Class Study Material / LAB Session 9/

Study Material: The Sale of Goods Act, 1930

Adv. Dr. Harsh Pathak

Vintage Painting Collection / Dilli’s Chandani Chowk Bazar.

1. Sale and Agreement to Sell

- Sale: A sale is a contract where the ownership (property) in the goods is transferred immediately from the
seller to the buyer in exchange for a price.
- Example: A car dealer sells a car to a customer. The customer pays the full price, and the ownership of the
car is immediately transferred to the customer.
- Relevant Section:Section 4(3)

- Agreement to Sell: An agreement to sell is a contract where the transfer of ownership is to take place at a
future time or subject to some condition to be fulfilled later.
- Example: A buyer agrees to purchase a house that is still under construction. The ownership will transfer
once the construction is completed and the final payment is made.
- Relevant Section: Section 4(3)

- Consideration: In a sale, the consideration is always in the form of money. The goods are exchanged for a
price, which distinguishes a sale from a barter or exchange.
- Example: If A sells his laptop to B for ₹30,000, the ₹30,000 is the consideration for the sale.

2. Risk or Damage Associated with Passing of Property

- Concept: The general rule is that risk follows ownership. Once the property in the goods is transferred to
the buyer, the risk of any loss or damage also passes to the buyer, regardless of whether the goods have been
delivered.
- Example: If a buyer purchases a shipment of apples and the ownership is transferred while the apples are
still in transit, the buyer bears the risk if the shipment is damaged or lost during transit.
- Relevant Section: Section 26
3. Ascertained Goods
- Definition: Ascertained goods are goods identified and agreed upon at the time the contract of sale is made.
- Example: If A agrees to sell 500 bags of rice out of a bulk of 1000 bags, and the 500 bags are separated
and agreed upon, these 500 bags become ascertained goods.
- Relevant Section: Section 18

4. Definition of Goods
- Goods: As per the Act, "goods" refer to every kind of movable property, other than actionable claims and
money, and include stock, shares, growing crops, and things attached to or forming part of the land which are
agreed to be severed before the sale.
- Example: Electronics, furniture, grains, and stock shares are all considered goods under the Act.
- Relevant Section: Section 2(7)

5.. Types of Goods.

In the Sale of Goods Act, 1930, goods are classified into three main types:

1. Existing Goods : These are goods that physically exist and are owned or possessed by the seller at the time
of the contract.
- Example: A car displayed in a showroom.

2. Future Goods: These are goods that are not yet in existence or are not yet owned by the seller at the time
of the contract but will be acquired or manufactured by the seller after the contract is made.
- Example: Crops to be harvested next season.

3. Contingent Goods: These are a type of future goods, where the sale depends on a certain condition being
met.
- Example: Sale of fish, subject to the catch on a fishing trip.

6. Conditions and Warranties

- Conditions: A condition is a stipulation essential to the main purpose of the contract. The breach of a
condition gives the aggrieved party the right to repudiate the contract.
- Example: A buyer purchases a car on the condition that it must have a working GPS system. If the GPS
system doesn’t work, the buyer can reject the car.
- Relevant Section: Section 12(2)

- Warranties: A warranty is a stipulation collateral to the main purpose of the contract. The breach of a
warranty allows the aggrieved party to claim damages but not to repudiate the contract.
- Example: If a seller promises to provide free servicing for one year but fails to do so, the buyer can claim
damages but cannot return the car.
- Relevant Section: Section 12(3)

7. Caveat Emptor
- Meaning: Caveat emptor" means "let the buyer beware." This principle implies that the buyer must inspect
the goods thoroughly and assume the risk of quality and suitability.
- Example: If a buyer purchases a second-hand car without checking it and later discovers it has defects, the
seller is not liable unless there was a misrepresentation.
- Relevant Section: There is no specific section in the Act, but it is a general principle.
8. Unpaid Seller
- Definition: An unpaid seller is a seller to whom the full price has not been paid or tendered, or a seller
who has received a bill of exchange or other negotiable instrument as conditional payment, and the
condition on which it was received has not been fulfilled by reason of the dishonor of the instrument or
otherwise.
-
9. Rights of an Unpaid Seller:
Rights of an Unpaid Seller under the Sale of Goods Act, 1930

1. Right of Lien
- The right of lien allows an unpaid seller to retain possession of the goods until the buyer pays the full
price. This right is applicable when the goods are still in the seller's possession, and the payment has not been
made.
- Example:A seller delivers 500 bags of rice to a buyer but retains possession because the buyer has not
paid the agreed price. The seller can hold onto the rice until the payment is received.
- Relevant Sections:Sections 47-49

2. Right of Stoppage in Transit

- Definition: This right allows the unpaid seller to stop the goods in transit and regain possession if the
buyer becomes insolvent after the seller has parted with the goods but before they are delivered to the buyer.
- Example: A seller ships a consignment of electronics to a buyer. While the goods are in transit, the seller
learns that the buyer has become insolvent. The seller can stop the goods and reclaim them from the carrier.
- Relevant Sections: Sections 50-52

3. Right of Resale
- Definition: The right of resale allows the unpaid seller to resell the goods if the buyer fails to pay the
price or if the goods are perishable. This can be done after exercising the right of lien or stoppage in transit.
- Example: A seller sells a batch of perishable fruits to a buyer who fails to pay. The seller, after holding the
goods under lien, resells them to another buyer to avoid loss.
- Relevant Section:Section 54

10. Conclusion
Understanding these key concepts of the Sale of Goods Act, 1930, is crucial for navigating legal aspects of
commercial transactions involving goods. Each section outlined above plays a significant role in defining the
rights and obligations of buyers and sellers in a sale transaction.

11. Case Summaries:

1. State of Andhra Pradesh vs. M/s Larsen & Toubro Ltd. (2005, Supreme Court of India)**

Facts:
- The State of Andhra Pradesh (AP) imposed a sales tax on works contracts. M/s Larsen & Toubro Ltd.,
engaged in construction activities, challenged this tax. The main issue was whether the state had the power to
levy sales tax on the goods used in works contracts before the 46th Constitutional Amendment, which
clarified that states could levy sales tax on the transfer of property in goods involved in the execution of a
works contract.
Law:
- The 46th Amendment to the Indian Constitution added Article 366(29A), which allowed states to levy sales
tax on the transfer of property in goods involved in works contracts. Before this amendment, the position was
unclear, leading to disputes like this case.
- The case involved interpreting the scope of the amendment and its retrospective application.

Conclusion:
- The Supreme Court held that states could levy sales tax on the value of goods involved in a works contract
even before the 46th Amendment. The court ruled that the amendment clarified the existing law rather than
introduced new provisions, thus validating the state's power to impose such taxes retrospectively.
- This judgment reinforced the states' authority to tax works contracts, a significant source of revenue.

2. Ozair Hussain vs. Union of India (2002, Delhi High Court)

Facts:
The Hussain vs. Union of India (2002) case in the Delhi High Court addressed the labeling of vegetarian and
non-vegetarian food products under the Prevention of Food Adulteration Act, 1954, and the Drugs and
Cosmetics Act, 1940. The petitioner, Ozair Hussain, argued that consumers' religious sentiments and dietary
practices were being violated by the lack of clear labeling, leading to potential consumption of non-
vegetarian ingredients by vegetarians.

The court directed the government to ensure that all packaged food and cosmetic products carry clear
labeling with a red dot for non-vegetarian items and a green dot for vegetarian items. This decision
emphasized consumer rights to make informed choices based on their religious and dietary practices and led
to the mandatory implementation of the red and green dot system on food and cosmetic packaging in India.

Note : reading of full judgments is suggested to understand and appreciate the nuances of the facts , laws
and proceedings.

Interesting read : Opium Trade in the 18th and 19th Centuries

[Link]