LEGAL ASPECTS OF

BUSINESS
MANAGEMENT
[MBA BATCH- 2024-26, SEM- II]

DR. SHIVANGI SINHA

PHD, LLM, BBA LLB
SPECIALIZED IN DISPUTE RESOLUTION &
CORPORATE LAW
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TOPICS:-
1. Sale of Goods Act: Definition of
Contract of Sales,
2. Essential conditions and warranties,
3. Transfer of the Title,
4. Rights of buyers and unpaid sellers,
5. Caveat Emptor
1. SALE OF GOODS ACT: DEFINITION OF
CONTRACT OF SALES :-

• The Sale of Goods Act, 1930 is a vital piece of legislation

that governs the sale of goods in India.
• It applies to all contracts for the sale of goods, whether
they are new or second-hand, movable or immovable,
except for specific exclusions mentioned in the Act.
• The Act aims to regulate and provide a framework for
commercial transactions involving the transfer of
ownership of goods from one party (seller) to another
(buyer).
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CONTINUED:-
• Till 1930, the law relating to sale and purchase of goods were regulated by
the Indian Contract Act,1872.
• In 1930, sections 76 to 123 of the Indian contract act, 1872 were repealed
and separate act called ‘The Indian Sale of Goods Act, 1930 was passed. It
came into force on 1st July 1930 with effect from 22nd September 1963.
• According to section 4(1), of the Sale of goods act, 1930 ‘Contract of sale
of goods is a contract whereby the seller transfer or agrees to transfer the
property in goods to the buyer for a price’.
• A contract of Sale of goods include both (i) sale and (ii) an agreement to
sell Sale: Ownership in the goods is transferred by the seller to the buyer
immediately at the time of contract,
• Whereas Agreement to sell: The transfer of ownership in goods is to take
place, at a future time or subject to fulfillment of some condition.
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CONTINUED:-
ESSENTIALS OF A CONTRACT OF SALE
•Two parties i.e. Buyer and Seller
•Goods
•Transfer of the property in goods
•All Essential elements of a valid contract must be
fulfilled
•Price
•Include both sale and agreement to sale.
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DIFFERENCE BETWEEN SALE

AND AGREEMENT TO SALE
Sale Agreement to sell
•Ownership passes to the buyer •Ownership remains with the seller.
immediately.
•It is an executory contract.
•It is an executed contract.
•Risk of loss falls on the seller even
•Risk of loss falls on the buyer. though the goods are in possession
of the buyer.
•Seller cannot resell the goods.
•Seller can sell goods if the buyer
•Only the existing and specific
commits a breach of his contract.
goods can be the subject matter of
sale. •It can be in case of future and
unascertained goods.
•In case of breach of a contract,
seller can sue for the price of the •In case of breach of a contract by
goods even through the goods is in seller buyer can sue him for
his possession. damages.
•The seller is only entitled to the •The seller may refuse to sell the
rate able dividend for the price due goods to the buyer w/o payments if
if the buyer becomes insolvent the buyer becomes insolvent.
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Click to add picture

CONTINUED:- Classification of goods [Sec 6]

1. Existing goods: Existing goods
GOODS :- are those goods that are owned
by or possessed by the seller at
Defintion-Sec2 [7] The the time of making the contract
subject matter of a contract and the seller has the right to
of a sale must be goods. The sell the goods.
term ‘goods’ means ‘every 2. Future goods :The goods which
kind of movable property are neither in existence nor in
other than actionable claims possession of the seller at the
and money and includes time of contract of sale, but will
be manufactured, produced or
stock and shares, growing
acquired by him after making
crops, grass and things the contract.
attached to or forming part
of the land which are agreed 3. Contingent goods: are the
goods the acquisition of which
to be served before sale or
depends upon happening and
under the contract of sale’. non-happening of the
contingency.
2. ESSENTIAL CONDITIONS 8

AND WARRANTIES,
• Conditions and warranties are important terms that are often included in contracts of sale.
• The Sale of Goods Act, 1930, specifies provisions related to conditions and warranties in
Sections 11 to 17 and Section 62.

Conditions (Sections 12 to 15):

• Section 12 defines a condition as a stipulation essential to the main purpose of the contract,
the breach of which gives the aggrieved party the right to treat the contract as repudiated.
• Section 13 states that when a contract of sale is subject to any condition, the breach of that
condition gives the injured party the right to reject the goods or treat the contract as
repudiated.
• Section 14 provides guidelines for determining whether a term is a condition or a warranty. It
states that a stipulation may be a condition, even if it is called a warranty in the contract,
depending on the importance attached to it by the parties.
• Section 15 empowers the injured party to waive or elect to treat a breach of condition as a
breach of warranty
 CONTINUED:- Application
of Sections
11 to 17
Warranties (Sections 12 to 15): (Section
• Section 12 defines a warranty as a 62):Section
stipulation collateral to the main purpose of 62 clarifies
the contract, the breach of which gives rise to that
a claim for damages but not the right to reject Sections 11
the goods and treat the contract as to 17 of the
repudiated. Sale of
Goods Act,
• Section 13 states that when a contract of 1930, apply
sale is subject to any warranty, the breach of to
that warranty only gives the injured party a contracts for
right to claim damages. the sale of
goods only
• Section 14 provides guidelines for and not to
determining whether a term is a condition or a any other
warranty. It states that a stipulation may be a contracts.
warranty, even if it is called a condition in the
contract, depending on the importance
attached to it by the parties.
CONTINUED:-
• In summary, conditions and warranties play a crucial role in
contracts of sale. Conditions are essential stipulations, the breach of
which allows the injured party to treat the contract as repudiated,
• while warranties are collateral stipulations that give rise to a claim
for damages but not the right to reject the goods.
• The Act also provides for implied conditions and warranties, as well
as specific provisions for sale by description and sale by sample. It's
important to understand these provisions when entering into a
contract of sale to protect the rights an interests of the parties
involved.
CONTINUED:-
• Breach of Conditions: When a condition in a contract of sale is
breached, the aggrieved party has the following rights:
• Right to Repudiate the Contract: The aggrieved party can treat the
contract as repudiated, which means they can consider the contract
terminated and claim damages for any losses suffered.
• Right to Sue for Damages: The aggrieved party can sue the party in
breach for damages, seeking compensation for any loss or harm
caused due to the breach.
• Right to Refuse Goods: The aggrieved party can reject the goods if
they have not accepted them or have discovered the breach before
acceptance.
CONTINUED:-
• Breach of Warranties: When a warranty in a contract of sale is breached,
the aggrieved party has the following rights:
• Right to Sue for Damages: The aggrieved party can sue the party in
breach for damages, seeking compensation for any loss or harm caused
due to the breach. However, they do not have the right to repudiate the
contract or reject the goods.
• When a Condition is to be Treated as a Warranty: Section 13 of the Sale
of Goods Act, 1930 provides guidance on when a condition is treated as a
warranty. It states that when a contract of sale is subject to a condition,
but the condition is not essential to the main purpose of the contract,
and the breach of the condition can be compensated by damages, then
the condition can be treated as a warranty.
• In such cases, the aggrieved party cannot repudiate the contract but can
claim damages for the breach.
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3. TRANSFER OF THE TITLE :-

• Sections 27 to 30 of the Sale of Goods Act, 1930, deal with the transfer of title
(ownership)in goods. These sections outline the rules and circumstances under which
the title to goods is transferred from the seller to the buyer.

• Section 27 - Sale by a Non-owner: This section states that when goods are sold by a
person who is not the owner of the goods, and the buyer is not aware of the seller's
lack of ownership, the buyer acquires a good title to the goods, provided they
purchase them in good faith and without notice of any defect in the seller's title.

• Section 28 - Sale by One of Joint Owners: When there are multiple joint owners of
goods, and one of them has sole possession of the goods with the permission of the
co-owners, the property (ownership) in the goods is transferred to any person who
buys the goods from that joint owner in good faith and without notice of the seller's
lack of authority to sell. In such cases, the buyer acquires a good title to the goods.
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CONTINUED:-
• Section 29 - Sale by Person in Possession under Voidable Contract: If the seller of goods has obtained
possession of the goods under a contract that is voidable under Section 19 or Section 19A of the Indian
Contract Act, 1872, but the contract has not been rescinded at the time of the sale, the buyer acquires a
good title to the goods if they purchase them in good faith and without notice of any defect in the
seller's title.
• Section 30 - Seller or Buyer in Possession after Sale: This section applies to situations where a person
who has sold goods or agreed to buy goods continues to be in possession of the goods or the documents
of title to the goods.

In such cases:
• If the seller, or a mercantile agent acting on their behalf, delivers or transfers the goods or documents
of title to the goods to another person in good faith and without notice of any previous sale, pledge, or
other disposition, the delivery or transfer is considered valid.

• If the buyer, with the consent of the seller, obtains possession of the goods or the documents of title to
the goods and subsequently delivers or transfers them to another person in good faith and without
notice of any lien or other right of the original seller, the delivery or transfer is considered valid.
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CONTINUED:-
• These sections aim to protect the interests of buyers who purchase goods in
good faith and without notice of any defects or lack of authority of the seller.
They provide guidelines regarding the transfer of title in specific
circumstances, ensuring that innocent buyers obtain a good title to the goods,
even if there are issues with the seller's ownership or authority to sell.
• These provisions govern the transfer of title in various situations, ensuring that
a buyer who purchases goods in good faith and without notice of any defect in
the seller's title obtains a good title to the goods.
• However, it's important to note that these provisions are subject to other
applicable laws and legal principles, such as those related to fraud, theft, or
the rights of true owners. Therefore, it is advisable for buyers to exercise due
diligence and obtain appropriate legal advice to ensure the validity of the title
when entering into a contract of sale
4. RIGHTS OF BUYERS 16

AND UNPAID SELLERS:-

Who is unpaid seller?
He is the seller to whom:-
1. Whole of the price is not paid
2. Conditional payment

Features of an unpaid seller:-

1. Seller must sell the goods on cash basis and must be unpaid (in cash transactions
payment becomes due instantly)
2. Seller must be unpaid either wholly or party
3. The decided period has expired and the price has not been paid to seller
4. Seller must not refuse to accept the payment
5. Where the price paid through negotiable instrument (bill of exchange/ promissory
note/ cheque) and the same has been dishonored

Example: A sells his bike to B for Rs. 60,000 and receives a cheque for the price. Till this time
seller will only be called as seller. But when subsequently, the cheque is dishonored due to
insufficiency of funds in B’s bank account, then only A becomes an unpaid seller.
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CONTINUED:-
Rights (Remedies) of Unpaid Seller:-
(The unpaid seller has the rights/ remedies against goods and buyer both)
Rights of unpaid seller against goods Rights of unpaid seller against buyer
1.Right of possession/ lien
2. Suit for price
3.Right of stoppage of goods in transit
4.Suit for interest and special damages
5.Right of resale
6.Suit for damages for nonacceptance
7.Suit for breach of contract
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CONTINUED:- 2. Termination of Right of

Possession:-
A. Rights of unpaid seller against goods:-
à By delivery of goods to the
1.Right of possession/ lien
buyer/ his agent
If the buyer fails to pay the price within the
decided time, then unpaid seller has the à By delivery of goods to the
right to keep the goods in his possession
and he can refuse to deliver the goods carrier/ courier company
until the due payment is paid.
à By waiver
When right of possession can be
exercised:- This means that it’s specifically
à When goods are sold on cash basis, but mentioned in the contract that
payment is unpaid
seller can’t retain the
à When goods have been sold on credit
basis and the term of credit has expired possession of the goods even if
à When the buyer becomes insolvent even the price has not been paid
within the decided period for payment
à So, far as the goods are in the
à When buyer has obtained the
possession of unpaid seller, he can possession of goods lawfully
exercise this right. If goods are lost/ given
up then right of possession/ lien is also
lost/ given up.
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CONTINUED:-
3.Right of resale
The unpaid seller has the right to resell the goods.
Conditions for resale:
• When goods are of perishable nature- Then unpaid seller can resell them
immediately without the notice to the buyer. But in case of non-perishable
items unpaid seller needs to send notice to the buyer for reselling them.
• Where unpaid seller gives the notice to buyer and buyer still don’t pay for it
• Where the right of resale is reserved/ mentioned in the contract .If contract
clearly specifies that reselling can’t be done or vice versa.
• Buyer becomes insolvent.
• Buyer fails to pay the price of the goods.
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CONTINUED:-

Rights (Remedies) of Buyer against Seller

1.Suit for damages for non-delivery
2.Suit for interest and special damages
3.Suit for specific performance
4. Suit for breach of contract
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5.CAVEAT EMPTOR:-
✓ The doctrine of Caveat Emptor is an integral part of the Sale of Goods Act. It translates to “let the buyer beware”.
This means it lays the responsibility of their choice on the buyer themselves.
✓ It is specifically defined in Section 16 of the act “there is no implied warranty or condition as to the quality or the
fitness for any particular purpose of goods supplied under such a contract of sale“
✓ A seller makes his goods available in the open market. The buyer previews all his options and then accordingly makes
his choice. Now let’s assume that the product turns out to be defective or of inferior quality.
✓ This doctrine says that the seller will not be responsible for this. The buyer himself is responsible for the choice he
made.

However, the buyer can shift the responsibility to the seller if the three following conditions are fulfilled.
• if the buyer shares with the seller his purpose for the purchase
• the buyer relies on the knowledge and/or technical expertise of the seller
• and the seller sells such goods.
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CONTINUED:-
Exceptions to the Doctrine of Caveat Emptor:-

1] Fitness of Product for the Buyer’s Purpose

When the buyer informs the seller of his purpose of buying the goods, it is implied that he is relying on the
seller’s
judgment. It is the duty of the seller then to ensure the goods match their desired usage.

2] Goods Purchased under Brand Name

When the buyer buys a product under a trade name or a branded product the seller cannot be held responsible
for the
usefulness or quality of the product. So there is no implied condition that the goods will be fit for the purpose the
buyer
intended.

3] Goods sold by Description

When the buyer buys the goods based only on the description there will be an exception. If the goods do not
match
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CONTINUED:-
4. Goods of Merchantable Quality:-
Section 16 (2) deals with the exception of merchantable quality. The sections state that the
seller who is selling goods by description has a duty of providing goods of merchantable
quality, i.e. capable of passing the market standards.

5. Sale by Sample:-
If the buyer buys his goods after examining a sample, then the rule of Doctrine of Caveat
Emptor will not apply. If the rest of the goods do not resemble the sample, the buyer cannot
be held responsible. In this case, the seller will be the one responsible.
 CASE LAWS:- 24

• Vishnu Sugar Mills Ltd. v. Food Corporation of India

The High Court ruled that in a statutory sale, the buyer must tender the price for the goods
when they are delivered.
• State of Uttaranchal v. Khurana Brothers
The court ruled that an agreement to sell becomes a sale when the time elapses or the
condition is fulfilled.
• In Camera House, Bombay v. State of Maharashtra
The Bombay High Court ruled that providing a print, processing film, and taking a picture in a
studio are separate transactions.
• Morvi Mercantile Bank Ltd. And Anr vs Union Of India
The court ruled that a buyer cannot pledge goods by transferring the documents of title.
• Vishnu Agencies (Pvt.) Ltd. Etc vs Commercial Tax Officer & Ors. Etc
The court ruled that the word "sale" in the Bengal Finance Sales Tax Act, 1941, must have the
same meaning as in the Sale of Goods Act, 1930.
• Central National Bank Ltd vs United Industrial Bank Ltd
The court ruled that "consent" in section 30(2) of the Sale of Goods Act means "agreeing on
the same thing in the same sense".
THANK
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