The Sale of Goods Act, 1930

Definition of Contract of Sale

“A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the
property in goods to the buyer for a price.”
Essentials of Contract of Sale
The contract of sale, as governed by the Sale of Goods Act, 1930, in India, is a specific type of
contract that involves the transfer of goods from the seller to the buyer for a price. This type of
contract, like all contracts, has its own set of essential elements that distinguish it from other
agreements.
1. Two Parties:
A contract of sale is essentially a bilateral agreement involving two parties: the seller and the
buyer. The seller agrees to transfer the goods, and the buyer agrees to pay the price. Both
parties must have the legal capacity to enter into a contract for it to be valid.
2. Goods:
The object of the contract must be goods. According to the Sale of Goods Act, 1930, goods are
defined as every kind of movable property other than actionable claims and money. This
includes stocks, shares, crops, grass, and things attached to or forming part of the land which
are agreed to be severed before sale or under the contract of sale.
3. Transfer of Ownership:
The core of a contract of sale is the transfer of ownership (or property) in goods from the seller
to the buyer. This distinguishes a sale from a hire purchase or lease, where ownership may not
be transferred.
4. Price:
There must be a price, which is the money consideration for the sale of goods. The price can be
fixed by the contract, agreed upon by the parties, or determined through a method agreed upon
by the contract. A contract without a consideration of price is not considered a sale.
5. Formalities:
The contract of sale can be made in writing, orally, or through conduct of the parties. While a
formal written contract is not a necessity for the validity of the sale, certain types of sales may
be subject to specific regulatory requirements that mandate written contracts.
6. Free Consent:
As with any contract, the consent of both parties to the contract of sale must be free. Consent is
not considered free when it is obtained through coercion, undue influence, fraud,
misrepresentation, or mistake.
7. Legality of Purpose:
The goods being sold and the terms of the contract must be legal. A contract for the sale of
illegal goods or for illegal purposes is void and unenforceable.
8. Differentiation between Sale and Agreement to Sell:
The Act differentiates between a sale, where the transfer of ownership is immediate, and an
agreement to sell, where the transfer is to take place at a future time or subject to certain
conditions. Understanding this difference is essential for determining the rights and obligations
of the parties.
Conditions:
A condition is a stipulation essential to the main purpose of the contract, the breach of which
gives rise to the right to treat the contract as repudiated. Conditions are fundamental to the
contract’s execution, and failure to meet these terms allows the aggrieved party to terminate the
contract, in addition to seeking damages.
Characteristics of Conditions:
 They are fundamental to the agreement.
  Breach of a condition may lead to the termination of the contract.
 A condition can be turned into a warranty if the aggrieved party chooses to waive the
breach and continue with the contract.
Warranties:
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 to a right to reject the goods and treat the contract as
repudiated. Warranties are secondary to
the contract’s main purpose and provide reassurance about certain aspects of the goods, such
as quality, capacity, or material.
Characteristics of Warranties:
 They are supplementary to the core agreement.
 Breach of a warranty allows for a claim of damages but does not entitle the aggrieved
party to terminate the contract.
 A warranty assures some specific attributes or conditions of the goods.

Transfer of Ownership in Goods including Sale by a Non-owner and exceptions

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The act meticulously outlines how and when ownership of the goods passes from the seller to
the buyer, which is crucial for determining the parties’ rights and liabilities.
General Principles of Transfer of Ownership
1. According to Contract:
The transfer of ownership in goods is generally determined by the terms of the contract between
the seller and the buyer (Section 19).
2. Intention of Parties:
The primary factor in determining when the ownership of the goods is to be transferred is the
intention of the parties, which must be gleaned from the terms of the contract, the conduct of the
parties, and the circumstances of the case (Section 19).
3. Specific or Ascertained Goods:
In a contract for the sale of specific or ascertained goods, the ownership is transferred to the
buyer at the time the parties to the contract intend it to be transferred. This can happen at the
time of making the contract if such is the intention (Section 20).
4. Goods in a Deliverable State:
When goods are in a deliverable state, but the seller is bound to do something to ascertain the
price, the ownership does not pass until such act or thing is done and the buyer has notice
thereof (Section 21)
5. Goods to be Put into a Deliverable State:
If the goods need to be put into a deliverable state, the ownership passes to the buyer when this
is done, and the buyer has been notified (Section 22).
6. Goods Sent on Approval or Sale or Return:
In cases where goods are sent on approval or “on sale or return,” the ownership passes to the
buyer:
 When he signifies his approval or acceptance to the seller or does any act adopting the
transaction.
 If he does not signify his rejection or return the goods within the time fixed or a
reasonable time (Section 24).
Sale by a Non-owner
The general principle is that only the owner of goods can sell them, and a sale by a person not
the owner, and without authority or consent, does not convey a good title to the buyer. However,
there are exceptions to this rule:
1. Estoppel or Sale by Mercantile Agent:
When the owner of goods is by his conduct precluded from denying the seller’s authority to sell,
a non-owner can pass good title (Section 27). Additionally, a mercantile agent with possession
of the goods or with the consent of the owner can provide a good title to the buyer (Section 27).
2. Sale by One of Joint Owners:
If one of several joint owners of goods has the sole possession of them by permission of the co-
owners, the property in the goods can be transferred to any person who buys them from such
joint owner in good faith and without notice of the joint ownership (Section 28).
3. Sale under Voidable Title:
If the seller of goods has a voidable title thereto, but his title has not been voided at the time of
the sale, the buyer acquires a good title to the goods, provided he buys them in good faith and
without notice of the seller’s defect of title (Section 29).
4. Seller in Possession after Sale:
If a person having sold goods continues or is in possession of the goods, or of the documents of
title to goods, the delivery or transfer by that person, or by a mercantile agent acting for him, of
the goods or documents of title under any sale, pledge, or other disposition thereof to any
person receiving the same in good faith and without notice of the previous sale, has the same
effect as if the person making the delivery or transfer were expressly authorized by the owner of
the goods to make the same (Section 30).
5. Buyer Obtaining Possession:
If a buyer, with the consent of the seller, obtains possession of the goods or documents of title,
any sale, pledge, or other disposition of the goods made by him to any person receiving them in
good faith and without notice of any lien or other right of the original seller in respect of the
goods, has the same effect as if the buyer were a mercantile agent in possession of the goods
or documents of title with the consent of the owner (Section 30).
Unpaid Seller, Rights of an Unpaid seller against the Goods and against the
Buyer
An unpaid seller, as defined in the Sale of Goods Act, 1930, refers to a seller who has not
received the whole of the price, 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 due to the dishonor of the instrument.
Rights of an Unpaid seller against the Goods
Rights Before the Passing of Property to the Buyer
1. Withholding Delivery:
If the property in the goods has not yet passed to the buyer, the unpaid seller has the right to
withhold delivery. This is akin to the seller exercising a lien on the goods for the price while he is
in possession of them.
Rights After the Passing of Property to the Buyer
Once the property in the goods has passed to the buyer, the unpaid seller’s rights are more
defined and can be exercised under specific conditions:
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1. Lien:
The unpaid seller who is in possession of the goods is entitled to retain possession until
payment is made, under certain conditions. This right is available:
 Where the goods have been sold without any stipulation as to credit;
 Where the goods have been sold on credit, but the term of credit has expired;
 Where the buyer becomes insolvent.
2. Stoppage in Transit:
If the buyer becomes insolvent and the goods are in transit, the unpaid seller can take steps to
stop the goods and resume possession. This right is crucial for protecting the seller when the
buyer’s insolvency becomes apparent after the goods have left the seller’s possession but have
not yet been delivered to the buyer.
3. Resale:
Under certain conditions, an unpaid seller who has exercised his right of lien or stoppage in
transit may resell the goods. This right is particularly important to mitigate losses when it
becomes clear that the buyer will not fulfill their payment obligations. The right to resell may be
subject to specific conditions laid down in the Act or the original contract of sale.
4. Recession of the Contract:
In cases where the goods are perishable or where the unpaid seller has given notice to the
buyer of his intention to resell and the buyer does not within a reasonable time pay or tender the
price, the seller may rescind the contract and sell the goods.
Rights of an Unpaid seller against the Buyer
The rights of an unpaid seller against the buyer, as outlined in the Sale of Goods Act, 1930, are
designed to provide recourse for sellers when buyers fail to fulfill their payment obligations.
Suit for Price
The most straightforward right of an unpaid seller is to sue the buyer for the price of the goods.
This right arises:
 When the property in the goods has passed to the buyer, and the buyer wrongfully
neglects or refuses to pay for the goods according to the terms of the contract.
 When the price is payable on a certain day, irrespective of delivery, and the buyer fails to
pay.
The suit for price enables the seller to demand the payment that is due, offering a legal pathway
to recover the funds for the goods that have been sold and delivered.
2. Damages for Non-Acceptance
If the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue
for damages for non-acceptance. This right is particularly relevant in situations where:
 The contract is for the sale of goods for a price.
 The buyer fails to fulfill their obligation to accept the goods and make payment.
The calculation of damages may be guided by the difference between the contract price and the
market price at the time when the goods ought to have been accepted, or at the time of refusal.
3. Suit for Repudiation
Before the due date of performance, if the buyer repudiates (rejects) the contract, the seller has
the right to sue for damages for repudiation. This preemptive right allows the seller to seek
compensation when it becomes clear that the buyer intends not to honor the contract, even
before the actual time for performance has arrived.
4. Suit for Interest
In cases where the sale contract stipulates interest to be paid on the price from a specific date
until payment or where there is a course of dealing between the parties that establishes such a
term, the seller may sue for interest. Furthermore, in the absence of a specific contract term, the
court may, in its discretion, award interest at a rate it deems reasonable, from the date of tender
of the goods or from the date the price was payable to the date of actual payment.