MODULE-III

SALE OF GOODS ACT

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

What is Contract of Sale: meaning & concept

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

In other words, the essentials to constitute a contract of the sale are as follows:

Two parties

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

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

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

Goods

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

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

Where goods are offered as consideration for goods, it will not

amount to sale, but it will be called barter or exchange, which
was prevalent in ancient times.

Price

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

Where goods are offered as consideration for goods, it will not

amount to sale, but it will be called barter or exchange, which
was prevalent in ancient times.

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

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

Transfer of OWNERSHIP

Ownership must transfer from seller to buyer. If ownership is

not transferred it will be bailment or pledge
 Essential elements of a valid contract

All essential elements of a valid contract must be present in the contract of the
sale, i.e.,

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

Sale and Agreement to Sell

SALE AGREEMENT TO SELL

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

The nature in the sale is

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

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

Transfer of risk takes place Transfer of risk doesn’t take place, until and unless the
immediately. goods are transferred.
The right to sell remains with the
The right to sell remains with the seller.
buyer

Here the seller has the right to

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

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

On the off chance that the

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

Conditions And Warranties Under Sale Of Goods

Acts 1930

The term condition get defined under the sale of goods act as ' a condition is a
stipulation essential to the main purpose of the contract, the breach of which
gives rise to a right to treat the contact repudiated.'

The term warranty is defined as a warranty, which is a stipulation collateral to

the main purpose of the contract, the breach of which gives rise to a claim for
damages but not to sight to reject the goods and treat the contract as
repudiated. As I mentioned earlier the warranty as a stipulation is not essential
to the main purpose of the contracts, but it is the subsidiary, so in case of
breach, the buyer cannot repudiate the contract but can claim the damages .
Conditions
A condition can be termed as one of the crucial terms in an agreement of sale
which is mentioned by the buyer to the seller and can be implied or expressed.
The buyer can cancel the proposal in case of non-compliance with the
condition mentioned by the seller. The condition may be expressed or implied.
If there is a breach of conditions then there is a right to aggrieved party to
treat the contract as repudiated. In case if the buyer had paid, then he is also
having the right to recover the price and can also claim the damages for
breach.

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

Difference Between Condition And Warranty:

Conditions Warranties
In this the stipulation can be consider In this the stipulations is additional to
as the basis of contract the main contracts
If the warranty got breach then the
If the condition get breach then it leads
injured party will et the compensation
to termination of contracts
only
If the buyer get agree so the condition Warranty cannot be treated as
can be treated as warranty condition
The injured party can refuse to accept Only damages can be claimed by
the goods as well as claim damage in injured party in case of breach of
case of breach of condition warranty
Caveat emptor(section 16)
The principle of Caveat emptor is explained in Section 16 of the Sale of Goods
Act 1930 which states that there is no implied condition or warranty as to
quality or fitness for any particular purpose of goods supplied.”

The History of Caveat emptor

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

Let us see an example. A bought a horse from B. A wanted to enter

the horse in a race. Turns out the horse was not capable of running a
race on account of being lame. But A did not inform B of his intentions.
So B will not be responsible for the defects of the horse. The Doctrine
of Caveat Emptor will apply.

The reason against the rule of Caveat emptor, is the need for providing
protection to the buyer who purchases the goods in good faith, that is, where
the buyer purchases goods from the seller by relying on his skill and
judgment. Thus the rule was subsequently diluted so as to give proper
recognition to the relationship between the seller and the buyer and in order
to give rise to a scenario wherein commercial transactions are encouraged.
Exceptions To The Rule Of Caveat Emptor- Section 16 of The
Sale of Goods Act, 1930

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

Sub section (1) of Section 16 of the said Act prescribes the circumstances in
which the seller is obliged to supply goods to the buyer as per the purpose for
which he intends to make a purchase. It states that when the seller either
expressly or by necessary implication is aware of the purpose for which buyer
makes purchase thereby relying on seller’s skill and judgment and the goods
to be purchased are of a description which the seller in his ordinary course of
business supply, then there is as implied condition that the goods shall be
reasonably in accordance with the purpose

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

in Grant v Australian Knitting Mills [xiii] Dr Grant purchased two

pairs of woollen underwear and two singlets from John Martin & Co.
There was nothing to say the underwear should be washed before
wearing and Dr Grant did not do so. He suffered a skin irritation
within nine hours of first wearing them. It was held that because of
such a defect the underwears were not of merchantable quality.

Merchantable quality [Section 16(2)]

The second important exception to the doctrine of caveat emptor is
incorporated in Section 16(2) of the Act. The Section provides that the dealer
who sells the goods has a duty to deliver the goods of merchantable quality.

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

“Where the goods are bought by description from a seller who deals in goods
of that description (whether he is the manufacturer or producer or not), there
is an implied condition that the goods shall be of the merchantable quality.”

In Ranbirsingh Shankarsingh Thakur vs. Hindustan General Electric

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

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

The rule of nemo dat quod non

habet1
Meaning of the Nemo dat rule
The legal rule ‘Nemo dat quod non habet’ literally means ‘no one gives what
he doesn’t have’. It is equivalent to the civil rule Nemo plus iuris ad alium
transferre potest quam ipse habet which translates to ‘one cannot transfer to
another more rights than he has’. The rule is associated with the transfer of

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possession of a property in law. The Sale of Goods Act, 1930 (hereinafter
SOGA) and the Indian Contract Act, 1872 are associated with underlying
provisions of this rule.

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

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

IMPLEMENTATION OF MAXIM IN INDIA2

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

this Act and of any other law for the time being in force, where goods are

sold by a person who is not the owner thereof and who does not sell them

under the authority or with the consent of the owner, the buyer acquires no

better title to the goods than the seller had, unless the owner of the goods is

by conduct precluded from denying the seller’s authority to sell.

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

in possession of the goods or of a document of title to the goods, any sale

made by him, when acting in the ordinary course of business of a mercantile

agent, shall be as valid as if he were expressly authorised by the owner of

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the goods to make the same, provided that the buyer act is good faith and

has not at the time of the contract of sale notice that the seller has no

authority to sell.

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

when it provides that where the goods are sold by a person who is not the

owner thereof and who does not sell them under the authority or with the

consent of the owner, the buyer acquires no better title to the goods than the

seller has.

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

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

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

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

same title as the seller had. Similarly, where a person taking goods on hire-

purchase basis sells them before he had paid all the instalments, the owner

can recover the goods from the transferee, on default of payment, in the same

way as he could have recovered them from the person to whom they had been

given on the hire purchaser basis.

EXCEPTIONS

1. Transfer Of Title By Estoppel

Estoppel means that a person who by his conduct or words leads another to

believe that certain state of affairs existed, would be estopped ( precluded )

from denying later that such as state of affairs did not exist. Sometimes the

doctrine of estop or preclude the owner from denying the seller’s right to

sell the goods and thus an innocent buyer may have a good title despite the

want of authority of the seller. When the true owner of goods by his conduct

or word or by any act or omission leads the buyer to believe that the seller is

the owner of the goods or has the authority to sell them, he cannot after

wards deny the seller’s authority to sell.

2. Sale By A Mercantile Agent (Section 27)

If a mercantile agent has an authority to sell the goods and he does so, no

difficulty arises because according to the general rule, an agent having the

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

mercantile agent disposes of the goods without having authority to do so

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

satisfied,-

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

Section 2(9) states that

“ mercantile agent” means a mercantile agent having in the customary

course of business as such agent authority either to sell goods, or to consign

goods for the purposes of sale, or to buy goods, or to raise money on the

security of goods;

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

of title to the goods with the consent of the owner, and in his capacity as

a mercantile agent;

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

of his business of a Mercantile agent;

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

notice that such a Mercantile agent did not have an authority to sell.

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

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

defendant for pound 140 and misappropriated the amount. In an action by

the plaintiff it was held that the defendant (buyer) had a good title to the

goods.

Pearson v. Rose & Young, Ltd

Judgement

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

mercantile agent within the Factors Act, 1889, s. 2(1), for the purpose to see Car can

be sold or not.. By means of a trick Hunt, induced the plaintiff to hand him the

registration book relating to the car. Later the same day Hunt., acting without the
authority or knowledge of the plaintiff, sold the car and handed the registration book

to the X who acted in good faith without notice of any absence of authority. The X

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

plaintiff against the defendants claiming damages for the conversion of the car.

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

mercantile agent, within the meaning of s. 2(1), he did not consent to his possession in

that capacity of the registration book; the sale of a car without the registration book

relating to it was not a sale of goods “in the ordinary course of business” therefore,

HUNT. was unable to pass a good title to the fourth party.

3. Sale By Joint Owner

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

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

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

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

the fact that the seller has no authority to sell.

4. Sale By A Person In Possession Under A

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

to the contract has been obtained by coercion, fraud, misrepresentation or

undue influence, the contract is voidable at the option of the party whose

consent has been so obtained. Section 29 provides that if a person has

obtained the possession of some goods under a contract which is voidable

under section 19 or 19 – A of the contract Act and he sells those goods before

the contract has been avoided by the party entitled to do so, the buyer of such

goods acquire a good title to them. It is, however, necessary that such buyer

must have purchased the goods in good faith and without the notice of the

seller’s defect of title.

Phillips v Brooks Ltd

Facts

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

a cheque for £3000 and told the claimant: ‘You see who I am, I am Sir George

Bullough.’ He then gave an address in St James’s Square. The claimant was familiar

with the name and confirmed that someone with that name lived at the address. The

man took the ring with him. The man was not George Bullough. The cheque was

dishonoured. By the time the claimant realised that he had been swindled, the man

had pawned the ring to the defendant.

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

not have sold the ring if they had known who the man truly was. This meant, he
claimed, that the contract was void for mistake. If true, this would mean that the

ring still belonged to the claimant.

Held

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

there was no mistake as to identity due to the fact this contract was made face-to-

face. Whilst fraudulent statements were made, the identity of the fraudster could not

be considered ‘mistaken’. Importantly, a fraudulent contract is voidable (not void)

and permits property to pass to bona fide third-party meaning Brooks Ltd was the

legal owner of the ring.

5. Sale By The Seller In Possession

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

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

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

Sec 30 (1), however, provides that if seller having sold the goods is still in

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

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

transfer of the goods or of the documents of title under any sale, pledge or

other disposition thereof by the seller or by a Mercantile agent on his behalf

will convey a good title to the buyer provided the buyer has been acting in

good faith and he has no notice of the previous sale.

6. Sale By The Buyer In Possession –

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

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

or other disposition thereof to any person will convey s good title and without

any notice as regards any lien or other right of the original seller in respect

of those goods.

7. Resale By An Unpaid Seller –

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

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

after a notice to the buyer. If such a notion is not given, the seller is neither

entitled to claim from the buyer any loss if the goods bring lower than the

contract price nor can he retain the benefit if the goods are sold at a higher

price.

8. Sale By Finder Of Goods-

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

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

are in his possession and also to return them when their owner has been

found. According to Sec 169 of ICA, however, if the owner cannot with a

reasonable diligence be found or if he refuses upon demand, to pay the lawful

charges of the finder, the finder may sell the goods,- also he may sell the

goods

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

of its value, or

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

amount to 2/3 of its value.

9. Sale By Pawnee-

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

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

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

Unpaid Seller(SEC 45.)

In every contract of sale, a seller is under an obligation to deliver the goods
sold and buyer is under an obligation to pay the requisite amount set or quid
pro quo i.e something in return, under the contract of sale, by them. This is
known as reciprocal promise as per Section 2(f) of the Indian Contract Act. In
other words, any set of promises made which forms the consideration or part
of the consideration for each other are called reciprocal promises and every
contract of sale of goods consists of reciprocal promises.

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

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

considered as an unpaid seller when:

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

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

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

Rights of an Unpaid Seller

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

1- In case the buyer is insolvent.

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

3- Goods sold on cash.

Under following circumstances right of lien is terminated-

1. Waiver of lien-

The right of lien is an implied right attached by law in every contract of sale,
the seller has the autonomy to waive this right, it may be expressed or implied
from the conduct of the seller.

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

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

3. When the seller delivers goods to a carrier or other bailee for the
purpose of transmission to the buyer without reserving the right of
disposal of the goods.

When the seller has delivered goods to the carrier for transmission, his right
of lien is ceased but the right to stoppage in transit is still accessible by him.
In case seller regains possession of goods in transit by stoppage his right to
lien is revived.

4. With payment

Right of lien is lost the moment buyer pays the consideration to

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

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

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

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

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

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