claim interest on the amount unpaid by buyer
i. Sec 61 – unpaid seller has right to be paid interest by buyer due to any delay in payment
ii. Such interest is effective from the date when the price is payable
iii. If the goods are sold on credit, interest will run from the expiry of the credit

Auction Sale
- Sale by auction = public sale
- Goods are offered to be sold to the buyer who offers the highest price for the goods or makes the
highest bid
- Auctioneer = person inviting the bid  acts as agent of the seller

Salient Features of an Auction

1. Held at predetermined place at a predetermined time
2. Auctioneer invites prospective buyers to bid for the goods
3. Invitation to bid is in a public gathering
4. Description of the goods being auctioned is announces prior to the auction
5. Offers made by the prospective buyers are by bidding
6. Auctioneer makes the contract of sale with the highest bidder

Rules of Sale by Auction

Section 64 of SOGA

Sec 64(1) Each Lot is a Subject Matter

- When the goods offered for sale are in lots, each lot of goods is deemed to be subject matter of a
contract of sale
- Eg: A lot of 30 bags, each bag is a subject matter for a separate contract of sale

Sec 64(2) Completion of Contract of Sale

- Complete when the auctioneer announces its completion by the fall of the hammer
- Until such announcement is made, bidder may withdraw
- Can only be done by the bidder on the principle that each bid is only an offer and can be withdrawn
before acceptance
- Upon fall of the hammer  sale is complete and the property in the goods passes immediately to
the buyer

Sec 64(3) Reservation of right to bid

- A right to bid may be reserved expressly by or any agent on behalf of the seller
- The seller or any other person on his behalf may bid at the auction

Sec 64(4) Where the sale is not notified by the seller

- In case where the sale is not notified to be subject to a right to bid by the seller or any person
nominated by him  deemed to be fraudulent if seller or his nominee makes a bid in the auction
Sec 64(5) Reserved Price
- An announcement may be made before the auction about the reserved or upset price of the goods
- This implies that the seller to safeguard himself from a possible loss, specifies a minimum price
- If the bids are below the reserved price, the auctioneer is not bound to accept any bid and sell the
goods

Sec 64(6) Pretended Bidding

- If the seller makes use of pretended bidding to raise the price  buyer reserves right to repudiate
the sale
- Sale becomes voidable at the option of the buyer

Default by the Bidder

- Person whose bid is accepted in the auction becomes party to the contract of sale
- Lawfully bound to pay the price he bid
- If he defaults  liable to the auctioneer till such time as the goods are sold
- Any loss the auctioneer might be put to in selling the goods becomes the liability of the bidder

Implied Warranty in Sale by Auction

- The auctioneer is deemed to have the lawful right to sell the goods
- Warrants that he does not know of any defect in his principal’s title
- Buyer is deemed to acquire a good title to the goods after he has paid the bid price
- Auctioneer undertakes to give possession against the price paid into his hands

Delivery of Goods and its Rules

1. Meaning of Delivery (Section 2(2))

Delivery = Voluntary transfer of possession from one person to another.
 This does not mean ownership; just transfer of possession.
 It must be voluntary (not by theft, coercion, or mistake).
Example:
A sells a bag of rice to B. A gives physical possession of the bag to B. That is "delivery".

2. Types of Delivery
(i) Actual Delivery
 Physical handing over of goods to the buyer.
Example:
X buys a TV from Y. Y hands over the TV to X. This is actual delivery.

(ii) Constructive Delivery

 Delivery without physical transfer but with actions that indicate change in possession.
 Usually done when goods are held by a third party.
Example:
A sells goods lying in B’s warehouse to C. A instructs B to now hold those goods on C’s behalf, and B agrees.
That is constructive delivery.

(iii) Symbolic Delivery

 Delivery through a symbol that represents the goods.
Example:
 Giving the key to a godown where the goods are stored.
 Handing over the bill of lading (transport document).
3. Rules Regarding Delivery of Goods
Rule 1: Part Delivery (Section 34)
If part delivery is made in the course of the whole delivery, it is considered delivery of the whole.
Example 1:
A sells 100 bags of sugar to B. A delivers 20 bags now and promises to deliver the rest tomorrow. This 20-
bag delivery is part delivery, and it implies delivery of the whole contract.
Example 2:
If A delivers 20 bags only because B asked to buy just 20 bags out of 100, not intending to complete the
contract, then it's not part delivery under the contract.

Rule 2: Buyer to Apply for Delivery (Section 35)

 Seller is not bound to deliver unless buyer demands delivery.
Example:
A agrees to sell 5 machines to B. B does not come to collect them. A need not chase B — it is B’s duty to
apply for delivery.

Rule 3: Place of Delivery (Section 36(1))

 If not agreed upon, delivery is at the place where goods are at time of sale.
Example:
A buys a painting from B. The painting is at B’s house. If no agreement is made about delivery, B is to
deliver it from his house.

Rule 4: Time of Delivery (Section 36(2))

 Delivery must be made within a reasonable time.
Example:
If goods are perishable (like fruits), “reasonable time” is very short. If goods are machinery, it could be days
or weeks.

Rule 5: Goods in Possession of a Third Party (Section 36(3))

 Delivery is not complete unless the third party acknowledges that it now holds goods on behalf of
buyer.
Example:
A sells goods stored in a warehouse to B. Warehouse must acknowledge to B that it now holds goods for B.

Rule 6: Time for Demand or Tender (Section 36(4))

 Delivery must be made at a reasonable hour, depending on the nature of the goods and business.
Example:
It is not reasonable to deliver a consignment of goods at midnight unless it's a 24-hour operation.

Rule 7: Expenses of Delivery (Section 36(5))

 Seller bears expenses of putting goods in deliverable condition.
 Buyer bears expenses of receiving delivery.
Example:
A sells 100 kg of loose grain. A must pack it in bags (put into deliverable state). But if B wants it transported
to his house, B must pay for the transport.

4. Delivery by Installments (Section 38)

 Buyer is not bound to accept delivery in parts unless agreed.
 If delivery is by instalments and one instalment is defective, the whole contract may or may not be
repudiated depending on the nature and gravity of the breach.
Example 1:
A contracts to sell 100 units of a product in 10 equal instalments. If one instalment is defective but
correctable, B may not be justified in cancelling the full contract.
Example 2:
If several instalments are defective or there is non-payment for many, buyer/seller can treat the contract
as breached.

5. Delivery to Carrier or Wharfinger (Section 39)

 Delivery to a carrier (transport company) or wharfinger (custodian of goods at port/warehouse) is
considered delivery to the buyer.
Seller's Duties:
1. Must make reasonable arrangements to protect the goods.
2. Must notify the buyer (e.g., send transport documents).
Example:
A sends 100 kg rice to B by a transport company. A must:
 Inform B.
 Send transport document.
 Ensure goods are properly packed.
If A doesn’t do this and the goods are damaged in transit, A is liable.

Summary Table: Rights & Duties Related to Delivery

Provision Seller’s Duty Buyer’s Duty
Section 34 (Part Delivery) Deliver full unless agreed otherwise Accept part only if meant as full
delivery
Section 35 (Apply for No obligation until buyer applies Must demand delivery
Delivery)
Section 36(1) (Place) Deliver from proper location -
Section 36(2) (Time) Deliver in reasonable time -
Section 36(3) (Third Party) Arrange acknowledgment -
Section 36(4) (Hour) Deliver at reasonable hour Demand at proper hour
Section 36(5) (Expenses) Pay for packaging/putting in deliverable Pay for receiving delivery
state
Section 38 (Instalments) Deliver properly or face contract risk Accept only if agreed
Section 39 (Carrier Proper arrangement + inform buyer Take delivery based on info
Delivery)

Rules Relating to Passing of Property

Meaning of "Passing of Property"
 Passing of property = transfer of ownership/title in goods from seller to buyer.
 It is not the same as possession (which may pass earlier or later).
 Governing Sections: 18 to 26

Why is "Passing of Property" Important?

Because it determines:
 Who bears risk of loss/damage?
 Who can sue for price or damages?
 Who has ownership rights (e.g., right to sell/resell)?
General Rule: "Risk follows ownership" (Section 26)

Two Broad Categories of Goods

 Type of Goods Sections Involved
Specific or Ascertained Goods Sections 18–22
Unascertained/Future Goods Section 18, Section 23–24

Rules Relating to Passing of Property

1. Goods Must Be Ascertained (Section 18)

"No property in the goods is transferred to the buyer unless and until the goods are ascertained."
Meaning:
 If goods are not identified (unascertained/future), ownership can't pass.
Example:
A contracts to sell 100 bags out of a bulk of 1,000. Ownership doesn’t pass until those 100 are identified.

2. Transfer of Property in Specific/Ascertained Goods (Sections 19–22)

(A) Section 19 – Intention of Parties
Property passes when the parties intend it to pass, as per:
 Terms of contract
 Conduct of parties
 Circumstances of the case
Example:
A sells a painting to B, to be delivered after a week. Ownership may still pass immediately if that’s the
intention of the parties.

(B) Section 20 – Specific Goods in Deliverable State

Property passes when contract is made, if:
1. Goods are specific and in deliverable state
2. No condition remains to be fulfilled
Example:
A sells a ready-made sofa (specific, deliverable). Ownership passes immediately on contract.

(C) Section 21 – Specific Goods Not in Deliverable State

Property does not pass until seller puts goods in a deliverable state.
Example:
A sells a table to B but agrees to polish it first. Ownership passes only after polishing is done.

(D) Section 22 – Specific Goods in Deliverable State but Seller to Do Something (like Weighing,
Measuring, Testing)
Property passes only after that act is done and buyer is notified.
Example:
A agrees to sell oil from a tank after measuring 100 litres. Until measurement is done and buyer is
informed, ownership doesn’t pass.

3. Transfer of Property in Unascertained and Future Goods (Sections 18, 23, 24)
(A) Section 23 – Goods Become Ascertained by Appropriation
Property passes when:
1. Goods are unconditionally appropriated to the contract
2. With mutual assent (either express or implied)
3. By either seller or buyer
Example:
A agrees to sell 100 bags of wheat. He separates 100 bags, loads them into a truck, and informs B. B
agrees. Ownership passes.
(B) Delivery to Carrier (Constructive Appropriation)
If seller delivers goods to a carrier for transmission to buyer, property passes—unless the seller reserves
the right of disposal (Sec. 23(2)).

(C) Section 24 – Sale on Approval or “Sale or Return”

Property passes when:
1. Buyer approves/adopts the goods
2. Buyer does not reject within the agreed or reasonable time
3. Buyer does an act adopting the transaction (like resale)
Example:
A sends clothes to B on “sale or return” for 10 days. B resells after 3 days. Property passed to B on resale.

4. Reservation of Right of Disposal (Section 25)

If seller reserves the right to dispose of goods, property does not pass even if goods are delivered to the
buyer or carrier.
Example:
A sends goods to B through a transporter but retains the railway receipt and bills it through a bank.
Property passes only when B makes payment through bank.

5. Risk Follows Ownership (Section 26)

Risk of damage/loss passes with ownership, unless otherwise agreed.
Example:
If ownership has passed to B and the goods are destroyed in transit (without seller’s fault), B bears the loss.

Summary Table – When Does Ownership Pass?

Situation When Does Ownership Pass?
Specific goods in deliverable state At the time of contract (Section 20)
Specific goods not in deliverable state After seller puts them in deliverable state (Section 21)
Seller to do act like After act is done + buyer is notified (Section 22)
weighing/measuring
Unascertained/future goods When goods are ascertained + appropriated (Section 23)
Sale on approval/sale or return On approval, expiry of time, or act of adoption (Section 24)
Seller reserves right of disposal Property passes only when seller intends to pass it (Section 25)
Ownership & risk Risk passes with ownership (Section 26), unless otherwise
agreed
Difference Between Sale and Hire Purchase
Basis Sale Hire Purchase
Definition Transfer of ownership of goods Delivery of goods with option to purchase
immediately for a price. after payment of all instalments.
Governing Law Sale of Goods Act, 1930 Hire Purchase Act, 1972 (in some states) or
general contract law
Ownership Ownership passes to buyer at the Ownership remains with the seller until all
Transfer time of contract. instalments are paid.
Position of Buyer becomes owner immediately. Hirer is only a bailee until final payment.
Buyer/Hirer
Risk of Loss Risk passes to buyer immediately. Risk remains with owner (seller) until
ownership passes.
Right to Transfer Buyer can resell or transfer the Hirer cannot resell or transfer unless full
goods. ownership is acquired.
Right to Buyer cannot terminate the Hirer can terminate the agreement and
Terminate contract unilaterally. return goods (with loss of payments).
Nature of Outright contract of sale. An agreement of bailment + option to
Agreement purchase.
Payment Terms Usually lump sum or full payment at Paid in monthly or periodic instalments.
once or in instalments.
Return of Goods Buyer cannot return goods unless Hirer can return goods and cancel the
seller allows. agreement (but loses past payments).
Repossession Seller cannot repossess after sale Seller can repossess goods if hirer defaults in
Rights unless there's default. payment.

Example to Understand
Sale:
A buys a laptop from B for ₹50,000. Ownership and risk pass immediately. A can sell or modify it freely.

Hire Purchase:
A hires a bike from B by paying ₹2,000/month for 24 months. Ownership remains with B. If A fails to pay, B
can take the bike back. Ownership transfers to A only after full payment.

Summary
Feature Sale Hire Purchase
Ownership Immediate On final instalment
Buyer’s Position Owner Bailee
Termination Not allowed easily Allowed by hirer
Resale Possible Not allowed
Repossession Only after legal process Possible on default