Module-2

SALE OF GOODS ACT 1930 & EMERGING BUSINESS TRANSACTIONS

2.1 Sale of Goods Act, 1930 – Essentials, Sale vs. Agreement to Sell
2.2 Conditions and Warranties – Express, Implied, Caveat Emptor
2.3 Transfer of Ownership – Rules & Exceptions
2.4 Rights of Unpaid Seller – Legal Provisions and Case Studies
2.5 Emerging Laws in Business Transactions: Digital Contracts, E-Commerce Law, Smart
Contracts
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2.1 Introduction
The Sale of Goods Act, 1930 is one of the most important legislations governing
commercial transactions in India. It specifically regulates contracts relating to the sale and
purchase of goods. This law was introduced to provide clarity and structure to business
dealings involving movable goods. It defines and governs how ownership of goods is
transferred from one party to another and outlines the legal obligations of both the buyer
and the seller.
The primary objective of the Act is to ensure fairness and transparency in transactions involving
goods. It safeguards the interests of both parties by laying down specific rules regarding the
formation, execution and enforcement of sales contracts. This results in smooth commercial
operations and reduces disputes between parties.
The Act provides legal certainty, especially in matters like when the ownership of goods passes
from the seller to the buyer, what happens when goods are defective, what warranties and
conditions apply, and what remedies are available in case of breach of contract.
By codifying these rules, the Sale of Goods Act, 1930 promotes confidence and trust in
business transactions, encourages trade and commerce and supports economic development
by making the legal consequences of commercial transactions predictable and enforceable.
 Scope and Application:
The scope and application of the Sale of Goods Act, 1930 are vital to understanding its
jurisdiction and purpose.
 Date of Enforcement: The Act came into force on 1st July 1930.
 Legal Evolution: It was initially a part of the Indian Contract Act, 1872, but due to its
specialized nature, it was separated and codified as a distinct piece of legislation.

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  Geographical Extension: The Act extends to the entire territory of India, including the
Union Territories and Jammu & Kashmir (especially after the abrogation of Article 370
in 2019).
 Subject Matter: The Act exclusively applies to movable property, which refers to
tangible goods that can be moved from one place to another. Examples include:
Furniture, Stationery, Electronic gadgets, Vehicles, Agricultural produce, etc.
 Exclusions: It does not apply to:
o Immovable property such as land, buildings, etc.
o Actionable claims such as debts or claims that can be enforced only through
legal action.
This distinction is crucial because di erent laws govern immovable property (such as the
Transfer of Property Act, 1882) and actionable claims (such as the Civil Procedure Code and
other civil laws).
Thus, the Sale of Goods Act provides a clear legal framework exclusively for the sale and
purchase of goods, promoting reliability and consistency in commercial exchanges.
 Definition of Contract of Sale [Section 4]:
According to Section 4 of the Act: "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."
Thus, a sale of goods is a bilateral contract involving two parties—a seller and a buyer—
who mutually agree to the exchange of goods for money (price).
 Essentials of a Valid Contract of Sale:
The Sale of Goods Act, 1930 governs contracts where the ownership of goods is transferred
from a seller to a buyer for a price. According to Section 4(1), a contract of sale is a contract
whereby the seller transfers or agrees to transfer the ownership of goods to the buyer for a price.
To be valid, the following essentials must be present:
1. Two Parties – Buyer and Seller
A contract of sale must be between two legally distinct persons:
 One must be the seller, and the other, the buyer.
 A person cannot sell goods to himself.
 Example: Mr. A selling his scooter to Mr. B is valid; Mr. A cannot sell his scooter to
himself.
2. Transfer or Agreement to Transfer Ownership
The main objective is to transfer the ownership (property) in goods:
 In a sale, transfer is immediate.

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  In an agreement to sell, the transfer is to happen in the future or after a condition is
met.
3. Subject Matter Must Be Goods: The contract must relate to “goods”, which means
movable property only: Includes: Cars, mobile phones, books. Excludes: Land, buildings,
money, actionable claims.
4. Price Must Be Paid or Promised: There must be monetary consideration: A price is
essential to distinguish it from barter. If goods are exchanged for other goods, it is not a sale
under this Act.
5. Voluntary Mutual Consent
The consent of both the buyer and seller must be free and mutual: Consent must not be
obtained by coercion, fraud, misrepresentation, undue influence, or mistake.
6. Capacity of the Parties: Both parties must be competent to contract as per the Indian
Contract Act, 1872, Must be of sound mind, not minors, and not disqualified by law.
7. Lawful Consideration: The price paid must be lawful, Sale of illegal goods or sale for
unlawful purposes is void.
8. Lawful Object: The object (purpose) of the sale must be legal, If the purpose is illegal
(e.g., smuggling), the contract is void and unenforceable.
9. Possibility of Performance: The sale must be capable of performance: Goods must be
in existence or at least future goods that can come into existence. If performance is
impossible, the contract is void.
10. Certainty of Subject Matter
The goods must be clearly identified or described:
 Vague or uncertain description leads to void contracts.
 Example: “I’ll sell you something for ₹500” is uncertain.
11. Compliance with Legal Formalities
While oral contracts are valid, some contracts may require writing, registration, or
stamping, depending on the nature of goods or taxation laws.
12. Delivery and Payment Terms
The agreement must specify or imply the time, manner, and place of:
 Delivery of goods, and
 Payment of price, whether in part or full.
For a contract of sale to be valid and legally enforceable, it must satisfy all the above 12
essentials. Absence of any essential may render the contract void, voidable, or illegal. These

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conditions ensure clarity, legality, and protection for both buyers and sellers in commercial
transactions.
 Types of Contracts of Sale:
1. Sale: Ownership of goods is transferred immediately from the seller to the buyer. It is
an executed contract (completed). Example: A buys a fridge from a shop and takes it
home after payment.
2. Agreement to Sell: Ownership is to be transferred at a future date or upon the
fulfillment of certain conditions. It is an executory contract (pending). Example: A
agrees to sell his bike to B after one week when B arranges the money.
 Di erence between Sale and Agreement to Sell:
Basis Sale Agreement to Sell
Transfer of Immediate Future or conditional
Ownership
Type of Contract Executed Executory
Risk of Loss Lies with buyer even if goods are Lies with seller until ownership is
with seller transferred
Rights of Buyer Buyer can claim goods and sue Buyer can only sue for damages
for delivery
Right to Resell by Not allowed (buyer has Allowed (as seller retains
Seller ownership) ownership)
Insolvency of Buyer Seller must deliver goods Seller need not deliver unless
price is paid
Legal Implications:
 In a sale, the buyer gets ownership and bears all risk of damage, even if goods are not
physically delivered.
 In an agreement to sell, the seller retains the risk and may resell the goods if the buyer
fails to fulfill the conditions.
Examples:
1. Example of Sale: A sells 100 kg of sugar to B for ₹5,000. Ownership and possession are
transferred immediately. This is a sale.
2. Example of Agreement to Sell: A agrees to sell his motorbike to B after three months
for ₹60,000. Transfer of ownership is delayed. This is an agreement to sell.
Understanding the di erence between a sale and an agreement to sell is important for
determining liabilities and remedies available to parties in case of breach or insolvency.
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1.2 Conditions and Warranties – Express, Implied, Caveat Emptor
The Sale of Goods Act, 1930 governs contracts for the sale of goods in India, establishing
a framework for the rights and obligations of both buyers and sellers. Two crucial concepts
within this framework are conditions and warranties, which are stipulations in a contract that
pertain to the quality and fitness of the goods being sold.
In a contract of sale, certain stipulations (terms) are made regarding the quality, fitness, or
performance of the goods. These stipulations are classified as:
 Conditions – Fundamental terms essential to the contract.
 Warranties – Secondary or subsidiary terms.
Definition of Condition – Section 12(2): “A condition is a stipulation essential to the main
purpose of the contract, the breach of which gives the aggrieved party a right to repudiate the
contract and also claim damages.”
In simple words, A condition is a core or essential term of the contract. If a condition is not
fulfilled, the buyer can:
 Reject the goods,
 Cancel the contract, and
 Claim damages
For example: Amar orders a new LED smart TV, but the seller delivers an old CRT TV. This is a
breach of condition, as the type and quality are completely di erent. The buyer can reject the
goods and cancel the contract.
Definition of Warranty – Section 12(3): “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 a right to
reject the goods and treat the contract as repudiated.”
In Simple Words, A warranty is a minor or secondary term of the contract. If breached, the
buyer:
 Cannot reject the goods
 Can only claim damages
For example: A seller agrees to provide free servicing for 6 months on a scooter sold. If the
seller fails to do this, the buyer cannot reject the scooter but can claim compensation for the
service value.
When a Condition is Treated as a Warranty [Section 13]
In some cases, a breach of condition is treated as a breach of warranty, i.e., the buyer cannot
reject the goods but can only claim damages. This happens in the following situations:
1. Buyer waives the condition voluntarily.

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 2. Buyer accepts the goods despite breach.
3. Contract is indivisible and buyer has accepted the whole delivery.
4. Law or custom treats a condition as a warranty.
For example, A buyer orders 100 shirts with 100% cotton fabric. If 5 shirts are mixed with
polyester but the buyer uses them, he cannot reject the full order. He can only claim damages
for the defect. Here, the condition is treated as a warranty.
Example; A buyer purchases 50 branded laptops for o ice use and clearly specifies that each
laptop must have a minimum of 16 GB RAM. On delivery, he finds that 2 laptops have only 8 GB
RAM, but instead of rejecting the entire lot, he installs software and begins using all the laptops.
Since the buyer has accepted and used the goods despite knowing the defect, the
condition (16 GB RAM) is now treated as a warranty. He cannot reject the goods or cancel the
contract but can claim damages for the deficiency in those 2 laptops.
 Types of Conditions and Warranties
Meaning of Condition [Section 12(2)]: A condition is a stipulation essential to the main
purpose of the contract. If a condition is breached, the buyer has the right to:
 Repudiate (cancel) the contract, and
 Claim damages.
For example: If a buyer orders a brand-new iPhone 15 Pro, but is delivered an iPhone 14, the
buyer can reject the phone and terminate the contract.
Meaning of Warranty [Section 12(3)]: A warranty is a stipulation collateral (subsidiary) to the
main purpose of the contract. Breach of warranty does not allow the buyer to reject goods, but
the buyer may: Claim damages only.
Example: If a buyer buys a refrigerator and it is found that a small scratch exists on the back, it
may not a ect the main use, so it is a breach of warranty — buyer can only claim
compensation, not reject the fridge.

TYPES OF CONDITIONS
1. Express Conditions: These are conditions explicitly agreed upon by the parties, either in
writing or orally.
Example: “If the seller agrees to deliver 1,000 kg of Basmati rice grown in Punjab by 10th
October" — this is an express condition.
2. Implied Conditions [Sections 14 to 17]: These are not expressly mentioned but are implied
by law based on the nature of the contract. They include:

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a) Condition as to Title (ownership) [Section 14 (a)] Seller must have the right to sell the
goods.
Case: Rowland v. Divall (1923)
 Facts of the Case: Rowland, the buyer, purchased a motor car from Divall, the seller, in
good faith. After using the car for a few months, Rowland came to know that the car was
stolen property and Divall (the seller) had no legal title or ownership to sell the car. The
true owner of the car claimed it back from Rowland and he was forced to return the car.
Rowland then sued Divall to recover the full purchase price, arguing that the seller had
no right to sell and hence the contract was void.
 Legal Issue: Did the seller breach a fundamental condition as to title under the
contract of sale?
 Judgment: The court held in favour of Rowland (buyer). It ruled that the seller (Divall)
breached an implied condition under the sale contract — the condition as to title. Even
though the buyer had used the car for some time, he was entitled to a full refund of the
purchase price. The court emphasized that ownership (title) is a basic condition of a
contract of sale, and if title is defective, the whole contract fails.
 Key Takeaway: The buyer was not bound to pay for something which the seller never
had a right to sell in the first place.
 Relevance under the Sale of Goods Act, 1930 (India):
 Section 14(a): Condition as to Title: This section states that in a contract of sale,
unless the circumstances indicate otherwise, there is an implied condition that the
seller has the right to sell the goods.
If the seller does not have such right (like in Rowland v. Divall), the buyer can rescind the
contract and recover the entire price, regardless of usage.
b) Condition as to Description [Section 15]: Goods must correspond with the description.
Example: If you buy a “leather wallet” but receive a “synthetic one”, you can reject the goods.
Case: Varley v. Whipp (1900) 1 QB 513
 Facts of the Case: The seller (Varley) agreed to sell a second-hand reaping machine
to the buyer (Whipp). The machine was described in the contract as being "newly
made" and "used only to demonstrate its working". However, when delivered, the
machine was old, extensively used, and not as described. The buyer refused to
accept the machine and claimed that there was a breach of condition in the contract.
 Legal Issue: Was there a breach of condition as to description and was the buyer
entitled to reject the goods?
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  Judgment: The court held in favor of the buyer (Whipp). It ruled that there was a breach
of condition as to description. The goods did not correspond to the description
provided in the contract (i.e., newly made and hardly used). Therefore, the buyer was
entitled to reject the goods and repudiate the contract.
 Key Takeaway: If the goods delivered do not match the description given at the time of
sale, there is a breach of condition, and the buyer has the right to reject the goods
entirely.
 Relevance under the Sale of Goods Act, 1930 (India):Section 15: Sale by Description
“When there is a contract for the sale of goods by description, there is an implied condition that
the goods shall correspond with the description.”
 The Varley v. Whipp case illustrates this principle clearly.
 If the actual goods delivered di er from what was described in the contract, the buyer
can refuse the goods and cancel the contract.
Example: Suppose a seller sells a mobile phone claiming it’s brand new and 5G-enabled. On
delivery, the phone turns out to be a used 4G model. This is a breach of condition as to
description, and the buyer can:
 Cancel the purchase, and
 Claim a refund, even if the phone is functional.
c) Condition as to Sample [Section 17]: If sale is based on a sample, the bulk must:
 Correspond with the sample,
 Be free from defects,
 Allow buyer reasonable opportunity to compare.
For Example: You order fabric based on a smooth sample but receive rough-textured bulk. You
can reject it.
d) Condition as to Quality or Fitness for Purpose [Section 16(1)] Applies if:
 Buyer makes purpose known and
 Relies on seller’s skill and judgment.
Case: Priest v. Last (1903)
Facts of the Case: The buyer (Priest) purchased a hot water bottle from a chemist. He told the
seller that he needed it to be used as a hot water bottle (a specific purpose). After purchase,
the bottle burst while in use, causing injury to the buyer. The buyer sued the seller for selling an
article not fit for its intended purpose.
Legal Issue: Was there a breach of implied condition regarding the fitness of goods for the
buyer’s intended use, under the law of sale of goods?
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Judgment: The Court held in favor of the buyer. It ruled that there was a breach of implied
condition that the goods should be reasonably fit for the intended purpose. Since the buyer had
informed the seller of the specific purpose, the seller was expected to supply a suitable and
safe product. The hot water bottle was not reasonably fit and the seller was liable for the buyer's
injury.
Key Takeaway: When a buyer informs the seller of the particular purpose for which goods are
required, and relies on the seller’s skill or judgment, there is an implied condition that the goods
will be reasonably fit for that purpose. If not, the buyer can rescind the contract or claim
damages.
Relevance under the Sale of Goods Act, 1930 (India): Section 16(1): Implied Condition as
to Fitness “Where the buyer, expressly or by implication, makes known to the seller the
particular purpose for which the goods are required... there is an implied condition that the
goods shall be reasonably fit for such purpose.”
 This principle is reflected directly in Priest v. Last.
 Since the purpose was known and the buyer relied on the seller’s skill, the seller had
a duty to ensure the product was safe and fit.
Example: If a customer goes to a shop and asks for brake fluid suitable for a specific car model,
and the seller gives him the wrong type that damages the brakes, the buyer can sue for breach
of implied condition under Section 16.
Why it is a Condition (Not Warranty)?
 Fitness for a particular purpose is central to the contract.
 If this condition is not fulfilled, the contractual objective fails.
 Hence, the buyer can reject the goods and claim damages.

e) Condition as to Merchantable Quality [Section 16(2)]: Goods bought by description must

be of merchantable quality. Goods should be usable for the ordinary purpose they are bought
for.
Case: Grant v. Australian Knitting Mills (1936) AC 85
Facts of the Case: Dr. Grant, the buyer, purchased woolen underwear from a retailer. After
wearing the underwear, he developed a serious skin disease (dermatitis). Medical evidence
showed that excess sulphur used during the manufacturing process was not properly removed.
Dr. Grant sued the retailer and manufacturer, alleging the goods were defective and harmful.
 Legal Issue: Was the seller liable under the implied condition that goods shall be of
merchantable quality and fit for the purpose intended?

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  Judgment: The Privy Council held that the seller was liable. The product was not of
merchantable quality, as it caused harm to the buyer. There was a breach of implied
condition — the underwear should have been safe for use.
 It was also emphasized that even though there was no direct communication of
purpose, the purpose was obvious (wearing as undergarment) and the buyer relied on
the seller's skill and judgment.
Example (Application of Section 16): Suppose a buyer purchases baby soap from a reputed
brand and the child develops rashes due to chemical contamination. The soap is not of
merchantable quality and the seller/manufacturer is liable for breach of condition.
Why It Is a Breach of Condition, Not Warranty:
 Fitness and safety are fundamental to the contract.
 Deficiency makes the goods unfit for use; hence the buyer can rescind the contract and
claim damages.
TYPES OF WARRANTIES
1. Express Warranties: Express promises or representations made by the seller. For example,
Seller says a laptop battery will last 10 hours. If it lasts only 3 hours, it's breach of express
warranty.
2. Implied Warranties [Section 14(b), 14(c), 16(3)]: Under the Sale of Goods Act, 1930, a
warranty is a collateral term of the contract- its breach does not lead to contract termination,
but the buyer can claim damages.
a) Quiet Possession [Section 14(b)]: This section deals with an implied warranty in every
contract of sale of goods. Section 14(b) states: "There is an implied warranty that the buyer shall
have and enjoy quiet possession of the goods."
This means that once the buyer lawfully purchases the goods, they have the right to enjoy
possession of the goods without interference or disturbance from the seller or any third party
claiming a superior title.

"There is an implied warranty that the buyer shall have and enjoy quiet possession of the
goods." Buyer shall enjoy undisturbed possession of goods. Once the buyer lawfully purchases
goods, he must enjoy undisturbed possession.
For Example: A sells a car to B. After two months, C claims ownership of the car and takes it away from
B, proving in court that the car was stolen from him and sold without authority.
B’s quiet possession is disturbed, and A has breached the implied warranty. B can sue A for damages.
Case: Rowland v. Divall (1923) 2 KB 500

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Facts: Buyer purchased a car from a seller. After some time, it was discovered that the car was
stolen. The real owner claimed it back. The buyer sued the seller for breach of warranty.
Held: Even though the seller sold in good faith, the buyer did not get good title and his
possession was disturbed. Hence, breach of implied warranty of quiet possession occurred.
b) Freedom from Encumbrances [Section 14(c)]: Section 14(c) provides that: “There is an
implied warranty that the goods shall be free from any charge or encumbrance in favour of any
third party not declared or known to the buyer before or at the time when the contract is made.”
Example; A sells a motorbike to B. Later, B is approached by a finance company claiming that
the bike is still under a loan taken by A, and they demand payment or return of the bike.
This is a breach of the implied warranty of freedom from encumbrances.
B can sue A for damages.
c) Warranty as to Quality by Trade Usage [Section 16(3)]: Section 16(3) of the Sale of Goods
Act, 1930 states: “An implied warranty or condition as to quality or fitness for a particular
purpose may be annexed by the usage of trade.”
This means that if there is a custom or practice commonly followed in a particular trade or
industry, then an implied warranty may arise about the quality or fitness of goods, even if it's
not expressly stated in the contract.
Example: In the ghee (clarified butter) industry, it is a trade usage that ghee must be free
from animal fat. If a seller supplies ghee containing animal fat, The buyer can reject the goods
or claim damages, even if nothing about quality was mentioned in the contract.
CONVERSION OF CONDITION INTO WARRANTY [Section 13]
Sometimes, a condition can be treated as a warranty, when:
 The buyer waives the condition.
 The buyer accepts goods and does not reject them.
Example: A buyer orders 100 cotton shirts, but 10 have polyester mix. If the buyer keeps and
sells all 100 shirts, the breach of condition is treated as warranty.

Caveat Emptor
The phrase "Caveat Emptor" is a Latin term which means "Let the buyer beware."
It implies that the buyer alone is responsible for checking the quality and suitability of goods
before a purchase is made.
In simpler words, it is the duty of the buyer to be cautious and ensure that the product they
are buying is free from defects and fits the purpose for which it is being purchased.

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Under the Sale of Goods Act, 1930 (Section 16), the principle of Caveat Emptor is implied by
law.
Section 16: “Subject to the provisions of this Act and 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.”
Essence of the Doctrine:
 The law assumes that the buyer has su icient skill and judgment to examine the
goods before purchasing.
 Once the sale is complete, the seller is not liable for any defect in the goods unless
fraud or misrepresentation is proved.
Example: Suppose you go to a market and buy a bag without asking anything about its material
or testing its zip. After coming home, you realize the zip is broken. You cannot blame the seller,
because you didn’t check the product before buying it. The principle of Caveat Emptor applies.
When the Doctrine Applies:
1. The buyer makes the purchase on his own judgment.
2. The seller does not give any guarantee or warranty.
3. The goods are sold as they are ("as is" condition).
4. The buyer does not disclose to the seller the particular purpose for which he wants the
goods.
Exceptions to Caveat Emptor (When it does not apply):
1. Implied Condition as to Quality or Fitness [Section 16(1)]: If the buyer makes known
the particular purpose of the goods to the seller and relies on the seller’s skill or
judgment, then the seller is responsible.
Example: A buyer tells the seller that he needs paint for a metal roof. The seller supplies wall
paint. Later, the paint peels o . The seller is liable.
2. Goods Bought by Description from a Seller who Deals in such Goods [Section
16(2)]: There is an implied condition that the goods are of merchantable quality.
Case Law: Grant v. Australian Knitting Mills (1936)
The buyer purchased woolen underwear, which caused skin irritation due to chemical
residues. It was held the goods were not of merchantable quality and the seller was liable.
3. Misrepresentation or Fraud by the Seller: If the seller intentionally hides defects or
gives false information, then the buyer can claim compensation.
4. Sale by Sample: If the goods don’t match the sample shown at the time of sale, the
buyer can reject them.

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 5. Sale by Description and Sample: If the goods don’t correspond to both the sample
and the description, the seller is responsible.
6. Usage of Trade: If there is a custom or usage in the trade to imply certain conditions or
warranties, it will override the doctrine.
The doctrine of Caveat Emptor protects sellers from being blamed for the buyer’s negligence
but also emphasizes the need for buyers to be alert, cautious, and responsible.
However, modern consumer protection laws and the exceptions under Section 16 ensure that
buyers are not exploited and sellers are held accountable in cases of fraud, misrepresentation,
or breach of implied conditions.
2.3 Transfer of Ownership – Rules & Exceptions
The term "transfer of ownership" refers to the passing of property (i.e., the legal title or
ownership) in goods from the seller to the buyer. It is not the physical possession, but the
ownership rights over the goods that are transferred.
Ownership = Right to use, enjoy, transfer or dispose of the goods.
As per the Sale of Goods Act, 1930, the rules for transfer of ownership are mainly contained in
Sections 18 to 25.
GENERAL RULES FOR TRANSFER OF OWNERSHIP
Rule 1: Transfer of Property in Specific or Ascertained Goods [Sections 18 to 22]
These are goods identified and agreed upon at the time of contract.
➤ Section 19(1): “Property in goods passes to the buyer at such time as the parties intend it to
be transferred.” So, the first and foremost rule is: Ownership is transferred when the buyer
and seller intend it to be transferred. If there is no clear intention mentioned, then Sections
20 to 22 apply. These are statutory presumptions to determine the time of transfer of
ownership.
➤ If the intention is not clear, the Act provides the following rules:
 Section 20 – When Goods are in a Deliverable State: Ownership passes when the
contract is made, if the goods are in a deliverable state, and nothing remains to be
done by the seller.
Example: A agrees to sell his car to B. The car is ready and in a deliverable condition. Ownership
passes immediately at the time of contract. Example: A agrees to sell his red Maruti car with
registration number MH-12-AB-1234. This is a specific good.
 Section 21 – Specific Goods Not in Deliverable State: If the goods are not in a
deliverable state, ownership passes only when the seller does what is necessary
and informs the buyer.
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Example: A agrees to sell a machine to B. The machine needs to be assembled before delivery.
Ownership passes only after assembling and informing B.
 Section 22: Goods in Deliverable State but Seller Must Do Something (e.g., weigh,
measure, test) If goods are in deliverable state but some act like weighing or measuring
is required to determine price, ownership passes after such act is done and buyer is
informed.
Example: C agrees to buy 50 kg of rice from a bulk stock at ₹40 per kg. The rice is there and
ready but needs to be weighed and separated. Ownership passes only after the rice is
weighed and C is informed.
Rule 2: Transfer of Property in Unascertained and Future Goods [Section 18 & 23]:
Ownership does not pass until the goods are ascertained.
 Section 18 – No Transfer of Ownership Until Goods are Ascertained
 This section lays the general rule: “No property in the goods is transferred to the buyer
unless and until the goods are ascertained.”
 Section 23(1): Unconditional Appropriation: When unascertained goods are identified
and unconditionally appropriated (with mutual consent), ownership transfers.
Ownership in unascertained or future goods passes only when: Goods are ascertained, and
There is an unconditional appropriation of goods to the contract, with mutual
consent (either express or implied).
Example: Out of a stock of 100 shirts, 10 are packed and marked for B with his approval.
Ownership passes at that point.
Rule 3: Goods Sent on Approval or "Sale or Return" Basis [Section 24]: In such contracts,
the buyer is given goods for trial, testing, inspection, or resale with an option to either: Accept
the goods (which completes the sale), or Reject and return the goods within a specified or
reasonable time.
Purpose: To give the buyer an opportunity to test or resell the goods before committing to the
purchase.
Ownership passes:
 When the buyer approves or accepts the goods. If the buyer informs the seller of
acceptance or approves the goods, ownership immediately transfers.
 When the buyer does not reject the goods within the agreed or reasonable time. If the
buyer does not reject the goods within the specified or reasonable time, ownership is
automatically transferred.

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  When the buyer does an act adopting the transaction, like reselling the goods. If the
buyer performs any action indicating acceptance — such as reselling the goods, using
them, pledging, or altering them — it implies acceptance.
Example: A sends a painting to B on sale or return for 7 days. B resells it on 5th day. Ownership
passed to B upon resale.
Rule 4: Transfer of Risk [Section 26]: Risk passes with ownership, unless otherwise agreed.
If the seller retains ownership, risk remains with him, even if goods are with the buyer.
Example: A sells goods to B, but ownership will pass only after full payment. Goods are
destroyed in fire while still owned by A — seller bears the loss.

EXCEPTIONS TO THE GENERAL RULE (WHEN OWNERSHIP DOES NOT FOLLOW NORMAL
RULES)
1. Sale by a Non-Owner – “Nemo dat quod non habet” (No one can give what he does not have)
General Rule [Section 27]: Only the true owner can transfer ownership. A thief or
unauthorized person cannot.
Case: Rowland v. Divall (1923): A bought a car from someone who had no title. It was seized.
Buyer got a refund — ownership never passed.
Exceptions (Ownership Passes even if Seller is Not True Owner):
(a) Sale by Mercantile Agent [Section 27 Exception]: If a mercantile agent sells goods in the
ordinary course of business with the owner's consent, ownership passes to the buyer in good
faith. For e.g.: An agent of a car company sells a demo car without explicit consent but within
usual practice. Buyer gets good title.
(b) Sale by a Co-owner [Section 28]: If one of several co-owners sells goods with possession
and consent, ownership passes if the buyer acts in good faith.
(c) Sale under Voidable Contract [Section 29]: If seller obtained goods under a voidable
contract (due to fraud, misrepresentation) and sold them before the contract is rescinded,
the buyer in good faith gets ownership.
(d) Sale by Seller in Possession after Sale [Section 30(1)]: If seller, after selling goods,
remains in possession and resells to an innocent buyer, ownership passes to second buyer.
(e) Sale by Buyer in Possession before Ownership [Section 30(2)]: If buyer gets possession
with seller’s consent (like on credit), and sells to a third party in good faith, ownership passes.
Summary:
Rule/Exception Section Key Condition

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 Specific Goods – Deliverable state Sec. 20 Ownership passes at contract if goods are in
deliverable state
Specific Goods – Seller must act Sec. 21 Ownership passes after seller completes
required act
Specific Goods – Sec. 22 Ownership passes after act + buyer informed
Weighing/measuring left
Unascertained/Future Goods Sec. 23 Ownership passes after appropriation + consent
Goods on Approval Sec. 24 Ownership passes on acceptance, retention, or
resale
Risk Follows Ownership Sec. 26 Risk and ownership usually go together
Sale by Non-owner (General Rule) Sec. 27 Buyer does not get ownership if seller is not
owner
Sale by Mercantile Agent Exception Agent sells in ordinary course; buyer in good faith
Sale by Co-owner Sec. 28 Co-owner in possession with consent sells in
good faith
Sale under Voidable Contract Sec. 29 Buyer in good faith before contract rescinded
Seller in Possession after Sale Sec. 30(1) Resells to buyer in good faith
Buyer in Possession before Sec. 30(2) Resells goods in possession with consent
Ownership
The rules of transfer of ownership help to determine when the property in goods legally passes
from seller to buyer, which is important to determine who bears the risk and who has legal
rights over the goods. While general rules focus on the nature and condition of goods, several
exceptions exist to protect innocent buyers in commercial dealings.
2.4 Rights of Unpaid Seller – Legal Provisions and Case Studies
(Under the Sale of Goods Act, 1930)
Who is an Unpaid Seller? [Section 45]: According to Section 45(1) of the Sale of Goods Act,
1930, a seller is called an unpaid seller:
1. When the whole of the price has not been paid or tendered, or
2. When a bill of exchange or other negotiable instrument received as conditional payment
has been dishonoured.
Explanation: An unpaid seller may include:
 The actual seller of goods.
 An agent of the seller.
 A consignor who has paid on behalf of the seller.

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Legal Provisions: Rights of Unpaid Seller [Sections 46 to 54]: The Sale of Goods Act, 1930
gives the unpaid seller two types of rights:

A. Rights Against the Goods B. Rights Against the Buyer Personally

A. Rights Against the Goods (Available whether or not ownership of the goods has passed)
1. Right of Lien [Sections 47-49]: The unpaid seller can retain possession of the goods until
full payment is made.
➤ Conditions:
 No credit period has been agreed, or it has expired.
 Goods are in seller's possession.
 Buyer becomes insolvent.
➤ Section 47(1): The unpaid seller has a right to retain the goods until the payment of the price.

➤Loss of Lien [Section 49]: The lien is lost when:

 Seller delivers goods to a carrier without reserving the right of disposal.
 Buyer or agent lawfully obtains possession.
 Seller waives the lien.
Example: A sells 100 chairs to B, but B fails to pay. A keeps the goods in his warehouse and
refuses to deliver until paid.
2. Right of Stoppage in Transit [Sections 50-52]: If the goods are in transit and the buyer
becomes insolvent, the unpaid seller can stop the goods and regain possession.
➤ Section 50: “The unpaid seller may stop the goods in transit upon the buyer’s insolvency.”

➤ Conditions:
 Goods must be in transit.
 Buyer must be insolvent.
 Seller must give notice to the carrier.
When Transit Ends [Section 51]:
 When buyer or agent obtains delivery.
 When goods reach buyer's place and are held on his behalf.
Example: Dispatches goods via transport. Before delivery, buyer becomes insolvent. A can stop
the carrier and reclaim the goods.

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3. Right of Resale [Section 54]: The unpaid seller has a right to resell the goods under certain
circumstances.
➤ Conditions:
 Goods are perishable, or
 Seller gives notice to buyer and buyer does not pay, or
 Right of resale is expressly reserved in the contract.
➤ Consequences of Valid Resale:
 Seller can recover loss or retain profit.
 Original buyer loses all rights.
Consequences of Improper Resale:
 Original buyer can claim damages.
Example: A sells vegetables to B. B does not pay. A resells them in the market and su ers a
loss. He can recover the loss from B.
B. Rights Against the Buyer Personally (Legal rights to recover dues even after goods are
delivered)
1. Suit for Price [Section 55]: If the buyer has taken delivery but not paid, the seller can sue for
the price. And If ownership has transferred, seller can sue for full price even if delivery is not
taken.
Example: A delivers goods worth ₹1,00,000 to B. B refuses to pay. A can file a suit for price.
2. Suit for Damages for Non-Acceptance [Section 56]: If buyer refuses to accept the goods
without valid reason, the seller can claim damages for loss.
Example: A contracts to sell 500 bags of cement to B. B refuses to take delivery. A can sue B for
the di erence in market price.
3. Suit for Damages for Repudiation [Section 60]: If buyer cancels the contract before due
date (anticipatory breach), seller can treat the contract as terminated and claim damages.
4. Suit for Interest [Section 61]: The seller can claim interest on unpaid price if:
o There is an express agreement.
o The court awards interest as compensation.
Example: If the payment was due on 1st July but not made, seller can claim interest from that
date until the date of payment.
The Sale of Goods Act, 1930 provides the unpaid seller with a comprehensive legal
framework to protect his interests. These provisions ensure that the seller is not left without
remedy in case of non-payment, refusal of acceptance or buyer’s insolvency.

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Whether through retaining the goods, reselling them or filing a suit, the law ensures justice
to the seller.
CASE STUDIES ON RIGHTS OF UNPAID SELLER
1. Rowland v. Divall (1923) 2 KB 500
Facts: The plainti bought a car from the defendant and used it for some time. Later, it was
discovered that the seller had no right to sell the car as it was stolen property. The plainti had
to return the car to the rightful owner and sued for the return of the purchase price.
Issue: Was the buyer liable to pay for the car even though it was taken back?
Held: The court held that the seller was not the lawful owner and therefore had no right to
transfer ownership. The buyer was entitled to a full refund.
Principle: A seller who does not have the right to sell cannot be considered a lawful seller;
hence, the buyer gets the right to recover price, reinforcing the importance of valid
ownership in sale.
2. Knights v. Wi en (1870) LR 5 QB 660
Facts: The unpaid seller tried to stop goods in transit, but the goods had already been
delivered to the buyer’s agent.
Issue: Could the seller stop the goods and reclaim possession?
Held: No. The right of stoppage in transit ends when the goods are delivered to the buyer or
his agent.
Principle: The right to stop goods applies only while goods are in transit. Once the buyer or
his representative takes delivery, the seller loses this right.
3. Valpy v. Gibson (1847) 105 ER 1366
Facts: The seller sued the buyer for the full price of goods after transferring ownership, even
though the buyer had not yet taken possession.
Held: The court allowed the suit and held that when ownership passes, the seller can sue for
the price, regardless of physical delivery.
Principle: The unpaid seller can file a suit for price once ownership is transferred, irrespective
of delivery.
4. Joseph v. Lyons (1884) 15 QBD 280
Facts: An unpaid seller resold the goods after giving proper notice to the buyer and su ered a
loss.
Held: The resale was lawful, and the seller was entitled to recover the loss from the original
buyer.

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Principle: When an unpaid seller resells the goods properly, after notice, they can claim
losses from the original buyer.
5. Hirji Bharmal v. Bombay Cotton Ltd. (1955) Bom. 54
Facts: The buyer became insolvent and the unpaid seller attempted to exercise the right of
lien and stoppage in transit.
Held: The Bombay High Court upheld the seller’s rights. It emphasized that an unpaid seller’s
rights are enforceable even if the goods are in transit or retained.
Principle: Both right of lien and stoppage in transit are available to the unpaid seller if the
buyer becomes insolvent.
6. Bloxam v. Sanders (1825) 4 B&C 941
Facts: The buyer rejected goods after the price fell in the market, even though the contract was
valid.
Held: The seller was entitled to claim damages for non-acceptance of goods.
Principle: Unpaid sellers have a right to sue for damages if the buyer wrongfully refuses to
accept the goods.
7. The Naranjan v. The Hindustan Trading Co. (AIR 1954)
Facts: The seller sold goods and agreed on a payment by cheque. The cheque was
dishonoured.
Held: The seller was treated as an unpaid seller and could exercise all the rights under the Act.
Principle: A seller remains unpaid even if payment by negotiable instrument (cheque/bill) is
dishonoured.
8. Gomal Aluminium Pvt. Ltd. v. Comex International Ltd. (AIR 1994 Bom 193)
Facts: There was a delay in payment beyond the credit period. The seller resold the goods and
sued the buyer for loss.
Held: The Bombay High Court allowed the claim, upholding the seller's right to resale and
right to recover the loss.
Principle: Unpaid seller can resell and recover loss if the buyer fails to pay within agreed
time and proper notice is given.

Summary of Legal Rights Applied in Case Laws:

Right Case Law Principle Established
Right of Lien Hirji Bharmal v. Bombay Seller can retain goods if price is
Cotton unpaid

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 Stoppage in Transit Knights v. Wi en Ends when goods reach
buyer/agent
Suit for Price Valpy v. Gibson Ownership transferred = right to
claim price
Resale Right Joseph v. Lyons Valid resale = seller can recover
losses
Suit for Damages Bloxam v. Sanders Buyer’s refusal to accept = claim
damages
Valid Ownership Rowland v. Divall Seller must have good title
Requirement
Dishonour of Instrument The Naranjan v. Hindustan Dishonoured cheque = seller
Trading Co. remains unpaid
These case laws illustrate how Indian and English courts have upheld the legal rights of
unpaid sellers under the Sale of Goods Act, 1930. The principles ensure a balance between
buyer protection and seller’s commercial interest and provide the seller with legal remedies
such as lien, stoppage in transit, resale, suit for price and damages.
2.5 Emerging Laws in Business Transactions: Digital Contracts, E-Commerce
Law, Smart Contracts
Emerging Laws in Business Transactions
In the modern globalized economy, the landscape of business transactions is rapidly
evolving. With technological advancements, e-commerce, digital payments, data privacy
concerns, and cross-border trade, new legal frameworks and regulations are emerging to
address the complexities of contemporary business activities. These emerging laws aim to
ensure transparency, accountability, security and fairness in business transactions.
Why Emerging Laws Are Needed:
1. Traditional laws were framed when businesses operated in physical markets with
limited technology.
2. The rise of digital platforms, cryptocurrencies, startups and AI-based services requires
updated legal mechanisms.
3. Businesses now face issues like cybersecurity threats, consumer data misuse, and
cross-border legal compliance, which older laws don't adequately address.
Key Areas Where Emerging Laws Apply:
1. E-Commerce & Digital Contracts: Governing online buying/selling, digital signatures,
click-wrap agreements.
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 2. Cyber Law & Data Protection: Protecting consumer data, regulating data sharing, and
preventing cybercrimes.
3. Intellectual Property Rights (IPR): Laws evolving to protect digital assets, software,
trademarks in the tech era.
4. Consumer Protection (E-Commerce Rules): Ensuring rights of consumers in online
marketplaces.
5. Competition Law: Controlling anti-competitive practices in tech and digital
businesses.
6. Goods and Services Tax (GST): Unified taxation for seamless interstate and online
transactions.
7. Arbitration and Online Dispute Resolution (ODR): Mechanisms for resolving
commercial disputes quickly without courts.
8. Environmental, Social & Governance (ESG) Compliance: Legal reporting on
sustainability and social responsibility.
9. Fintech Regulations: Laws around digital wallets, cryptocurrencies, UPI, and online
lending platforms.
As businesses evolve, law must evolve too. Emerging laws in business transactions are
essential to safeguard the interests of all stakeholders—consumers, businesses, investors,
and governments. They ensure that while innovation is encouraged accountability and legal
clarity are maintained in an increasingly digital and interconnected world.
Digital Contracts – An Overview
In today’s technology-driven world, Digital Contracts have become a key component of
business transactions. These contracts are created, signed and executed using digital technology
without the need for physical presence or paper-based documentation.
Meaning: A Digital Contract is an agreement that is created and executed electronically, often using
tools like email, online platforms, or blockchain-based systems. These contracts are legally binding if
they fulfill the essential elements of a valid contract under the Indian Contract Act, 1872.
Key Features:
 Paperless and contactless process
 Digital signatures or e-signatures are used instead of handwritten ones
 Stored and shared electronically (via cloud, email, or blockchain)
 Faster, cost-e ective, and environmentally friendly
Types of Digital Contracts:
1. Click-Wrap Contracts- User clicks “I Agree” to terms (e.g., when installing apps).
2. Browse-Wrap Contracts- Terms are available on a website; using the site implies agreement.

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 3. E-mail Contracts- Contract terms are exchanged and accepted through emails.
4. Smart Contracts- Self-executing contracts with terms written into code (used in blockchain).
Legal Validity in India: Under the Information Technology Act, 2000 and the Indian Contract Act,
1872, digital contracts are valid if:
 There is o er and acceptance
 Consideration is present
 Parties have legal capacity
 Consent is free and informed
 Object of the contract is lawful
Digital signatures are recognized under Section 3 of the IT Act, 2000, making such contracts enforceable
in court.
Example: A customer books a hotel online and clicks “I Agree” to the terms and conditions. This creates
a click-wrap digital contract, which is binding. If the hotel later cancels without valid reason, the
customer can claim damages.
Advantages:
 Fast and convenient
 Environmentally friendly
 Cost-e ective
 Easy to store and retrieve

E-Commerce Law
E-Commerce Law refers to the set of rules, regulations, and legal principles that govern online
commercial transactions. It ensures that buying and selling of goods and services over digital platforms
is conducted in a legal, secure, and fair manner.
In India, E-Commerce is primarily regulated under:
 The Information Technology Act, 2000
 The Consumer Protection (E-Commerce) Rules, 2020
 The Indian Contract Act, 1872
 Other sector-specific and taxation laws (like GST)
Key Objectives of E-Commerce Law:
 Protect consumers in online transactions
 Regulate digital contracts and digital signatures
 Ensure data protection and cybersecurity
 Prevent unfair trade practices and false advertising
 Promote transparency in pricing, returns, refunds, and seller information
Key Provisions in India:
1. Information Technology Act, 2000
 Legal recognition to electronic contracts and digital signatures
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  Addresses cybercrimes, data protection, and IT infrastructure
2. Consumer Protection (E-Commerce) Rules, 2020
 Applicable to all e-commerce entities operating in India
 Mandates:
o Display of seller details
o Transparent return, refund, and cancellation policies
o Prohibition on misleading advertisements
o Grievance redressal mechanism for online buyers
3. Indian Contract Act, 1872: Governs the formation of valid digital contracts (o er, acceptance,
consent, etc.)
Example: Suppose a consumer orders a mobile phone from an online marketplace. The product is not
delivered on time and the seller refuses a refund. Under E-Commerce Law, the consumer can file a
complaint through the platform’s grievance o icer or approach the Consumer Forum, as per the E-
Commerce Rules.
Challenges in E-Commerce Law:
 Cross-border legal issues
 Data security and privacy concerns
 Fake reviews, counterfeit goods
 Jurisdiction and enforcement issues
E-Commerce Law is essential to ensure consumer confidence, business accountability, and legal
clarity in the growing digital economy. As online transactions become the norm, these laws help
maintain a balance between innovation and protection.
Smart Contract
A Smart Contract is a self-executing digital contract where the terms of the agreement are written
directly into lines of code. Once the pre-set conditions are met, the contract automatically executes
and enforces itself without the need for human intervention or third-party involvement.
Smart contracts run on blockchain technology, which ensures that the transactions are secure,
transparent, and irreversible.
Meaning: A Smart Contract is a digital agreement written in code that automatically executes itself
when certain conditions are met. It is stored and run on a blockchain network, which makes it secure,
transparent and tamper-proof.
Legal Definition (Simplified):
A smart contract is not a “contract” in the traditional legal sense, but it can be legally valid if it
satisfies the essentials of a valid contract under the Indian Contract Act, 1872 –
i.e., o er, acceptance, lawful object, consideration, and free consent.
Key Characteristics:
 Automated Execution: The contract executes itself once conditions are fulfilled.

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  Immutable: Once deployed on a blockchain, it cannot be altered.
 Decentralized: Operates on a blockchain network without a central authority.
 Transparent: Code and transactions are visible to all network participants.
How Does It Work?
 Written in computer code instead of legal language.
 Stored on a blockchain (e.g., Ethereum).
 Automatically executes when the pre-defined conditions are fulfilled.
Example: A music artist sells a song using a smart contract:
 If a user pays ₹100,
 Then the smart contract automatically sends the download link.
 No human involvement is needed after setup.
Example: Imagine a smart contract for renting a car: If A pays ₹5,000 in cryptocurrency, Then the
smart contract sends a digital key to unlock the car for 24 hours. No human approval is needed. If
payment isn’t made, access is denied.
Advantages:
 Eliminates third parties and reduces costs
 Executes faster and more e iciently
 Reduces chances of fraud or manipulation
 Highly secure due to blockchain encryption
Limitations & Legal Challenges:
 Not fully recognized under Indian law (no explicit legislation yet)
 Di iculty in correcting errors once coded
 Jurisdiction issues in international blockchain networks
 Lack of standard regulations and legal enforceability
Legal Status in India: No specific law yet, but Smart Contracts are valid if they meet conditions under
the Indian Contract Act, 1872:
o O er and acceptance
o Lawful object
o Free consent
o Lawful consideration
 Supported by Section 10-A of the IT Act, 2000 for digital contracts
Smart Contracts represent the future of automation in legal and business transactions. While
they o er speed, e iciency, and trust, they also need robust legal frameworks to ensure enforceability,
consumer protection, and standardization.
Benefits:
1. Automatic – Executes itself without a third party.
2. Trustless – No need to trust anyone; code does the job.

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 3. Secure – Stored on blockchain, so can't be changed.
4. Fast and Cost-e ective – No intermediaries.
Challenges:
 No clear legal recognition yet in many countries including India.
 Coding errors can’t be easily fixed.
 No human judgment – only follows logic.
 Jurisdiction issues in cross-border use.
🇮🇳 Smart Contracts in Indian Law: Not explicitly defined under Indian law. But if it fulfills the
conditions under the Indian Contract Act, 1872, it can be legally enforceable. IT Act, 2000 (Section 10A)
supports digital contracts and electronic signatures. Smart contracts are revolutionizing how
agreements are made and executed in the digital age.
While legally emerging, they hold huge potential in finance, supply chain, real estate, and e-
commerce. However, for full adoption, clear legal frameworks and regulatory guidelines are needed.

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