LLB-II SPECIAL CONTRACTS

1. Sale Of Goods Act
Course: LLB II
Subject : Company Act
Unit: 2

2. Sale Of Goods Act
• Scope of the act
Applies only to movable property other than actionable
claims and money and not to immovable which are
governed under Transfer of Property Act,1882.
The Sale of Goods Act, 1930 came into force on,
1st July, 1930.

3. Goods sec 2 (7)
Means every kind of moveable property other than
actionable claims and money includes:
 Stock and shares
 growing crops
 Grass and things attached to, or forming part of the
land which are agreed to be severed.

4. • Types of Goods:

5. Rules as regards Ascertaining Intention (Sec.20-24)
1)Specific goods in Deliverable State (Sec.20)
Goods are said to be in D/S when they are in such state that the
buyer would under the contract be bound to take delivery of
them
2) Specific goods not in a Deliverable state (Sec.21)
• Where there is a contract for the sale of specific goods in a
deliverable state but the seller is bound to weigh, measure, test
or to do some other thing with reference to them, for
ascertaining the price , the property does not pass till such act
or thing is done and the buyer has notice of it.

6. The contract of sale :
“A contract of sale of goods is a contract
whereby a seller transfers or agrees to transfer
the property in goods to the buyer for price”
 Contract of sale is a generic term which includes
both a sale as well as an agreement to sell

7. Main features :
 There must be at least two parties
 Transfer or agreement to transfer the ownership of
goods
 The subject-matter of the contract must necessarily be
‘Goods’
 The consideration is price.
 A contract of sale may be absolute or conditional
 All other essentials of a valid contract must be
present

8. SALE OF GOODS
The law relating to the sale of movable goods is contained in the Sale of Goods Act (Act 111 of 1930).
Buyer, Seller and Goods:
Buyer; Seller; The term "Goods" includes every kind of movable property except
Actionable claims and money:
An actionable claims means a debt for a claim for money
Movable articles like furniture, clothing etc. and shares and debentures are goods.
Goods may be classified into three types : Existing Goods, Future Goods and Contingent goods.
Sale and agreement to sell:
Sale: Where under a contract of sale the property in the goods (i.e. the ownership) is transferred from
the seller to the buyer the contract is called a sale.
Agreement to sell: When the transfer of ownership is to take place at a future time or subject to some
condition to be fulfilled later, the contract is called an agreement to sell.

9. Differences between a sale and an agreement to sell:
1. Transfer of ownership: In case of a sale the property passes to the buyer and
the goods cannot be seized in execution of a decree against the seller.
2. Transfer of Risk: Where the transaction amounts to a sale, the goods belong to
the buyer and he has to bear the loss if the goods are subsequently damaged or
destroyed.
3. Remedial measures: In the case of a sale, the unpaid seller has certain reliefs
available, e.g., lien, stoppage in transit, resale etc.
4. Nature of contract: `Sale' is an `executed contract' because in a sale, consid­
eration moves simultaneous with the promises, of both parties.

10. Essential elements:
1. Movable Goods: The Sale of Goods Act deals ‘only with movable goods,
excepting actionable claims and money.
2. movable Goods for Money: There must be a contract for the exchange of
movable goods for money.
3. Two Parties: Since a contract of sale involves a change of Ownership, it
follows that the buyer and the seller must be different persons. A sale is a
bilateral contract.
4. Formation of the contract of sale: A contract of sale is made by an offer to
buy or sell goods for a price and the acceptance of such offer.
5. Method of forming the contract: Subject to the provision of any law for the
time being in force, a contract of sale may be in writing or by word of
mouth, or may be implied from the conduct of the parties.
6. The terms of contract: The parties may agree upon any term concerning
the time, place, and mode of delivery. The terms may be of two types :
essential and non­essential.

11. Caveat emptor (buyer beware)
Exceptions
 Custom and usage of trade
 Fraud
 For specific goods
 Merchantable quality

12. Unpaid seller
• Is the one who is not been paid or tendered the whole price or
one who receives a bill of exchange or other negotiable
instrument as conditional payment .

13. Rights of
Unpaid
Seller
When property in
Goods has passed
To buyer
When property in
Goods has not
Passed to
Buyer
Lien
Stoppage
In
transit
resale
Withholding
delivery
Other rights

14. Breach of contract of sale
Remedies available to the seller.
 Suit for price
 Suit for damages
Remedies to buyer
 Suit for damages for non-delivery of goods
 Suit for specific performance
 Suit for breach of warranty
 Suit for repudiation of contract-anticipatory breach.

15. Auction sales
 A sale by auction is a public sale in which goods are offered to
the highest bidder
 In above case following rules apply:
1) when the goods are put up for sale in lots, each lot is
deemed, prima facie, to be the subject matter of a separate
contract of sale.
2)At an auction, the sale is complete when the auctioneer
announces its completion by the fall of the hammer or in other
customary manner; until such completion any bidder may
withdraw his bid. It is also the practice to say 3

16. Conditions and Warranties
Conditions and Warranties:
The Sale of Goods Act states that a term in a contract of sale with
reference to goods may be a condition or a warranty.
A condition is a stipulation essential to the main purpose of contract, the
breach of which gives rise to a right to treat the contract as
repudiated.
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.

17. When a Condition can be treated as a Warranty­
1. Voluntary waiver of a condition: The buyer may elect to treat a breach of condition as a breach of
warranty, i.e. instead of repudiating the contract he may accept performance and sue for
damages, if he has suffered any
2. Compulsory waiver of a condition: Where a contract of sale is not severable and the buyer has
accepted the goods or a part thereof, he cannot repudiate the contract but can only sue for
damages. In such a case, the breach of condition can only be treated as a breach of warranty,
unless there is a contract to the contrary.
Distinction between Condition and Warranty:
1. Condition is a term which is essential to the main purpose of the contract. Warranty is only a
collateral term. It is subsidiary to the main purpose of the contract.
2. Breach of a condition gives the aggrieved party a right to repudiate the contract. It also creates a
right to get damages. Breach of warranty entitles the aggrieved party to claim damages only.
3. A breach of condition may under certain circumstances be treated as a warranty. But a warranty
cannot become a condition.
Consequences of Breach of Conditions:
1. If a condition is broken there arises a right to treat the contract repudiated.
2. Repudiation of Contract before due date: Where either party to a contract of sale repudiates the
contract before the date of delivery, the other may either treat the contract as subsisting and wait
till the date of delivery, or he may treat the contract as rescinded and sue for damages for
the breach.

18. Consequences of Breach of Warranty:
1. A breach of warranty gives rise to a claim for damages but not to a right to reject the goods and treat
the contract as repudiated.
2. Under certain circumstances a `condition' is to be treated as 'warranty'.
Remedy for breach of warranty:
(1) Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat
any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason
only of such breach of warranty entitled to reject the goods, but he may­
(a) set up against the seller the breach of warranty in diminution or extinction of
the price; or
(b) sue the seller for damages for breach of warranty.
(2) The fact that a buyer has set up a breach of warranty in diminution or extinction of the price does not
prevent him from suing for the same breach of warranty if he has suffered further damages.
Implied condition and warranties:
A stipulation (or term) in a contract of sale of goods may be express or implied. Express terms are those
which have been expressly agreed upon by the parties. Implied terms are those which have been
enacted in the Sale of Goods Act.

19. Implied conditions
1. Condition as to title: There is an implied condition on the part of the seller that, in
the case of a sale he has the right to sell the goods, and in the case of an agreement
to sell, he will have the right to sell the goods at the time when the property is to pass.
2. sale by description: Where there is a contract for the sale of goods by description,
there is an implied condition that the goods shall correspond with the description.
3. Sale by Sample: When goods are to be supplied according to a sample agreed
upon, the following conditions are implied.
(a) The bulk shall correspond with the sample in quality.
(b) The buyer shall have a reasonable opportunity of comparing the goods
with the sample
(c) The goods shall be free from any defect.
4. Sale by sample as well as by description:

20. 5. Condition as to fitness or quality:
There is an implied condition as to quality or fitness for the purpose of the buyer under the following circumstances
only:
A. Where the buyer, expressly or by implication, makes known to the seller the particular purpose for
which the goods are required, so as to show that the buyer relies on the seller's skill, or judgment,
and the goods are of a description which it is in the course of the seller's business to supply
B. An implied condition of fitness may be annexed to a contract of sale by usage of trade or custom of the
locality.
C. when goods are bought by description from a seller who deals in goods of that description there is an
implied condition that the goods are of merchantable quality, that is, fit to sell.
The doctrine of caveat emptor:
Caveat Emptor is a Latin expression which means, "buyers beware". The doctrine of caveat emptor means that,
ordinarily, a buyer must buy goods after satisfying himself of their quality and fitness. If he makes a bad
choice he cannot blame the seller or recover damages from him.

21. The exception are as follows :
(a) Where the buyer relies upon the skill and judgment of the seller.
(b) Where by custom an implied condition of fitness is annexed to a contract of sale.
(c) Where there is a sale of goods by description, there is an implied condition that the
goods are fit for sale.
(d) Where the seller is guilty of fraud.
In cases not falling under any of the four exceptions noted above, the seller is not liable to any
penalty if the goods purchased are found to be unfit by the buyer for the purposes had in
mind.
Implied warranties:
In the absence of an agreement to the contrary, the following warranties are implied in every
contract of sale :
1. The buyer must get quiet possession : Since disturbance to quiet possession is likely to
arise only where the vendor does not possess the right to transfer the goods, this clause
may be regarded as an extension of the implied condition.
2. The goods must be free from encumbrance : There is an implied warranty that the goods
shall be free from any charge or encumbrance in favour of a third party not declared or
known to the buyer before or at the time when the contract is made.
3. Fitness of goods, required for a purpose, may be warranted by usage of trade: A warranty
as to fitness for a particular purpose may be annexed to a contract of sale by a custom or
usage of trade.

22. Exclusion of implied terms and conditions:
Where any right, duty or liability would arise under a contract of sale by implication
of law, it may be negatived or varied by express agreement or by the course
of dealing between the parties, or by usage, if the usage is such as to bind
both parties to the contract.
Liabilities of the seller apart from the contract of sale:
The Sale of Goods Act deals only with the contractual liabilities of the seller. But
the seller may also be liable to pay damages under the law of torts if he
causes injury by a wrongful act.

23. References
• 1. salesofgoods.org
• Principles of Law of Sale of Goods and Higher
Purchase, Eastern
• A.G. Guest : Benjamin's Sale of Goods, Sweet
and Maxwell
• Pollock and Mulla's : Sale of Goods Act, Lexis
Nexis-Butterworths