SALE OF GOODS ACT 1930

SALE OF GOODS ACT 1930

When a movable property is transferred from one
living person to another living person the law applied
is the Sale of goods act ,1930

The act came into force on 1st July 1930

It applies to whole of India except the state of Jammu

& Kashmir

66 Sections divided into VII chapters

 Sale and agreement to sell
What is sale ?
If the property in goods is immediately transferred
from seller to buyer it is called “Sale”
Eg A sold 10 bags of rice to B against the payment of Rs
500o/-
 What is agreement to sell ?
If the transfer of property in goods is to take place in
future (from seller to buyer) it is called agreement to
sell
For eg –A agrees to sell 10bags of rice to B for Rs.5000/-
after getting back the stock
 SALE OF GOODS ACT 1930
Definition of Sale –Transfer of ownership in the
goods by the seller to the buyer in exchange of,
price paid or promised or partly paid or partly
promised.

Agreement to sell – It is a contract whereby the seller

agrees with the buyer to transfer the title of ownership
on a future date upon satisfying certain conditions.
 Contract of Sale of goods Act
Definition—
Section 4(1) of the Sale of Goods Act defines
“Contract of Sale of Goods Act as a contract whereby
the seller transfers or agrees to transfer the property in
goods to the buyer for price .”

Seller/Vendor
Buyer/Purchaser
ESSENTIALS OF CONTRACT OF SALE
At least two parties
Agreement between the two parties
Subject matter of the contract must be “goods”
There must be transfer of subject matter from seller
to buyer
Lawful consideration Price -(money)
Essentials elements of valid contract
GOODS-MEANING DEFINITION AND KINDS
Goods– every kind of movable property other than
actionable claims and money
(includes stock and shares, growing crops, grass and
things attached to or forming part of the land)

Kinds of goods
Existing goods---specific goods and unascertained
goods
Future goods
Contingent goods
 KINDS OF GOODS
Existing goods----owned and possessed by the seller at
the time of making a contract of sale
(For e g.. A sells 10 bags of rice which is lying in his
godown)

Specific goods---goods identified and agreed upon at the

time of contract

Unascertained goods----not identified

 KINDS OF GOODS
Future goods---manufactured /produced/acquired by
the seller after making contract
(A agrees to sell B the grass to be grown on his land
next month)

Contingent goods----acquisition of goods by the seller

depends upon contingency of happening or non-
happening of an event
(A agrees to sell a land to B if he wins the case in the
court)
 DISTINCTION
SALE AGREEMENT TO SALE
 Transfers of property in goods is  Not immediately.
immediately.
 Executory contract.
 Executed contract.
 Can sue only for damages not for
 Can sue buyer for breach of contract price.

 Existing and specific goods  Future and contingent goods

 Seller has no right to resale  Seller has the right to resale

 In case goods are destroyed , loss is  Loss falls on the seller even though
borne by the buyer even though goods the goods are in possession of the
are in possession of the seller buyer
 HIRE PURCHASE
Governed by Hire purchase Act 1972.

Is a contract where the owner of the goods lets them

on hire to another person (hirer)on payment of rent
in instalments and on agreement that when a certain
number of such instalment is paid, the property in the
goods will pass to the hirer.

An option to terminate the contract at any stage

 BAILMENT
Bailment—change of possession voluntarily from one
person to another.
E.g.—A delivers a cloth to B a tailor for making a shirt.

Contract between A & B is bailment

A--- Bailor, B ---Bailee
Delivery of goods for specific purpose
Contract
Return or disposal of goods
 COMPARISON
Bailment Sale
 Temporary possession of the Permanent transfer to the
goods in the hands of bailee purchaser

 Ownership does not change After sale transactions

purchaser becomes owner

 Bailor pays some nominal Transferee shall have to pay

charges to the bailee for the the full market value of the
services rendered by him… property
sometimes not required to pay
any charges
 PLEDGE
Special kind of bailment(pawn)

Goods bailed as security for payment of

debt/performance of a promise.

Eg- A farmer delivers to the bank 100 bags of wheat

as security for obtaining a loan it is called as pledge

Person delivering the goods--- Pledger/Pawner

Person to whom goods are delivered---Pledgee
/Pawnee
 PLEDGE
Pledge is used when the lender (pledgee) takes actual possession of
assets (i.e. certificates, goods ). 

 Such securities or goods  are movable securities. 

 In this case the pledgee retains the possession of the goods until
the pledgor (i.e. borrower) repays the entire debt amount.  

 In case there is default by the borrower, the pledgee has a right to

sell the goods in his possession and adjust its proceeds towards the
amount due (i.e. principal and interest amount). 

Some examples of pledge are Gold /Jewellery Loans, Advance

against goods,/stock,  Advances against National Saving Certificates
etc.
 PLEDGE
Essential elements-
Delivery of goods
Security for payment of debt
Subject matter---movable
 COMPARISON
Bailment Pledge
 Made for any purpose Made for specific purpose
 Bailee can use the goods Pledgee cannot use the
goods
 Bailee has no right to sell the Pledgee has right to sell the
goods bailed goods pledged if the pledger
could not redeem them
within stipulated period

Pledgee can exercise lien even

 Bailee can exercise lien on the
for non payment of interest
goods only for labour &
service
 Hypothecation&Mortgage
Mortgage--Creating charge against immovable
property
Hypothecation--- Creating charge against movable
property
 Hypothecation 
Hypothecation is used for creating charge against the security
of movable assets, but here the possession of the security
remains with the borrower itself.  
 Thus, in case of default by the borrower, the lender (i.e. to
whom the goods / security has been hypothecated) will have
to first take possession of the security and then sell the same. 
 The best example of this type of arrangement are Car Loans. 
 In this case Car / Vehicle remains with the borrower but the
same is hypothecated to the bank / financer. 
 In case the borrower, defaults, banks take possession of the
vehicle after giving notice and then sell the same and credit
the proceeds to the loan account. 
 Hypothecation 
Other examples of these hypothecation are loans
against stock and debtors. 

Sometimes, borrowers cheat the banker by partly

selling goods hypothecated to bank and not keeping
the desired amount of stock of goods.
 
 In such cases, if bank feels that borrower is trying to
cheat, then it can convert hypothecation to pledge i.e. it
takes over possession of the goods and keeps the same
under lock and key of the bank.
 Mortgage
Mortgage :  is used for creating charge against immovable
property which includes land, buildings or anything that is
attached to the earth or permanently fastened to anything
attached to the earth
 (However, it does not include growing crops or grass as
they can be easily detached from the earth).

 The best example when mortgage is created is when

someone takes a Housing Loan / Home Loan.

 In this case house is mortgaged in favour of the bank /

financer but remains in possession of the borrower, which he
uses for himself or even may give on rent. 
  Pledge Hypothecation Mortgage

Type of Security Movable Movable Immovable

Possession of the Usually Remains with

Remains with lender (pledgee) Remains with Borrower
security Borrower

       

Gold Loan, Advance against NSCs,

Examples of Loan where Car / Vehilce Loans, Adv against stock
Adv against goods (also given under Housing Loans
used and debtors
hypothecation)
 CONDITIONS & WARRANTIES
Sec 11 to 13 chapter II of sale of goods act

Eg- A promises to supply wedding cards to B , five days

before his marriage on 20thOct . A’s duty to supply
wedding cards on or before 15th Oct is a Condition.

If A fails to supply on or before 15th Oct, but after 20th

Oct it amounts to breach of Conditions and hence B
can avoid the contract.
 CONDITIONS & WARRANTIES
If B instead of wedding cards places an order with A
for supply of visiting cards and fails to supply on time
it amounts to breach of Warranty.

Condition—essential, Warranty---necessary

Arcot vs Ronaasen & sons 1939

 IMPLIED CONDITIONS & WARRANTIES
SEC 14 TO 17
Sec 14 Implied undertaking as to title
Sec 15 Sale by description
Sec 16 Caveat Emptor
Sec 17 Sale by Sample
 IMPLIED CONDITIONS
Implied undertaking as to title Sec 1 4
Sale by description Sec 15
Implied condition as to quality & fitness Sec 16(1)
Implied condition as to Merchantability Sec 16(2)
Implied condition as to Custom Sec 16(3)
Sale by Sample Sec 17
Implied undertaking as to Title
Contract of sale– unless the circumstances
specifically states there is implied conditions, seller
has right to sell the goods

Agreement to sell– will have right to sell when

property is passed.

Rowland vs Divall 1923

 Sale by description
Implied condition ---goods shall correspond with the
description

If not according to the description ---buyer can refuse

Andrew Brothers Ltd v Singer & Co Ltd (1934)

 Condition as to quality and fitness
• In contract of sale there is no implied condition as to
quality and fitness
• However if the buyer purchases for a specific purpose
and expressly or impliedly leaves the matter to seller’s
skill to supply suitable or appropriate goods for the
purpose there is an implied condition

• Priest vs Last 1903

 Condition as to merchantability
Condition as to merchantability---commercially
saleable
The condition and quality of a product which a
reasonable and prudent man after examination would
normally accept
 Sale by sample
Terms in the contract are expressed/implied

Implied conditions are-

The bulk shall correspond with the sample in quality
Buyer shall have a reasonable opportunity of
comparing the bulk with the sample
The goods shall be free from any defect .The defect
shall not be apparent on reasonable examination.
 IMPLIED WARRANTIES
Quiet possession

(Niblett V Confectioners Material Co 1949)

Free from Encumbrances

Warranty to disclose dangerous nature of goods

 Caveat Emptor
Buyer Beware
According to this maxim the buyer must be very careful while
purchasing the goods and ascertain whether the goods will
serve his purpose.

Doctrine applicable to potent defect not latent defect

 Frost v Aylesbury Dairy Co 1905

 Exceptions
Implied conditions as to quality and fitness
Implied conditions as to Merchantability
 RIGHTS OF UNPAID SELLER
Right against the goods

When property in goods has passed

 1)Right to lien
 2) Stoppage in transit
 3) Right to resale

When property in goods has not passed

 1)with-holding of delivery
 2)stoppage in transit
 RIGHTS OF UNPAID SELLER
Rights against the Buyer

Suit for price

Suit for damages
Repudiation of contract
Suit for interest
 AGENCY
When a person appoints another to act on his behalf
with a third party it is called “Agency”.

The person who appoints is called “Principal”

The other person who is appointed is called “Agent”

The contract between them is called “Contract of

Agency”
 DEFINITION
Legal relationship between Agent and Principal , to
bring the Principal into legal relationship with third
party
For eg- A appoints B to purchase some property on his
behalf. Here A is principal and B is the Agent.
Relationship is called Agency

WHO MAY EMPLOY AGENT ?

WHO MAY BE AN AGENT?
(Any person who is major & is of sound mind )
 ESSENTIAL ELEMENTS OF AGENCY
Principal must be competent to contract

Any person may become an Agent

Consideration not necessary

 KINDS OF AGENTS
Del Credere Agents
Pakka Adatia
Factor
Broker
Auctioneers
 CREATION OF AGENCY
By Express agreement

By Implied agreement

• 1)Agency of Estoppel
• 2)Agency by Holdingout
• 3)Agency by Necessity(Matheson v Smiley 1932)

By Ratification

By Operation of Law

ESSENTIALS OF AGENCY BY RATIFICATION
The act should have done on behalf of another person
The Principal should be in existence and competent to
contract when the act is done
May be implied or express
With full knowledge of the facts
Whole transactions
Not injurious to third person
Made within reasonable time
 DISTINCTION
AGENCY OF NECESSITY AGENCY BY ESTOPPEL
 Created in emergency Created in general
 No chances of obtaining Principal gives his consent by
Principals’s consent his conduct no express
consent
 Agent should take all Agents act acc. to the will of
precautions necessary to the principal
perform that act ( no chances
of obtaining the principal’s
instructions)
 Burden of proof lies on agent Burden of proof lies on
–he was compelled to principal ---he did not give
perform that act any consent and the act was
done without his knowledge
 DUTIES OF AN AGENT
Duty to conduct Principal’s business
To render proper accounts
To act with reasonable care and skill
To communicate difficulties
Not to deal on his own account
Not to make secret profits (Happisley V Knee Bros
1905)
Not to disclose confidential matters
Not to delegate authority
 RIGHTS OF AN AGENT
Right to receive remuneration
Right to lien
Right of indemnity
Right of compensation
 TERMINATION OF AGENCY
REVOCATION OF AUTHORITY Sc 201-210

BY ACT OF PARTIES

BY OPERATION OF LAW

By the Act of Parties:

 By Agreement
 By Revocation of the Principal
 By Renunciation by Agent
 TERMINATION OF AGENCY
By Operation of Law
By completion of agency
By expiry of time
Death or insanity of Principal or Agent
Insolvency of Principal
Destruction of subject-matter
Principal becoming an alien enemy
Dissolution of Company & Firm
 CONTRACT OF GUARANTEE
Guarantee----assurance given by one person to
another at the default of some other
Also called as “Contract of Suretyship”
Three parties
Principal debtor---inrespect of whose default
guarantee is given
Surety---who gives guarantee
Creditor---to whom guarantee is given
ESSENTIALS OF CONTRACT OF GUARANTEE
Principal debt
Consideration
Mr.B requests Mr. A to sell & deliver goods on credit .
Mr.A agrees to do so provided Mr.C will guarantee the
payment of the price of goods.
Mr C promises to guarantee the payment in
consideration of Mr. A’s promise to deliver the goods.

Satisfy the conditions under Sec 10 of Indian Contract

Act 1872
 CONTRACTS
3 Contracts
 Surety & Creditor
 Principal Debtor & Surety
 Creditor & Principal Debtor