MODULE VI:

CONTRACTS OF SALE
OF GOODS
● Concept of Goods
● Sale of Goods v. Agreement to Sell
● Contract of Sale of Goods
● Formation of a Contract of Sale of Goods
● Performance of a Contract of Sale of Goods
● Effect of a Contract of Sale of Goods
● Conditions and Warranties
● Rights of an Unpaid Seller

MODULE VII:

THE INDIAN
PARTNERSHIP ACT
● Definition and Nature
● Mutual relationship between Partners, Duties and Liabilities of
Partner
● Partner's Authority in emergency, Effect of Admission by
Partner, Effect of Notice to a Partner,
● Registration of Partnership
● Dissolution of Partnership
CONTRACTS OF SALE OF GOODS

The Indian Sale of Goods Act, 1930 is a Mercantile Law, which came into existence on 1
July 1930, during the British Raj, borrowing heavily from the Sale of Goods Act 1893. Till
1930, the transactions relating to sale and purchase of goods were regulated by the Indian
Contract Act, 1872 (Sec 76-123) and were repealed and made a separate act called the Indian
Sale of Goods Act, 1930. The Act was amended on 23 September 1963 and was renamed to
the Sale of Goods Act, 1930. It is still in force in India. The Sale of Goods Act, 1930, herein
referred to as the Act, is the law that governs the sale of goods in all parts of India.

Originally, the transactions related to sale and purchase of goods were regulated by Chapter
VII (Sections 76 to 123) of the Indian Contract Act, 1872 – which was broadly based on
English common law. A need was felt to overhaul the law due to the rapid growth of
mercantile transactions and various progressive English judgments being passed to meet the
needs of the community. Thus, the provisions of Chapter VII were repealed, suitably
amended keeping in mind the English Sales of Goods, 1893, and recent judicial decisions of
the time. A separate act, the Sale of Goods Act, came into force on 1st July 1930. It does not
affect rights, interests, obligations, and titles acquired before the commencement of the Act.
The Act deals with sale but not with mortgage or pledge of the goods.

The contracts for sale of goods are subject to the general principles of the law relating to
contracts, i.e., the Indian Contract Act. A contract for the sale of goods has, however, certain
peculiar features such as the transfer of ownership of the goods, delivery of goods, rights and
duties of the buyer and seller, remedies for breach of contract, conditions and warranties
implied under a contract for the sale of goods, etc.

Law pertaining to the sale of goods has identical application to domestic as well as
international transactions. Normally, the price of goods is paid when delivery is made. But
there are several variations, mostly because parties are known to each other and repose trust
in themselves. The Act defines various terms which are contained in the Act itself.
Buyer and Seller

As per Section 2(1) of the Act, a buyer is someone who buys or has agreed to buy goods.
Since a sale constitutes a contract between two parties, a buyer is one of the parties to the
contract.

The Act defines the seller in Section 2(13). A seller is someone who sells or has agreed to sell
goods. For a sales contract to come into existence, both the buyer and seller must be defined
by the Act. These two terms represent the two parties of a sales contract.

A faint difference between the definition of buyer and seller established by the Act and the
colloquial meaning of buyer and seller is that, as per the Act, even the person who agrees to
buy or sell is qualified as a buyer or a seller. The actual transfer of goods doesn’t have to take
place for the identification of the two parties of a sales contract.

Goods

The contract for sale. The Act defines the term “Goods” in its Section 2(7) as all types of
movable property. Section 2(7) of the Act goes as follows:

“Every kind of movable property other than actionable claims and money; and includes stock
and shares, growing 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 will be considered goods.”

As you can see, shares and stocks are also defined as goods by the Act. The term actionable
claims means those claims which are eligible to be enforced or initiated by a suit or legal
action. This means that those claims where an action such as recovery by auction, suit,
refunds, etc., could be initiated to recover or realize the claim. We say that goods are in a
deliverable state when their condition is such that the buyer would, under the contract, be
bound to take delivery of these goods.

Contract

A Contract of Sale is:

• an offer to buy for a price, or
• an offer to sell goods for a price, and
• the acceptance of such an offer.

A Contract may provide for:

• the immediate delivery of the goods, or
• immediate payment of the price, or
• the immediate delivery of the goods and payment both, or
• delivery or payment by instalments, or
• that the delivery or payment, or both, shall be postponed.

Per Section 5, sub-clause (2) - Subject to the provisions of any law for the time being in
force, a contract of sale may be made -
• in writing or
• by word of mouth, or
• partly in writing and partly by word of mouth, or
• may be implied from the conduct of the parties.

FORMATION OF CONTRACT OF SALE

CONTRACT OF SALE OF GOODS

A contract of goods is a contract whereby the seller transfers or agrees to transfer the property
in goods to the buyer for a price. There may be a contract of sale between one part-owner and
another [Sec. 4(1)].

A contract of sale may be absolute or conditional [Sec. 4(2)]. The term ‘contract of sale’ is a
generic term and includes both a sale and an agreement to sell.

Sale and Agreement to Sell: When, under a contract of sale, the property in the goods is
transferred from the seller to the buyer, the contract is called a ‘sale.’ However, when the
transfer of the property in the goods is to take place at a future time or is subject to some
conditions thereafter to be fulfilled, the contract is called an ‘agreement to sell’ [Sec. 4(3)].
An agreement to sell becomes a sale when time elapses or the conditions, subject to which
the property in the goods is to be transferred, are fulfilled [Sec. 4(4)].

Definition of Sale

Section 4 of the Sales of Goods Act, 1930 defines a sale of goods as a “contract of sale
whereby the seller transfers or agrees to transfer the property in goods to the buyer for a
price.” The term ‘contract of sale’ includes both a sale and an agreement to sell.
A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of
such offer by the other party. The contract may be oral or in writing. A contract of sale may
be absolute or conditional.

Formalities of a Contract of Sale: Section 5 of the Act specifically provides for the
following three steps or formalities in a contract of sale:

1. Offer and Acceptance: A contract of sale is made by an offer to buy or sell the goods
for a price and acceptance of such offer.
2. Delivery and Payment: It is not necessary that the payment for the goods to the
seller and delivery of goods to the buyer must be simultaneous. They can be made at
different times or in instalments, as per the contract.
3. Express or Implied: The contract can be in writing, oral, or implied. It can also be
partly oral and partly written.

Essential Features

The five essential features of a contract of sale are as discussed below:

1. Two Parties: It is a contract between two parties, one known as the seller and the
other the buyer.
2. Subject Matter to be Goods: There must be some goods the property in which is or
is to be transferred from the seller to the buyer.
3. Transfer of Ownership of Goods: The seller should transfer or agree to transfer the
property (ownership) in the goods to the buyer.
4. Consideration is Price: The transfer of property (ownership) in the goods from the
seller to the buyer is for consideration known as ‘price.’
5. Essential Elements of a Valid Contract: Agreement between the competent parties.
6. Two Parties: There must be two distinct parties, i.e., a buyer and a seller, to affect a
contract of sale, and they must be competent to contract. ‘Buyer’ means a person who
buys or agrees to buy goods [Sec. 2(1)]. ‘Seller’ means a person who sells or agrees to
sell goods [Sec. 2(13)]. A sale has to be bilateral because the goods have to pass from
one person to another. The seller and the buyer must be different persons. A part
owner can sell to another part owner. A partner may, therefore, sell to his firm or a
firm may sell to a partner. However, if joint owners distribute property among
themselves as per mutual agreement, it is not a sale. A person cannot be the seller of
his own goods as well as the buyer of them. However, when a bankrupt person’s
goods are sold under an execution of decree, the person may buy back his own goods
from his trustee.
7. Subject Matter to be Goods: There must be some goods the property in which is or
is to be transferred from the seller to the buyer. The goods which form the subject
matter of the contract of sale must be movable. Transfer of immovable property is not
regulated by the Sale of Goods Act.

The term ‘goods’ is defined in Section 2(7). It states that ‘goods’ “means every kind of
movable property other than actionable claims and money; and includes stock and shares,
growing 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.”
Money cannot be sold because money means legal tender and not the old coins which can be
sold and purchased as goods. Actionable claims are things that a person cannot make use of
but which can be claimed by him by means of legal action, such as a debt.

Sale of immovable property is not covered under this Act. As per Section 3 of the Transfer of
Property Act, 1882, ‘immovable property’ does not include standing timber, growing crops,
or grass. They are considered movable property and thus goods. Things like goodwill,
copyright, trademark, patents, water, gas, and electricity are all goods.

In the case of Commissioner of Sales Tax vs. Madhya Pradesh Electricity Board [AIR
1970 SC 732], the Supreme Court observed:
“…electricity…can be transmitted, transferred, delivered, stored, possessed, etc., in the same
way as any other movable property…If there can be sale and purchase of electric energy like
any other movable object, we see no difficulty in holding that electric energy was intended to
be covered by the definition of ‘goods’.”

In the case of H. Anraj vs. Government of Tamil Nadu [AIR 1986 SC 63], it was held that
lottery tickets are goods and not actionable claims. Thus, the sale of lottery tickets is the sale
of goods. Sugarcane supplied to a sugar factory is goods within the meaning of Section 2(7)
of the Act as held in the case of UP Cooperative Cane Unions Federation vs. West UP
Sugar Mills Assn. [AIR 2004 SC 3697].

3. Transfer of Ownership of Goods: There must be a transfer of ownership or an

agreement to transfer the ownership of goods from the seller to the buyer—not the
transfer of mere possession or limited interest as in the case of pledge, lease, or hire
purchase agreement. If goods remain in the possession of the seller after the sale
transaction is over, the ‘possession’ is with the seller, but ‘ownership’ is with the
buyer. The Act uses the term ‘general property,’ implying that the sale involves total
ownership and not a specific right limited by conditions.

Delivery of goods refers to a voluntary transfer of possession of goods from one person to
another. Delivery may be constructive or actual depending upon the circumstances.

Circumstances of each case. A contract may provide for the immediate delivery of the
goods or immediate payment of the price or both. Alternatively, the delivery or payment may
be made by instalments or be postponed.

4) Consideration is Price: Price is an essential ingredient for all transactions of sale and in
the absence of the price or the consideration, the transfer is not regarded as a sale. The
transfer by way of sale must be in exchange for a price. It has been held that price normally
means money considerations for a sale of goods sec 2 (10). The price can be paid fully in
cash or it can be partly paid and partly promised to be paid in future. The price can be fixed
by the agreement between the parties before the conveyance of the property. When goods are
exchanged for goods, it is a contract of barter or exchange—(Commissioner of Income Tax v
Motar and General Store Ltd. AIR, 1968 S.C. 200). When there is no consideration for the
contract and the transfer is gratuitous, the transaction will be by way of gift.
The consideration in a contract of sale has to be price i.e., money. If goods are offered as the
consideration for goods, it will not amount to sale. It will be barter. If there is no
consideration, it will be called gift. But where the goods are sold for a definite sum and the
price is paid partly in kind and partly in cash, the transaction is a sale.

Consideration is essential for a valid contract as per the Indian Contract Act, 1872. It is the
duty of a buyer who has received and appropriated the goods to pay a reasonable price.
According to Section 2(10), ‘price’ means the money consideration for the sale of goods. If
the price is not fixed, the contract is void ab initio.

Section 9 lays down how the price may be fixed in a contract of sale: a) It can be fixed by the
contract itself; or b) It can be fixed in a manner provided by the contract, such as appointment
of a valuer; or c) It can be determined by the course of dealings between the parties; or d) If
the price is not capable of being fixed in any of the ways mentioned, the buyer is bound to
pay a reasonable price. What is a reasonable price is a question of fact dependent on the
circumstances of each particular case. It is not necessary that reasonable price should be
equal to the market price.

Section 10 makes it clear that if the third party appointed under the agreement to fix the price
cannot or does not make such valuation, then the agreement to sell goods will become void. If
the third party is prevented in his valuation due to the buyer or the seller, the party not at fault
can file a suit for damages against the party in fault.

5) Essential elements of a valid contract: All essential elements of a valid contract must be
present in the contract of sale, viz., competent parties, free consent, legal object, and so on.
The transfer of possession and ownership under the Act has to be voluntary and not be tainted
with fraud or duress.

Time: Any stipulation with respect to time is not deemed to be of essence to a contract of
sale unless a different intention appears from the terms of the contract.

Unless all these ingredients of sale are duly proved, mere entry or endorsement made by the
registering authority under sec 31 of the Motor Vehicles Act showing transfer of ownership
of the vehicle will not constitute a transaction of sale of goods.

Contract under statutory compulsion: Sometimes a contract may not be entered into by the
normal process of negotiation, but under a statutory compulsion. When the goods are
supplied under a statutory compulsion, whether that results in sale or not is the question that
has arisen in a number of cases.

In Coffee Board Karnataka v Commissioner of Commercial Taxes, it has been held that the
compulsory delivery of coffee by the coffee growers to the coffee board constitutes a sale and
not a compulsory acquisition, and the state can impose purchase tax on the same.

Performance: They may provide that the delivery of the goods will be made either
immediately or by instalments or on some future date. Similarly, regarding the payment of
price too, the contract may require either immediate payment, payment by instalments, or
payment on some future date.
Compliance of the provisions of the Sale of Goods Act:

The transfer of title in any goods, e.g., a car, depends on fulfilment of the provisions of the
Sale of Goods Act rather than the provisions of the Motor Vehicles Act, 1939.

Transfer of general property: There must be a transfer of general property, which

distinguishes from special property in goods from the seller to the buyer. For example, if A
owns certain goods, he has general property in the goods. If he pledges them with B, B has
special property in the goods.

Valuation by a third party: It has been noted that one of the modes of determining the price
may be by the valuation being made by a third party. Section 10(1) provides that if a third
party who is supposed to make valuation cannot or does not make such valuation, the
agreement is thereby avoided.

Classification of goods

Goods have been defined under sec 2(7) of the Sale of Goods Act, 1930, to include every
kind of movable property, including stocks, shares, crops, grass, severable objects, etc. It is
supplemented by the definitions of movable and immovable property under sec 3(36) and sec
3(26) of the General Clauses Act, 1897.

This primarily investigates the dilemma regarding the scope of definition of “goods” for the
purposes of Sale of Goods Act, 1930 (hereinafter referred to as the ‘Act’). I have
differentiated the position of law in England and India.

However, due to the vastness of the definition, I have limited the scope of my concept to
three of the major commodities which have been subjects of controversies, namely:
(1) Electricity,
(2) Lottery tickets, and
(3) Software programs.

Definition of “goods”
‘Goods’ is defined as per Section 2 (7) of the ‘Act’ as: “Every kind of movable property other
than actionable claims and money; and includes stock and shares, growing 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.”

Definition of “Movable Property”

As per section 3(36) of the General Clauses Act, 1897, “movable property” is defined as
“property of every description except immovable property.” Section 3(26) of the same Act
reads as, “Immovable property shall include land, benefits to arise out of land, and things
attached to the earth, or permanently fastened to anything attached to the earth.”

Hence, a conjoint reading of the two sections gives us a clear definition that anything that is
attached to the land may be termed as “movable property,” provided that there is an element
of severability involved. The element of severability is important while deciding on the
nature of the property, and this element can be established by ascertaining the nature of the
property, the intention of the parties, and the terms of the contract between them. For
instance, timber falls under the ambit of “goods” as per S.2(7) because timber trees are
severed from the land for the purpose of sale and hence they become a commercial
commodity—M/s Mukesh Kumar Aggarwal & Co. V. State of M.P.

Perumal v Ramaswami, AIR 1969 Mad.346 - if an oil engine is attached to the earth and it is
used as long as it can, and it can be detached and shifted to some other place when it is not
used, such an engine is not immovable property.

In the case of Tata Consultancy Services v. State of Andhra Pradesh, it was held that
property as per the Sale of Goods Act means general property over the goods and not merely
a specific property. The usage of the word ‘includes’ further expands the definition, as it
includes in the definition not only goods of the prescribed nature but also imports those
things that are specifically provided by the interpretation clause.

Difference between the English Law and the Indian Law

In English law, as per Sec. 61(1) of the Sale of Goods Act 1979, “goods” include personal
chattels, which can be further divided into “choses in possession” and “choses in action.” As
per the English law, only the former is included in the definition of “goods,” whereas the
latter, which includes commodities like shares, debentures, bills of exchange, and other
negotiable instruments, are excluded from the definition as they all are actionable claims. On
the other hand, in India, the definition as elucidated in Sec. 2(7) is much wider in scope than
the English definition, as it includes stocks and shares within the scope of “goods.”

The following discussion primarily focuses on the point of whether certain types of
commodities can be included within the definition of “goods” or not.

Electricity (water, gas) as “goods”: Inclusion of intangible energy within the definition
of goods
Electricity does not come under the definition of “goods” as per English law. There have
been judicial decisions in England where electricity has been referred to as ‘thing’ and an
‘article’ and also as ‘tangible personal property,’ but there has been no judicial decision
which includes electricity within the definition of ‘goods’ for the purpose of the Sale of
Goods Act. Moreover, the legal possession of electrical energy is a challenging proposition as
“it is capable of being kept or stored only by changing the physical or chemical state of other
property which is itself the subject of possession.”

In India, however, the situation is quite different. In the Calcutta High Court case of
Associated Power Co. v. R.T. Roy, it was held that electricity comes under the ambit of
‘goods’ under Article 366 (12) of the Constitution as well as Sec. 2 (7) of the ‘Act’. This
proposition was affirmed in a Madras High Court case where the learned judge held that
electricity was under the definition of ‘goods’ since it is capable of delivery, and it does not
matter whether it is a tangible or intangible form of energy. The Law Commission of India in
its 8th report proposed that electricity and water should be included in the definition of
‘goods’ under S. 2(7) of the ‘Act’. Meanwhile, the Supreme Court, while discussing the
definition of ‘goods’ as mentioned in the Madhya Pradesh Sales Tax Act (2 of 1959), found
that the definition included all kinds of movable property. The court further held that:
“The term “movable property” when considered with reference to “goods” as defined for the
purposes of sales tax cannot be taken in a narrow sense and merely because electric energy is
not tangible or cannot be moved or touched like, for instance, a piece of wood or a book, it
cannot cease to be movable property when it has all the attributes of such property… It can
be transmitted, transferred, delivered, stored, possessed, etc., in the same way as any other
movable property.”

However, Pollock & Mulla, in their commentaries, have expressed their concerns over the
applicability of the ‘Act’ for electricity because there is no contractual obligation on the part
of the public authority to supply ‘electricity’; rather, it is a statutory obligation on the part of
the authority providing these ‘goods’. The supply of such commodities would not amount to
a ‘sale’ for the purposes of the ‘Act.’ As a result, any breach or failure on the part of the
public body to supply electricity would be dependent upon the terms of the statute governing
the public body.

Thus, on one hand, it can be said that ‘electricity’ comes under the definition of ‘goods’;
however, the applicability of the ‘Act’ in the case of the sale of electricity is a dubious
proposition.

Electronic T.V. Signals are goods – Jabalpur Cable Network Pvt Ltd v ESPN Software
India Pvt. Ltd, electronic T.V. Signals are in the form of energy just like electricity and are
Goods.

Exclusion of Lottery Tickets from the Definition of “Goods”

As per Black’s Law Dictionary, ‘lottery’ is defined as ‘a chance for a prize for a price.’ For
the purposes of the ‘Act,’ lottery tickets are clearly a movable property; however, it has been
a matter of debate whether they are an actionable claim as defined under S.3 of the Transfer
of Property Act, 1882.

In the Supreme Court case of H. Anraj v. Government of Tamil Nadu, it was held that a
lottery ticket primarily involved two rights: (1) the right to participate in the draw and (2) the
right to win the prize, depending on chance. In that case, it was held that the former right was
a “transfer of a beneficial interest in movable goods” and hence was a sale within the
meaning of Article 366 (29-A)(d) of the Constitution, whereas the latter right was a chose in
action and thus not “goods” for the purpose of levy of sales tax.

However, the ruling of this decision was challenged in a later Supreme Court verdict of
Sunrise Associates v. Government of NCT of Delhi. It was held that the sale of a lottery
ticket amounts to a sale of an actionable claim. The conclusion of the Court was based on the
reasoning that there was no difference between the right to win and the right to participate in
a lottery draw, as no purchaser pays the consideration for a right to participate in the draw;
instead, he pays it for the right to win.

hus, the classification by H. Anraj case of the right to participate as right in praesenti and the
right to win as a right in futuro was incorrect as both these rights are in futuro. As a result,
the earlier judgment was overruled to that extent and “lottery tickets” were excluded from the
definition of “goods.”
Incomplete Film - In State of T.N. v. Thiru Murugan Bros, the sale of an incomplete film
has been held to be goods, and the transaction is liable to sales tax. It is immaterial that in
such a case no copyright is acquired.

Fixed Deposit Receipt as Goods - In State Bank of India v. Smt. Neela Ashok Naik, it has
been held that a fixed deposit receipt is goods. It may be pledged as collateral security. If the
bank loan is not repaid, the bank may retain it as collateral security and file a suit for
recovery of the loan.

Conundrum Surrounding Software Programs

In the case of TCS v. State of Andhra Pradesh, the Supreme Court held that a software
program on a CD or a floppy drive would be a “good” for the purposes of levy of sales tax. A
software program is a collection of instructions or commands that are given to a computer to
perform a given task. The main area of debate is: “Do software programs—being intellectual
creations of the human mind—be treated as “goods” for the purposes of the ‘Act’ or not?”

One of the landmark cases in this regard was the case of St Albans City and District Council
v. International Computers Ltd, where Sir Iain Glidewell observed that a hardware device
has no use of its own unless it is supplemented with software, and it was only because of
necessity that software was contained in a physical medium like a disk or a floppy.
Furthermore, in case the disk is sold and there is a defect with the program, then there would
be a prima facie liability against the disk manufacturer as well. Thus, he held that the tangible
disk and the software program both will be included within the definition of “goods.”

In the TCS case, a special mention was given to ‘canned software,’ where it was held by the
learned judge that once software is uploaded on a medium like a CD or a floppy drive, it
ceases to be a work of intellectual creation. This is primarily because each of these mediums
becomes a marketable commodity in itself. “Marketability” of a commodity was the
determining factor in whether it is a “good” or not. It has also been held that “operational
software,” which was uploaded on a hard disk, does not lose its character as a tangible good.

It has also been a matter of debate as to the inclusion of computer software within the
definition of “goods” as defined in section 2[41] of the Uniform Commercial Code, 1952. It
is argued that since “custom-designed” computer software is a product of a labor-intensive
process, it must be considered a service rather than a good. However, the sale of most
software programs resembles sales of any other consumer product available for consumption,
and it is usually sold through separate pre-existing packages. On the other hand, contracts for
providing data processing services have been held to be contracts for services rather than
contracts for “goods.”

With the help of the above discussion, it is clear that despite being an intangible commodity,
“computer software” can be included in the definition of “goods” for the purposes of the
‘Act.’

Exclusion of ‘Money’ from the Definition

Money and actionable claims are specifically excluded from the definition of “goods” under
S.2(7) of the ‘Act’ because it is the medium of exchange used at the time of the sale of goods.
Hence, money is not regarded as a “chattel but as something ‘sui generis.’” However, a coin
that was intended to be sold as an item of curiosity will be said to be a “good,” as it was
passed on as a commodity and not as currency.

Through these judgments, I have tried to identify some of the major controversies
surrounding certain commodities and their inclusion in the definition of “goods” as per S.2(7)
of the ‘Act.’ The discussion helped to prove that “electricity” (even being an intangible good)
comes under the ambit of goods, while, on the same hand, lottery tickets (being movable
goods per se) are excluded because they are “actionable claims.” This helps us to show that
being a movable property in itself is not conclusive proof of being a “good.” Also, the debate
on software programs elucidated the importance of the “marketability” aspect of “goods.”

Hence, it is evident that due to rapid developments in science and technology, the definition
of goods cannot be compartmentalized into straightjacket distinctions, and the scope of this
section will expand over time. Old and rare coins, however, are goods, and they can be sold
or purchased as such. But money constitutes consideration for the sale of goods rather than
itself being goods and recognized currency in circulation.

Goods may be classified into:

1. Existing goods: At the time of sales, if the goods are physically in existence and are
in possession of the seller, the goods are called ‘Existing Goods.’ The goods that are
referred to in the contract of sale are termed as existing goods if they are present (in
existence) at the time of the contract. In Section 6 of the Act, the existing goods are
those goods which are in the legal possession or are owned by the seller at the time of
the formulation of the contract of sale. The existing goods are further of the following
types:

a) Specific goods: Goods identified and agreed upon at the time of the making of the
contract of sale are called ‘specific goods’ [Sec. 2(14)]. It may be noted that in actual
practice, the term ‘ascertained goods’ is used in the same sense as ‘specific goods.’
These are those goods that are “identified and agreed upon” when the contract of sale
is formed.

For example, you want to sell your mobile phone online. You put an advertisement
with its picture and information. A buyer agrees to the sale, and a contract is formed.
The mobile, in this case, is a specific good.

For example, where A agrees to sell to B a particular radio bearing a distinctive

number, there is a contract of sale of specific or ascertained goods.

b) Ascertained Goods: This is a type not defined by the law but by judicial
interpretation. This term is used for specific goods that have been selected from a
larger set of goods.

For example, you have 500 apples. Out of these 500 apples, you decide to sell 200
apples. To sell these 200 apples, you will need to separate them from the 500 (larger
set). Thus, you specify 200 apples from a larger group of unspecified apples. These
200 apples are now the ascertained goods.
 c) Unascertained goods: The goods that are not separately identified or ascertained at
the time of the making of the contract are known as ‘unascertained goods.’ They are
indicated or defined only by description. These are the goods that have not been
specifically identified but have rather been left to be selected from a larger group.

For example, if A agrees to sell to B one bag of sugar out of the lot of one hundred
bags lying in his godown; it is a sale of unascertained goods because it is not known
which bag is to be delivered. As soon as a particular bag is separated from the lot for
delivery, it becomes ascertained or specific goods. For example, from your 500
apples, you decide to sell 200 apples but you don’t specify which ones you want to
sell. A seller will have the liberty to choose any 200 apples from the lot. These are
thus the unascertained goods.

The distinction between ‘specific’ or ‘ascertained’ and ‘unascertained’ goods is important in

connection with the rules regarding ‘transfer of property’ from the seller to the buyer.

2. Future goods: Future goods are goods to be manufactured or produced or yet to be

acquired by the seller. There cannot be a present sale in respect to future goods
because the property cannot pass. In Sec 2(6) of the Act, future goods have been
defined as the goods that will either be manufactured or produced or acquired by the
seller at the time the contract of sale is made. The contract for the sale of future goods
will never have the actual sale in it; it will always be an agreement to sell.

For example, you have an apple orchard with apples in it. You agree to sell 1000
apples to a buyer after the apples ripen. This is a sale that has to occur in the future,
but the goods have been identified already and the agreement made. Such goods are
known as future goods.

Example: A agrees to sell to B all the milk that his cow may yield during the coming
year. This is a contract for the sale of future goods.

Example: X agrees to sell to Y all the mangoes, which will be produced in his garden
next year. It is a contract of sale of future goods, amounting to ‘an agreement to sell.’

3. Contingent Goods: Though a type of future goods, these are the goods the
acquisition of which by the seller depends upon a contingency, which may or may not
happen [Sec. 6(2)]. Contingent goods are actually a subtype of future goods in the
sense that in contingent goods the actual sale is to be done in the future. These goods
are part of a sale contract that has some contingency clause in it. For example, if you
sell your apples from your orchard when the trees are yet to produce apples, the
apples are a contingent good. This sale is dependent on the condition that the trees are
able to produce apples, which may not happen.

Example: A agrees to sell specific goods in a particular ship to B to be delivered on

the arrival of the ship. If the ship arrives but with no such goods on board, the seller is
not liable, for the contract is to deliver the goods should they.

Delivery: The delivery of goods signifies the voluntary transfer of possession from one
person to another. The objective or the end result of any such process, which results in the
goods coming into the possession of the buyer, is a delivery process. The delivery could
occur even when the goods are transferred to a person other than the buyer but who is
authorized to hold the goods on behalf of the buyer.

There are various forms of delivery as follows:

 Actual Delivery: If the goods are physically given into the possession of the buyer,
the delivery is an actual delivery.
 Constructive delivery: The transfer of goods can be done even when the transfer is
affected without a change in the possession or custody of the goods. For example, a
case of the delivery by attornment or acknowledgment will be a constructive delivery.
If you pick up a parcel on behalf of your friend and agree to hold on to it for him, it is
a constructive delivery.
 Symbolic delivery: This kind of delivery involves the delivery of a thing in token of
a transfer of some other thing. For example, the key of the godown with the goods in
it, when handed over to the buyer, will constitute a symbolic delivery.

The Document of Title to Goods: From Sec 2(4) of the Act, we can say that this “includes
the bill of lading, dock-warrant, warehouse keeper’s certificate, railway receipt, multimodal
transport document, warrant or order for the delivery of goods, and any other document used
in the ordinary course of business as proof of the possession or control of goods or
authorizing or purporting to authorize, either by endorsement or by delivery, the possessor of
the document to transfer or receive goods thereby represented.”

Mercantile Agent [Section 2(9)]: A mercantile agent is someone who has authority in the
customary course of business, either to sell or consign goods under the contract on behalf of
one or both of the parties. Examples include auctioneers, brokers, factors, etc.

Property [Section 2(11)]: In the Act, property means ‘ownership’ or the general property i.e.
all ownership rights of the goods. A sale constitutes the transfer of ownership of goods by the
seller to the buyer or an agreement of the same.

Insolvent [Section 2(8)]: The Act defines an insolvent person as someone who ceases to pay
his debts in the ordinary course of business or cannot pay his debts as they become due,
whether he has committed an act of insolvency or not.

Price [Section 2(10)]: In the Act, the price is defined as the money consideration for a sale of
goods.

Quality of Goods: In Sec 2(12) of the Act, the quality of goods is referred to as their state or
condition.

The Effect of Perishing of Goods

The effect of perishing of goods may be discussed under the following heads:
Sections 7 and 8 deal with the effect of perishing of goods on the rights and obligations of the
parties to a contract of sale. Under these Sections, the word ‘perishing’ means not only
physical destruction of the goods but it also covers:

(a) Damage to goods so that the goods have ceased to exist in the commercial sense, i.e., their
merchantable character as such has been lost by water and becomes almost stone or where
sugar becomes sharbat and thus are unsaleable as cement or sugar;

(b) Loss of goods by theft (Barrow Ltd. vs. Phillips Ltd.);

(c) Where the goods have been lawfully requisitioned by the government (Re Shipton,
Anderson & Co.).

It may also be mentioned that it is only the perishing of specific and ascertained goods that
affects a contract of sale. Where, therefore, unascertained goods form the subject matter of a
contract of sale, their perishing does not affect the contract and the seller is bound to supply
the goods from wherever he likes, otherwise be liable for breach of contract. Thus, where A
agrees to sell to B ten bales of Egyptian cotton out of 100 bales lying in his godown and the
bales in the godown are completely destroyed by fire, the contract does not become void. A
must supply ten bales of cotton after purchasing them from the market or pay damages for the
breach.

Effect of Destruction of Goods:

Perishing of Goods at or Before Making of the Contract (Sec. 7):

Goods perishing before making of contract - A contract for the sale of specific goods is void
if at the time when the contract was made, the goods have, without the knowledge of the
seller, perished. The same would be the case where the goods become so damaged as no
longer to answer to their description in the contract.

This may again be divided into the following sub-heads:

(i) In Case of Perishing of the Whole of the Goods:

Where specific goods form the subject matter of a contract of sale (both actual sale and
agreement to sell), and they, without the knowledge of the seller, perish, at or before the time
of the contract, the contract is void. This provision is based either on the ground of mutual
mistake as to a matter of fact essential to the agreement, or on the ground of impossibility of
performance, both of which render an agreement void ab-initio.

Illustrations:
(a) A sold to B a specific cargo of goods supposed to be on its way from England to Bombay.
It turned out, that before the day of the bargain, the ship conveying the cargo had been cast
away and the goods were lost. Neither party was aware of the fact. The agreement was held
to be void (Hastie vs. Conturier).

(b) A agrees to sell to B a certain horse. It turns out that the horse was dead at the time of the
bargain, though neither party was aware of the fact. The agreement is void.

(ii) In Case of Perishing of Only ‘a Part’ of the Goods:

Where in a contract for the sale of specific goods, only part of the goods are destroyed or
damaged, the effect of perishing will depend upon whether the contract is entire or divisible.

If it is entire (i.e., indivisible) and only part of the goods had perished, the contract is void. If
the contract is divisible, it will not be void and the part available in good condition must be
accepted by the buyer.

Illustration:

1. There was a contract for the sale of a parcel containing 700 bags of Chinese
groundnuts of different qualities. Unknown to the seller, 109 bags had been stolen at
the time of the contract. The seller delivered the remaining 591 bags, and on the
buyer’s refusal to take them, brought an auction for the price. It was held that the
contract, being indivisible, had become void by reason of the loss of the goods and the
buyer was not bound to take delivery of 591 bags or pay for the goods (Barrow Ltd.
vs. Phillips Ltd.). (Note that, had there been all bags of the same weight and quality
for a certain price per bag, the contract would have been divisible and the buyer could
not have avoided the contract as to those goods which had actually perished).

2. Perishing of Goods Before Sale but After Agreement to Sell (Sec. 8):

Goods perishing after the agreement to sell but before the sale is effected - An agreement to
sell specific goods becomes void if subsequently the goods, without any fault on the part of
the seller or the buyer, perish or become so damaged as no longer to answer to their
description in the agreement before the risk passes to the buyer. ‘Fault’ means wrongful act
or default [Sec 2(5)].

Where there is an agreement to sell specific goods and subsequently the goods, without any
fault on the part of the seller or buyer, perish before the risk passed to the buyer, the
agreement is thereby avoided. This provision is based on the ground of supervening
impossibility of performance which makes a contract void.

If only part of the goods agreed to be sold perish, the contract becomes void if it is
indivisible. But if it is divisible, then the parties are absolved from their obligations only to
the extent of the perishing of the goods (i.e., the contract remains valid as regards the part
available in good condition).

It must further be noted that if the fault of either party causes the destruction of the goods,
then the party in default is liable for non-delivery or to pay for the goods, as the case may be
(Sec. 26). Again, if the risk has passed to the buyer, he must pay for the goods, though
undelivered [unless otherwise agreed risk prima facie passes with the property (Sec. 26)].

Illustrations:
(a) A buyer took a horse on a trial for 8 days on condition that if found suitable for his
purpose, the bargain would become absolute. The horse died on the 3rd day without any fault
of either party. Held, the contract, which was in the form of an agreement to sell, becomes
void and the seller should bear the loss (Elphick vs. Barnes).

(b) A had contracted to erect machinery on M’s premises, the price was to be paid on
completion. During the course of the work, there was a fire that completely destroyed the
premises and the machinery. It was held that both parties were excused from further
performance and A was not entitled to any payment as the price was payable on the
completion of the entire work (Appleby vs. Myers).

Effect of Perishing of Future Goods:

As observed earlier, a present sale of future goods always operates as an agreement to sell
[Sec. 6(3)]. As such there arises a question as to whether Section 8 applies to a contract of
sale of future goods (amounting to an agreement to sell) as well? The answer is found in the
leading case of Howell vs. Coopland, where it has been held that future goods, if sufficiently
identified, are to be treated as specific goods, the destruction of which makes the contract
void. The facts of the case are as follows:

Illustration:
C agreed to sell to H 200 tons of potatoes to be grown on C’s land. C sowed sufficient land to
grow the required quantity of potatoes, but without any fault on his part, a disease attacked
the crop and he could deliver only about ten tons. The contract was held to have become
void.

Performance of the Contract

According to the Sale of Goods Act, 1930, the performance of the contract of sale is
governed under Chapter IV, from Section 31 to Section 44. This chapter describes how goods
are displayed and how their possession is transferred from one person to another voluntarily.
There are essentially two parties involved in this agreement: the seller and the buyer. The
seller sells the goods, while the buyer purchases them. Several criteria govern the selling and
buying process, which will be discussed in this article.

Who is a Seller?

The definition of a seller is provided in Section 2(13) of the Sale of Goods Act, 1930. A seller
can be defined as a person who agrees to sell goods.

Rights of the Seller (Section 31)

 The seller can reserve the rights of the goods until payment is received.
 The seller can assume that the buyer has accepted the goods or not.
 The seller will only deliver the goods when the buyer requests delivery.
 The seller can deliver the goods in installments if agreed upon by the buyer.
 The seller retains possession of the goods until payment is made.
 The seller can stop delivery and reclaim possession of the goods until payment is
received.
 The seller has the right to resell the goods under certain conditions.
 The seller can reclaim the goods if they are not delivered to the buyer.
 The seller can sue the buyer for failing to make payment as per the contract.

Duties of the Seller

  The seller should arrange for the transfer of property to the buyer.
 The seller must ensure that the goods are delivered properly.
 The seller should provide a proper title to the goods being sold.
 The seller must deliver the goods according to the terms of the agreement.
 The seller should ensure that the supplied goods meet implied conditions and
warranties.
 The seller should keep the goods in a deliverable state and deliver them upon the
buyer's request.

Who is a Buyer?

The definition of a buyer is provided in Section 2(1) of the Sale of Goods Act, 1930. A buyer
can be defined as a person who purchases goods from the seller.

Rights of the Buyer (Section 31)

 The buyer is entitled to receive delivery of the goods as per the contract.
 The buyer can reject the goods if the quality and quantity do not meet the contract
specifications.
 The buyer can refuse the contract if goods are delivered in installments without prior
agreement.
 The seller must inform the buyer when goods are shipped by sea to allow for
insurance arrangements.
 The buyer has the right to examine the goods to verify compliance with the contract.
 If the buyer has already paid, they can sue the seller for recovery of the price if the
seller fails to deliver.
 The buyer can also sue the seller for damages due to wrongful neglect or refusal to
deliver.
 The buyer can claim damages for breach of warranty or condition.
 The buyer can sue for damages resulting from a breach of contract.

Duties of the Buyer

 The buyer must accept delivery of goods when the seller is ready to deliver as per the
contract.
 The buyer must pay the price for the goods as stipulated in the contract to gain
possession.
 The buyer should request the delivery of goods.
 The buyer can request delivery at a specified time.
 The buyer must accept delivery of goods in installments and pay for them according
to the contract.
 The buyer bears the risk of failure of delivery if the delivery point is distant.
 The buyer must pay the price upon transfer of possession as per the contract terms.
 The buyer is responsible for payment if they refuse to accept the goods.

Delivery

The rules governing the law on sales, particularly regarding delivery, are outlined in Sections
31 to 40 of the Sale of Goods Act, 1930. This section will explore various definitions and
duties related to buyers, sellers, and applicable third parties.
Definition of Delivery

According to Section 2(2) of the Sale of Goods Act, 1930, delivery refers to the voluntary
transfer of possession of goods from one person to another. Therefore, if a person takes
possession of goods by unfair means, it does not constitute delivery. In understanding
delivery, we also refer to Section 33, which defines delivery as the voluntary transfer of
possession and includes the process of transporting goods from a source location to a
predefined destination. Goods are typically delivered via roads, railroads, shipping lanes, and
airline networks.

Basic Elements of Delivery

 There must be two parties involved.

 One party must possess the goods.
 One party must transfer possession to the other voluntarily.

Mode of Delivery

 Actual Delivery: When the seller transfers possession of the goods to the buyer or an
authorized person.
 Symbolic Delivery: If actual delivery is not possible and control of the goods is
transferred instead.
 Constructive Delivery: This occurs when the person possessing the goods
acknowledges holding them for the benefit of the buyer. Constructive delivery can
occur in three ways:
o The seller agrees to hold the goods as a bailee for the buyer after sale.
o The buyer retains possession as a bailee for the seller after purchase.
o A third party, such as a carrier, acknowledges holding the goods for the buyer.

Rules Regarding Delivery

 Delivery and payment are concurrent conditions unless otherwise agreed.

 If the seller intends to deliver goods in parts, it is considered a valid delivery.
However, if parts are delivered without the intention to fulfill the contract, it
constitutes a breach.
 A part delivery that progresses towards the whole delivery is treated as the delivery of
the whole, unless intended to sever the remainder (Section 34).
 Section 35 states that unless otherwise stipulated, the buyer must request delivery; if
specified in the contract, the seller must deliver without the buyer's request.
 Goods must be delivered at the location agreed upon by both parties at the time of
sale.
 Delivery must occur within an appropriate timeframe.
 Delivery expenses are borne by the seller unless agreed otherwise.

Consequences of Incorrect Delivery

If the seller delivers the wrong quantity of goods, the following scenarios may arise:

 If the quantity is less than contracted, the buyer may reject the goods.
  If the quantity exceeds the contract, the buyer may keep the agreed amount and reject
the excess, or reject all.
 If goods are mixed with different descriptions (different titles or qualities), the buyer
may accept or reject them.
 The seller cannot compel the buyer to accept installment deliveries unless agreed
upon.
 The buyer has the right to inspect and examine the goods.
 Once the buyer accepts the goods, they cannot later reject them.
 If the buyer refuses delivery, they assume responsibility for it.

According to Section 36(3) of the Sale of Goods Act 1930, if at the time of delivery the
goods are in possession of a third party, then there will be no delivery unless and until the
third party tells the buyer that the goods are being held on his behalf. This section would not
create any impact on the transfer of title of the goods.

Acceptance of Delivery of Goods (Section 42)

A buyer is deemed to have accepted the delivery of goods when:

• He informs the seller that he has accepted the goods; or
• Does something to the goods which is inconsistent with the ownership of the seller; or
• Retains the goods beyond a reasonable time, without informing the seller that he has
rejected them.

Return of Rejected Goods (Section 43)

If a buyer, within his right, refuses to accept the delivery of goods, then he is not bound to
return the rejected goods to the seller. He needs to inform the seller of his refusal, though.
This is true unless the parties agree to other terms in the contract.

Refusing Delivery of Goods (Section 44)

If the seller is willing to deliver the goods and requests the buyer to take delivery, but the
buyer fails to do so within a reasonable time after receiving the request, then he is liable to
the seller for any loss occasioned by his refusal to take delivery. He is also liable to pay a
reasonable charge for the care and custody of goods.

Who is an Unpaid Seller?

As defined by Section 45 of the Sale of Goods Act, 1930, a person has sold some goods and
has not got the whole price, and if the transaction is done through negotiable instruments like
cheque, bill of exchange, and a promissory note, then the person can be said to be an unpaid
seller.

Rights of an Unpaid Seller

Section 46 of the Sale of Goods Act 1930 discusses the rights of an unpaid seller. This can be
of two types:
• Against the goods – jus in rem (right against property)
• Against the buyer – jus in personam (right against the person)

Right Against the Goods

• Right to a lien, which means the seller has the right to possession over the goods.
• Right to stoppage in transit, which means the seller can call up the carrier transporter and
tell not to deliver the goods.
• Right to resale means the seller can again sell the goods as he has possession of the goods.

And the rights like the right to lien, the right to stoppage in transit, and the right to resale are
also applicable for the agreement made for sale.

Rights Against the Buyer

• The seller has the right to sue the buyer for the price if the seller has already sold the goods
and the buyer hasn’t paid the sum.
• The seller has the right to sue for damages; for e.g., if the seller has sent the carrier for
delivery and the buyer isn’t available to receive the delivery, and the goods returned back by
the carrier to the seller, then he can sue the buyer for damages like the packing of goods,
transportation charges, and so many.
• If the buyer hasn’t paid the price of the goods to the seller after the delivery within a
stipulated time period as given in the contract, then the seller can sue for interest on the
buyer.

Warranty

Sec 12(3) - ‘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’.

A warranty is referred to as extra information given with respect to the desired good or its
condition. The warranty is of secondary importance to the contract for its fulfillment. Non-
compliance of the seller to the warranty of the contract does not render the contract
repudiated, and hence, the buyer cannot refuse to buy the good but can only claim
compensation from the buyer.

Warranty is the additional stipulation and a written guarantee that is collateral to the main
purpose of the contract. The effect of a breach of a warranty is that the aggrieved party cannot
repudiate the whole contract; however, they can claim for the damages. Unlike in the case of
a breach of condition, in the breach of warranty, the buyer cannot treat the goods as
repudiated.

Kinds of Warranty

Expressed Warranty
The warranties which are generally agreed upon by both parties and are inserted in the
contract are said to be expressed warranties.

Implied Warranty
Implied warranties are those warranties which the parties assumed to have been incorporated
in the contract of sale despite the fact that the parties have not specifically included them in
the contract. Subject to the contract, the following are the implied warranties in the contract
of sale:

Warranty as to Undisturbed Possession

Section 14(2) of the given Act provides that there is an implied warranty that the buyer shall
enjoy the uninterrupted possession of goods. As a matter of fact, if the buyer having got
possession of the goods is later disturbed at any point, he can sue the seller for the breach of
warranty.

For eg: ‘X’ purchased a second-hand bike from ‘Y’. Unknown to the fact that the bike was a
stolen one, he used the bike. Later, he was compelled to return the same. X is entitled to sue
Y for the breach of warranty.

Warranty as to Freedom from Encumbrances

In Section 14(3), there is an implied warranty that the goods shall be free from any charge or
encumbrances that are in favor of any third party not known to the buyer. But if it is proved
that the buyer is known to the fact at the time of entering into the contract, he will not be
entitled to any claim.

For eg: A pledges his goods with C for a loan of Rs. 20,000 and promises him to give
possession. Later on, A sells those goods to B. B is entitled to claim the damages if he suffers
any.

Implied Warranty to Disclose Dangerous Nature of the Goods Sold

If the goods sold are inherently dangerous or likely to be dangerous and the buyer is not
aware of the fact, it is the duty of the seller to warn the buyer of the probable danger. If there
would be a breach of this warranty, the seller will be liable.

For eg: A purchases a horse from B if the horse is violent, then it is the duty of the seller to
inform A about the probable danger. While riding the horse, A was inflicted with serious
injuries. A is entitled to claim damages from B.

Important Note on the Differences Between Condition and Warranty

1. A condition is an obligation which requires being fulfilled before another proposition

takes place. A warranty is a surety given by the seller regarding the state of the product.
2. The condition is vital to the theme of the contract while warranty is ancillary.
3. Breach of any condition may result in the termination of the contract, while the breach of
warranty may not lead to the cancellation of the contract.
4. Violating a condition means violating a warranty too, but this is not the case with
warranty.
5. In the case of breach of condition, the innocent party has the right to rescind the contract
as well as a claim for damages. On the other hand, in breach of warranty, the aggrieved
party can only sue the other party for damages.
6. A condition is an obligation which requires being fulfilled before another proposition
takes place. A warranty is a surety given by the seller regarding the state of the product.
7. The condition is vital to the theme of the contract while warranty is ancillary.
8. Breach of any condition may result in the termination of the contract, while the breach of
warranty may not lead to the cancellation of the contract.
9. Violating a condition means violating a warranty too, but this is not the case with
warranty.
10. In the case of breach of condition, the innocent party has the right to rescind the contract
as well as a claim for damages. On the other hand, in breach of warranty, the aggrieved
party can only sue the other party for damages.

Implied Conditions and Warranties under the Sale of Goods Act

Meaning: Apart from what may be provided by the parties in the contract, certain conditions
and warranties as provided under Sections 14 to 17 are impliedly present in every contract of
sale of goods. Thus, the stipulations that are implied in a contract of sale of goods
corresponding to their nature of being a condition or warranty, according to the nature of the
contract, are called Implied Conditions and Warranties. They are binding in every contract
unless they are inconsistent with any express condition and warranty agreed upon by the
parties. Sections 14-17 of the Sale of Goods Act, 1930, deal with the implied conditions and
warranties attached to the subject matter for the sale of a good, which may or may not be
mentioned in the contract.
IMPLIED CONDITIONS

There are seven implied conditions in a contract of sale of goods.

Condition as to Title [Section 14(a)]

Section 14(a) of the Sale of Goods Act 1930 explains the implied condition as to title as: "in
the case of a sale, he has a right to sell the goods and that, in the case of an agreement to sell,
he will have a right to sell the goods at the time when the property is to pass."

In every contract of sale, the basic yet essential implied conditions on the part of the seller are
that:

1. Firstly, he has the title to sell the goods.

2. Secondly, in case of an agreement to sell, he will have the right to sell the goods at the
time of performing the contract.

Consequently, if the seller has no title to sell the given goods, the buyer may refuse or reject
those goods. He is also entitled to recover the full price paid by him.

In every contract of sale, unless the circumstances are such as to show a different intention,
there is an implied condition on the part of the seller that in case of sale, he has a 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 in them is to pass.

This means that the seller has the right to sell a good only if he is the true owner and holds
the title of the goods or is an agent of the title holder. When a good is sold, the implied
condition for the good is its title, i.e., the ownership of the good. If the seller does not own the
title of the said good himself and sells it to the buyer, it is a breach of condition. In such a
situation, the buyer can return the goods to the seller and claim his money back or refuse to
accept the good before delivery or whenever he learns about the false title of the seller.

CASE LAW: Rowland v. Divall (1922) – The plaintiff had purchased a car from the
defendant and was compelled to return it to the true owner after having used it for a while.
The plaintiff then sued the defendant for the purchase money since the defendant didn’t
receive the consideration as per the condition of the title of ownership.

If the goods bear labels infringing the trademark of a third party, the seller has no rights to
sell them. In Niblett v. Confectioners' Material, the claimant purchased 1,000 tins of
condensed milk from the defendant. The tins were labeled 'Nissly'. Nestle informed the
claimant that if they attempted to sell these on, they would apply for an injunction to prevent
the sale as the label was very similar to Nestle's labels for their condensed milk. The
claimants agreed not to sell them and brought an action against the sellers. It was held that the
sellers did not have the right to sell the goods, and therefore, the buyers were entitled to
repudiate the contract.

In Butterworth v. Kingsway Motors, R was in possession of a car under a hire-purchase

contract with a finance company. Before exercising the option to purchase, R sold the car to
X, who then sold it to Y. Y sold the car to KM, and KM sold it to B. The finance company
recovered the car from B. It was held that at the time KM purported to sell, they were not the
owners of the car. B was entitled to recover the whole of the purchase price paid to KM
because there was a total failure of consideration. Thus, it was observed that where a seller
having no title to the goods at the time of the sale subsequently acquires a title, that title feeds
the defective titles of both the original buyer and the subsequent buyer.

Sale by Description (Section 15)

Section 15 of the Sale of Goods Act, 1930 explains that when a buyer intends to buy goods
by description, the goods must correspond with the description given by the buyer at the time
of the formation of the contract; failure in this, the buyer can refuse to accept the goods.

In the contract of sale, there is an implied condition that the goods should be in conformity
with the description. The buyer has the option to either accept or reject the goods that do not
conform with the description of the good. For example: Where Ram buys a new car, which he
thinks to be new from “B”, and the car is not new. Ram can reject the car.

When the goods are sold by description, there is an implied condition that the goods supplied
shall correspond with the description. Lord Blackburn in Bowes v. Shand stated: “If you
contract to sell peas, you cannot oblige to take beans.”

In Shepherd v. Kane, A ship was contracted to be sold as a "copper fastened vessel" to be

taken with all faults, without any allowance for any defects whatsoever. The ship turned out
to be partially copper fastened. The court held that the buyer was entitled to reject the goods.

When a descriptive word or phrase is used in a contract of sale to describe the product, it
creates an implied condition that the goods will correspond to the description. For example, a
sale of Seedless Grapes signifies that the fruit will have no seeds. If it turns out that the fruit
has seeds, the buyer can reject the goods.

Some Situations:

 Where the buyer has not seen the goods and relies on the description given by the
seller: In Varley v. Whipp, there was a contract for the sale of a second-hand reaping
machine which the buyer had not seen. The seller described it as a new machine a
year before and having cut only 50 to 60 acres. After delivery, the buyer found that
the machine was not in accordance with the description given by the seller. It was
held that the buyer was entitled to reject the machine.
 Where the buyer had seen the goods but relies not on what he had seen but on what
was stated to him by the seller: In Nicholson & Venn v. Smith Marriot, table
napkins sold at an auction were said to be authentic property of Charles I, but that
turned out to be false. The claimant was entitled to damages for breach of contract,
but Hallet J held the claimant could've avoided the contract on the ground of mistake.
 Packing of goods may sometimes be part of the description: In Moore & Co v.
Landauer & Co, M sold to L 300 TINS of Australian apples packed in cases
containing 30 tins. M tendered a substantial portion in cases containing 24 tins. It was
held that L could reject all the tins as the goods were not packed according to the
description given in the contract, as the method in which the fruit was packed was an
essential part of the description.
Sale by Sample (Section 17)

When the goods are to be supplied on the basis of a sample provided to the seller by the
buyer at the time of the formation of a contract, the following conditions are implied:

 The bulk supplied should correspond with the sample in quality. The actual products
would correspond with the sample concerning the quality, size, color, etc.
 The buyer shall have a reasonable opportunity to compare the goods with the sample.
 The goods shall be free from any apparent defect on reasonable examination by the
buyer.

For example, a company sold certain shoes made of a special kind of sole by sample sale for
the French Army. Later, when the bulk was delivered, it was found that they were not made
from the same sole. The buyer was entitled to a refund of the price and damages.

According to Section 17(1) - A contract of sale is a contract for sale by sample where there is
a term in the contract, express or implied, to that effect. The purpose of

A sample is to present to the eyes the real meaning and intention of the parties with regard to
the subject matter of the contract, which, owing to the imperfection of language, it may be
difficult or impossible to express in words. According to S. 17(2), in the case of a contract for
sale by sample, there is an implied condition:

(a) that the bulk shall correspond with the sample in quality;
(b) that the buyer shall have a reasonable opportunity of comparing the bulk with the sample;
(c) that the goods shall be free from any defect rendering them unmerchantable, which would
not be apparent on reasonable examination of the sample.

In Godley v. Perry, a retailer purchased from a wholesaler a number of toy catapults in a sale
by sample. The retailer sold one of those catapults to a boy, and when the boy tried to play
with it, it broke into pieces because of a manufacturing defect. The retailer was held bound to
pay compensation to the boy, and in his turn, he sued the wholesaler for indemnity. It was
found that the retailer had done a reasonable examination on his part; thus, the wholesaler had
to indemnify him.

Sale by Sample as well as Description (Section 15)

When the sale of goods is by a sample as well as a description, the bulk of the goods should
correspond with both—the description and sample provided to the seller in the contract, and
not only with the sample or description.

In a sale by sample as well as description, the goods supplied must be in accordance with
both the sample as well as the description. In Nichol v. Godis (1854), there was a sale of
foreign refined rape-oil. The delivered oil was the same as the sample, but it had a mixture of
other oil too. It was held in this case that the seller was liable to refund the amount paid.
S. 15 states that when the goods are sold by sample as well as description, it is not sufficient
that the bulk of goods correspond with the sample if the goods do not correspond with the
description.

In Wallis v. Pratt, there was a contract for the sale of seeds referred to as "Common English
Sainfoin." However, the seeds supplied to the buyer were of a different quality. The defect
also existed in the sample. The discrepancy in quality was discovered only after the seeds
were sown. The buyer could recover damages as there was a breach of condition.

Doctrine of Caveat Emptor

Before heading towards the further implied conditions, let us know about the Doctrine of
Caveat Emptor, meaning "Buyer Beware." This doctrine of caveat emptor is based on the
fundamental principle that once a buyer is satisfied with the product's suitability, then he has
no subsequent right to reject such product. This doctrine is enshrined through Section 16 of
the Act, thus it becomes important to study it.

Sometimes the goods purchased by the buyer may not suit the particular purpose for which
the buyer wants them. The question in such cases arises: whether the buyer can reject the
goods or is supposed to take the risk of goods turning out unsuitable for the required purpose.

The section provides that as a general rule, there is no implied warranty or condition as to the
quality or fitness for any particular purpose of goods supplied under a contract of sale. It
incorporates the rule contained in the maxim caveat emptor, which means the buyer should
be careful while purchasing the goods and ascertain that the goods suit his purpose; but if the
goods are subsequently found to be unsuitable for the purpose of the buyer, he cannot blame
the seller for the same.

For example, if A purchases a horse from B and needs the horse for riding but does not
mention this to B, and the horse is not suitable for riding but only for carriage, A can neither
reject the horse nor claim any compensation.

In Re Andrew Yule & Co., the buyer ordered hessian cloth without specifying the purpose
for which he wanted it. It was needed for packing, but due to its unusual smell, it was
unsuitable. It was held that the buyer had no right to reject the cloth and claim damages.

Condition as to Quality or Fitness (Section 16)

The doctrine of Caveat Emptor is applicable in the case of sale/purchase of goods, which
means "Buyer Beware." The maxim means that the buyer must take care of the quality and
fitness of the goods he intends to buy and cannot blame the seller for his wrong choice.
However, Section 16 of the Sale of Goods Act 1930 provides a few conditions which are
considered as an implied condition in terms of quality and fitness of the goods:

 When the buyer specifies the purpose for the purchase of the goods to the seller, he
relies on the sound judgment and expertise of the seller for the purchase. There is an
 implied condition that the goods shall comply with the description of the purpose of
purchase.
 When the goods are bought on a description from a person who sells goods of that
description (even if he doesn’t manufacture the goods), there is an implied condition
that the goods shall correspond with the description. However, in the case of an easily
observable defect that is missed by the buyer while examining the goods, it is not
considered an implied condition.

S. 16(1) {First exception to caveat emptor} states that 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 (whether he is
the manufacturer or producer or not), there is an implied condition that the goods shall be
reasonably fit for such purpose.

In Priest v. Last, 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 a few days,
while using the bottle, B's wife got injured as the bottle burst. It was found that the bottle was
not fit to be used as a hot water bottle. The court held that the buyer's purpose was clear when
he demanded a bottle for hot water; thus, the implied condition as to fitness is not met in this
case.

In Frost v. Aylesbury Dairy Co., the claimant bought milk from the defendant, and the
account book supplied to him contained statements on the precautions taken to keep the milk
free from germs. The claimant's wife died of typhoid fever contracted from milk supplied by
the defendants. It was held that the claimant should be awarded.

Proviso to Section 16 (1) - No Implied Condition When the Sale Under Patent or Trade
Name

In Chanter v Hopkins, the buyer's order to the seller said: "Send me your patent hopper and
apparatus to fit up my brewing copper with your smoke consuming furnace." The seller
supplied the buyer the furnace and apparatus asked for, but the same was not suitable for the
purpose of the buyer's brewery. It was held that the seller had supplied what was ordered, and
he was entitled to recover its price from the buyer.

Implied Condition of Merchantable Quality

Sec. 16(2) {Second Exception to Caveat Emptor} - S. 16(2) contains another implied
condition, which is by way of exception to the rule of caveat emptor. It has been noted before
in S. 15 that when the goods are bought by description, there is an implied condition that the
goods supplied shall answer the description.

Goods must be of merchantable quality. In other words, the goods are of such quality that
would be accepted by a reasonable person. For example, A purchased a sugar sack from B,
which was damaged by ants. The condition of merchantability is broken here, and it is unfit
for use. It must be noted from this section that the buyer has the right to examine the goods
before accepting them. But a mere opportunity without an actual examination would not
suffice to deprive the buyer of his rights. If, however, the examination does not reveal the
defect but within a reasonable time period, the goods are found to be defective, he may
repudiate the contract even if he approves the goods.

The implied conditions, especially in the case of eatables, must be wholesome, sound, and
reasonably fit for the purpose for which they are purchased. For example, Amit purchases
milk that contains typhoid germs, and because of its consumption, he dies. His wife can claim
damages.

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

In Grant v Australian Knitting Mills, 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 underwear was not
of merchantable quality.

Conditions Implied by Trade Usage

S. 16(3) - Sub-Section (3) of Section 16 gives statutory force to conditions implied by the
usage of a particular trade. It says: "An implied warranty or condition as to the quality or
fitness for the particular purpose may be annexed by the usage of trade." In the case of Peter
Darlington Partners Ltd v Gosho Co Ltd, where a contract for the sale of canary seed was
held subject to the custom of the trade that for impurities in the seed, the buyer would get a
rebate on the price but would not reject the goods.

IMPLIED WARRANTY

Enjoy Possession of the Goods [Section 14(b)] In a contract of sale, unless the
circumstances of the case show a different intention, there is an implied warranty that the
buyer shall have and enjoy possession of the goods.

Section 14(b) of the Act mentions ‘an implied warranty that the buyer shall have and enjoy
quiet possession of the goods,’ which means a buyer is entitled to the quiet possession of the
goods purchased as an implied warranty, which means the buyer, after receiving the title of
ownership from the true owner, should not be disturbed either by the seller or any other
person claiming superior title to the goods. In such a case, the buyer is entitled to claim
compensation and damages from the seller for a breach of implied warranty.

Goods are Free from Any Charge or Encumbrance [Section 14(c)]

Any charge or encumbrance pending in favour of any third party, which was not declared to
the buyer while entering into a contract, shall be considered a breach of warranty, and the
buyer is entitled to compensation and claim damages from the seller for the same.

Implied Warranty Against Encumbrances - There is an implied warranty that the goods
sold shall be free from any charge or encumbrances in favour of any third party. If there is a
charge or encumbrance on the goods sold and the buyer has to discharge the same, he is
entitled to get compensation for the same from the seller. If the charge or encumbrance of the
goods is known to the buyer at the time of the contract of sale, he becomes bound by the
same and does not have any right to claim compensation for discharging the same.

The provisions of implied conditions and warranties are provided in the Sale of Goods Act to
protect the buyers in case of any fraud by the seller. However, it is the seller’s duty in the first
place to look for the obvious defects and enquire about the quality of the product before
entering into a contract of sale of goods, since a seller cannot be held guilty for a customer’s
wrong choice. In order to ensure the purchase of an appropriate good by the seller, it is
suggested that the buyer conveys the purpose and gives a reasonable description of the goods
desired.

Exclusion of Implied Terms and Conditions - S. 62

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.

As regards conditions and warranties, Section 16(4) lays down that an express warranty or
condition does not negative a warranty or condition implied by this Act unless inconsistent
therewith. That means that when the parties expressly agree to such stipulation, and the same
are inconsistent with the implied conditions and warranties, the express conditions and
warranties will prevail, and the implied ones in S. 14 to 17 will be negated.

PASSING OF RISK

When goods are bought and sold, it is important to understand who has the liability to bear
the loss in case the property in the goods is destroyed or damaged. Does it transfer with the
passing of property? Or are there some other rules governing it? Section 26 of the Sale of
Goods Act, 1930 describes the different scenarios under which the passing of risk takes
place.

Passing of Risk (Section 26)

When goods are sold, they remain at the seller’s risk until the property in the goods is
transferred to the buyer. Once the property is passed, the goods are at the buyer’s risk even if
the delivery has not been made.

There are some points that you need to remember about the passing of risk:

1. It holds true unless the buyer and seller have agreed to some other terms.
2. In cases where the delivery has not been made, if the delay in delivery is due to the
fault of the seller, then the risk lies with the seller. If the delay is due to a fault of the
buyer, then the goods are at the buyer’s risk.
3. Regardless of the buyer or the seller bearing the risk, the duties and responsibilities of
both of them as a bailee of goods for the other party remain unaffected.
Hence, we can say that under ordinary circumstances, the seller bears the risk until the
property is passed to the buyer, which also passes the risk to him. The parties may, however,
decide to pass the risk before or after passing the property in the goods to the buyer.

Let us take a look at an example. Peter is auctioning his great-grandfather’s wristwatch at a

function. In a true auctioneer style, he manages to get a gavel (hammer used by auctioneers)
and sets up a table inviting bids for the historical watch. He manages to get the highest bid of
Rs 25,000.
As he strikes the gavel to signify acceptance of the bid, he accidentally damages the watch. In
this case, the property had not passed to the bidder. Hence, the risk was Peter’s, and he will
have to bear the loss.

TRANSFER OF TITLE

Nemo Dat Quod Non Habet - Sec. 27

Transfer of Title
A Latin maxim says: ‘Nemo dat quod non habet,’ which means that no one can give what he
doesn’t have. This is the ground principle regarding the transfer of title. Sections 27 to 30 of
the Sale of Goods Act, 1930 specify these laws about the transfer of title.

Transfer of Title
Section 27 deals with the sale by a person who is not the owner. Imagine a sale contract
where the seller:

 Is not the owner of the goods.

 Does not have consent from the owner to sell the goods.
 Has not been given authority by the owner to sell the goods on his behalf.

In such cases, the buyer acquires no better title to these goods than the seller had, provided
the conduct of the owner precludes the seller’s authority to sell.

Let us see an example. Peter steals a mobile phone from his office and sells it to John, who
buys it in good faith. However, John will get no title to the phone and will have to return it to
the owner when he demands; i.e., there is no transfer of title.

Now, this seems to be a really straightforward rule. However, enforcing this rule can mean
that innocent buyers might suffer losses in most cases. Therefore, to protect the interest of the
buyers, certain exceptions are provided.

Exceptions to Section 27
In the following scenarios, a non-owner of goods can transfer a better title to the buyer:

1. Sale by a Mercantile Agent (Proviso to Section 27)

Consider a mercantile agent who is in possession of the goods or a document of the
title of the goods, with the consent of the owner. Such an agent can sell the goods
when acting in the ordinary course of business of a mercantile agent. The sale shall be
valid, provided the buyer acts in good faith and has no reason to believe that the seller
doesn’t have any right to sell the goods. The transfer of title is valid in such a case.
2. Sale by One of the Joint Owners (Section 28)
Many times, goods are purchased in joint ownership. In many cases, the goods are
kept in the possession of one of these joint owners by the permission of the co-
owners. If this person (who has the sole possession of the goods) sells the goods, the
property in the goods is transferred to the buyer, provided the buyer acts in good faith
and has no reason to believe that the seller does not have a right to sell the goods.
Example: Peter, John, and Oliver are three friends who buy a 42-inch television set to
watch the upcoming cricket World Cup. They unanimously decide to keep the
television set at Oliver’s house. Once the World Cup is over, the TV is still at his
house.
One day, Oliver’s office colleague Julia visits his house and he sells the TV to her.
She buys it in good faith and has no knowledge about the fact that it was purchased
jointly. In this case, she gets a good title to the TV.

3. Sale by a Person in Possession of Goods under a Voidable Contract (Section 29)

Consider a person who acquires possession of certain goods under a contract voidable
on grounds of coercion, misrepresentation, fraud, or undue influence. If this person
sells the goods before the contract is terminated by the original owner of the goods,
then the buyer acquires a good title to the goods.
Example: Peter fraudulently obtains a gold diamond ring from Olivia. Olivia can
void the contract whenever she wants. Before she realizes the fraud, Peter sells the
ring to Julia – an innocent buyer. In this case, Olivia cannot recover the ring from
Julia since she didn’t void the contract before the sale was made.

4. Sale by a Person Who Has Already Sold the Goods but Continues to Have
Possession (Section 30 (1))
Consider a person who has sold goods but continues to be in possession of them or of
the documents of title to them. This person might sell the goods to another buyer.
If this buyer acts in good faith and is unaware of the earlier sale, then he will have a
good title to the goods even though the property in the goods was passed to the first
buyer. A pledge or other disposition of the goods or documents of title by the seller in
possession is valid too.

5. Sale by Buyer Obtaining Possession Before the Property in the Goods has Vested
in Him (Section 30 (2))
Consider a buyer who obtains possession of the goods before the property in them is
passed to him, with the permission of the seller. He may sell, pledge, or dispose of the
goods to another person.
If the second buyer obtains delivery of the goods in good faith and without notice of
the lien or any other right of the original seller, he gets a good title to them.
This rule does not hold true for a hire-purchase agreement, which allows a person the
 possession of the goods and an option to buy unless the sale is agreed upon.

6. Example: Peter takes a car from John under the conditions that he will pay Rs. 5,000
every month as rent for the vehicle and that he can choose to purchase it for Rs.
100,000 to be paid in 24 equal installments. Peter pays Rs. 5,000 for three months and
then sells the car to Oliver. In this case, John can recover his car from Oliver since
Peter had neither purchased the car nor agreed to purchase it. He only had an option to
buy the car.

7. Estoppel
If an owner of goods is stopped by the conduct from denying the seller’s authority to
sell, the buyer gets a good title. However, to get a good title by estoppel, it needs to be
proved that the original owner actively suffered or held out the seller in question as a
person authorized to sell the goods.
Let us see an example. Peter, John, and Oliver are having a conversation. Peter tells
John that he owns the BMW car parked nearby, which actually belongs to Oliver.
However, Oliver remains silent. Subsequently, Peter sells the car to John.
In this case, John will get a good title to the car even though the seller is Peter, who
has no title to it. This is because Oliver, by his conduct, did not deny Peter’s authority
to sell the car.

8. Sale by an Unpaid Seller (Section 54 (3))

If an unpaid seller exercises his right of lien or stoppage in transit and sells the goods
to another buyer, then the second buyer gets a good title to the goods as against the
original buyer. So in such a case, transfer of title will occur.

9. Sale under the Provisions of Other Acts

o Sale by an Official Receiver or Liquidator of the Company will give the
purchaser a valid title.
o Purchase of goods from a finder of goods will get a valid title under
circumstances [Section 169 of the Indian Contract Act, 1872].
o A sale by a pawnee can convey a good title to the buyer [Section 176 of the
Indian Contract Act, 1872].

TRANSFER OF OWNERSHIP
The property in the goods is said, to be transferred from the seller to the buyer when the latter
acquires the proprietary rights over the goods and the obligations linked thereto. 'Property in
Goods' which means the ownership of goods, is different from ' possession of goods' which
means the physical custody or control of the goods.

The transfer of property in the goods from the seller to the buyer is the essence of a contract
of sale. Therefore the moment when the property in goods passes from the seller to the buyer
is significant for following reasons:

1. Ownership -- The moment the property in goods passes, the seller ceases to be their
owner and the buyer acquires the ownership. The buyer can exercise the proprietary
rights over the goods. For example, the buyer may sue the seller for non-delivery of
the goods or when the seller has resold the goods, etc.
2. Risk follows ownership -- The general rule is that the risk follows the ownership,
irrespective of whether the delivery has been made or not. If the goods are damaged
or destroyed, the loss shall be borne by the person who was the owner of the goods at
the time of damage or destruction. Thus the risk of loss prima facie is in the person in
whom the property is.
3. Action Against Third parties -- When the goods are in any way damaged or destroyed
by the action of third parties, it is only the owner of the goods who can take action
against them.
4. Suit for Price - The seller can sue the buyer for the price, unless otherwise agreed,
only after the gods have become the property of the buyer.
5. Insolvency - In the event of insolvency of either the seller or the buyer, the question
whether the goods can be taken over by the Official Receiver or Assignee, will
depend on whether the property in goods is with the party who has become insolvent.

The Sale of Goods Act, 1930 provides a comprehensive framework for the transfer of
ownership in goods from the seller to the buyer, outlining different scenarios where property
is transferred. The transfer of ownership is central to a sale transaction, distinguishing
between "possession" (physical control) and "ownership" (legal title). Sections 18-25 of the
Act outline principles governing this transfer, primarily focusing on four key areas: specific
goods in a deliverable state, goods that need preparation for deliverability, ascertainment of
goods in certain transactions, and the reservation of rights to disposal.

1. Transfer of Property in Specific or Ascertained Goods (Sections 19-22)

  Section 19 clarifies that when parties contract for specific or ascertained goods, the
intention regarding when ownership transfers is crucial. The Act provides that the
transfer depends on both the contract’s wording and the parties' conduct. Three key
principles apply:
o (a) A time can be set by the parties when the property will transfer.
o (b) Analyzing the behavior and circumstances around the contract can reveal
the transfer intention.
o (c) Unless otherwise stated, Sections 20-24 guide when ownership should
transfer.

 Section 20 applies to specific goods in a “deliverable state,” where the sale is

unconditional. Here, ownership transfers to the buyer upon contract formation,
regardless of when payment or delivery happens. For example, if a person selects a
television, ownership shifts to them as soon as the contract is made, even if delivery is
scheduled for later.
 Section 21 governs cases where goods must be prepared to reach a deliverable state.
Ownership only passes once the seller completes required actions and informs the
buyer. For instance, if a smart TV needs an operating system installed, ownership
won’t transfer until installation is complete, and the buyer has been notified.
 Section 22 addresses goods that are in a deliverable state but require further action
(e.g., weighing or measuring) to determine the final price. Ownership transfers after
these actions are performed and acknowledged by the buyer. For example, if a seller
agrees to assemble a bed for the buyer, ownership doesn’t transfer until assembly is
complete.

2. Transfer of Property in Unascertained Goods (Section 23)

 Section 23 deals with unascertained goods, meaning goods that are not specified at
the time of contract. Ownership transfers when the seller appropriates the goods to the
contract, with the buyer’s consent. Consent can be expressed or implied and may be
given either before or after the goods are set aside. For example, if a seller selects a
quantity of goods per a buyer’s specifications and informs the buyer, ownership can
transfer after confirmation.
 Additionally, Section 23(2) states that if the seller sends goods to the buyer without
reserving any control, the property is considered transferred, particularly if a carrier is
used. However, if the seller retains disposal rights, ownership remains with them until
those rights are waived or conditions are met.

3. Goods on “Sale or Return” Basis (Section 24)

 Section 24 clarifies that goods sent “on approval” or “sale or return” pass to the buyer
only when the buyer expressly accepts them or takes no action within an agreed or
reasonable time. If no consent is given within the specified time frame, the goods
revert to the seller’s ownership. For instance, if a necklace is offered to a buyer on a
“sale or return” basis, the buyer must decide within a set period; otherwise, ownership
remains with the seller.

4. Right of Disposal (Section 25)

  Section 25 allows the seller to retain disposal rights until specific conditions, such as
payment, are met. Even if goods are delivered, the seller can enforce disposal rights if
the contract terms are not fulfilled. For example, if a seller sends goods by rickshaw
and instructs the driver not to deliver until payment, the right of disposal remains with
the seller until payment is confirmed.
 Section 25(3) further distinguishes between “possession” and “ownership.”
Ownership transfer reflects the legal title, while possession only concerns physical
control of the goods. This distinction becomes crucial when assigning liability, as
liability typically follows ownership.

Landmark Cases Illustrating Transfer of Ownership

Badri Prasad Vs. State of Madhya Pradesh

In the case of Badri Prasad Vs. State of Madhya Pradesh, the appellant entered into a contract
in respect of certain forests in Madhya Pradesh. He was entitled to chop teak trees with girth
over 12-inch. After the passing of the Abolition of Proprietary Rights (Estates, Mahals.
Alienated Lands) Act, the appellant was prohibited from cutting trees in the exercise of his
rights under the contract.

He filed a suit claiming specific performance of the contract on the grounds:

(1) The forest and trees did not vest in the State under the Act;
(2) Even if they vested, the standing timber, having been sold to the appellant, did not vest in
the State;
(3) In any event, a new contract was completed on 5 February 1955, and the appellant was
entitled to its specific performance.

The court held: The forest and trees vested in the State under the Act. The plaintiff was
entitled to cut teak trees of more than 12-inch girth. However, it had to be ascertained which
trees would be falling in that Description. Till this was ascertained, they will not be
ascertained goods as per Section 9 of the Sale of Goods Act.

Multanuak Chempalal Vs. C.P Shah & Co.

In the case of Multanuak Chempalal Vs. C.P Shah & Co., Section 26 of the Sale of Goods
Act 1930 was discussed and it was held that the risk passes only after the property in the
agreement has been passed. Thus, the parties can enter into a contract which provides for the
passing of risk before the passing of property.

Hoogly Chinsurah Municipality vs Spence Ltd

In the case of Hoogly Chinsurah Municipality vs Spence Ltd, the Hoogly Chinsurah
Municipality contracted with Spence Ltd to buy a tractor on the condition that if the
municipality is not satisfied then it will reject the tractor. The municipality took possession of
the tractor, used it for a month and a half and then rejected it. The suit was filed upon the
unwillingness of Spence Ltd to accept it. The Court while dismissing the appeal held that, the
municipality had not only used the tractor but also extinguished a reasonable time. Hence the
property in the tractor had passed to the municipality and they could not reject it now.
Conclusion

The Sale of Goods Act, 1930 tells us about a few views regarding the transfer of property
during a contract pertaining to the sale of goods. Section 18 to 25 of the Sale of Goods Act,
1930 provides the contracting parties several principles, through which rights and liabilities
of the buyer and seller are determined. Passing of the goods from the seller to the buyer
portrays the transfer of ownership from one party to another, which is without an exception a
different concept from that of the possession of goods as possession only involves custody of
goods.

The Word “Goods” in the Sales of Goods Act

The word "goods" includes the following things as movable property:

1. Growing Crops: Growing crops are the crops which are planted in bulk in the farms
or in fields by the farmers. (Note: The Transfer of Property Act excludes them.)
2. Standing Timber: The timber trees from which timber can be cut off and sold.
3. Grass: The thin, green, dense plant which covers most areas of the earth.
4. Old Currency: It is considered movable property as it cannot be used to buy goods; it
is treated as an antique item.
5. Water: The water in its natural form in seas, rivers, and water streams, etc.
6. Gas: Gas is considered movable property as it expands freely to anywhere and
everywhere.
7. Electricity: The electricity generated to run day-to-day usage in various sectors and
parts of human life is considered movable property.
8. Trademark: A unique symbol or sign used to signify a particular brand or company.
9. Patent: It can be described as a license issued by the Government.
10. Copyright: It is a legal right of an individual given to protect a unique piece of
artwork.
11. Share of the Company: After allotment, the share of the company is treated as
movable property.
12. Goodwill of the Company: A company’s reputation or image in the market is an
added asset to the company, which is also included under movable property.
13. Stock: The stock of a company, which can be divided into shares, is considered
movable property.

What Is Excluded from the Word “Goods” Under the Sale of Goods Act?

1. Immovable Property
2. Actionable Claim
3. Money / Currency

Classification of Goods

Goods can be classified into "Existing Goods," which are the goods existing at the time of the
contract of sale. Existing goods are further divided into three categories:
  Specific Goods: Goods that cannot be replaced.
 Unascertained Goods: Goods that are in bulk and cannot be specifically identified at
the time of the contract of sale.
 Ascertained Goods: Goods that can be easily separated from the bulk at the time of
the contract of sale.

The other category of goods is Future Goods, which are goods yet to be produced or
manufactured. For example, the seller may manufacture certain goods, like jewelry, on the
order of the buyer.

The last category of goods is Contingent Goods, which are types of goods that may or may
not be produced, subject to certain conditions. The seller may deliver the goods if the
conditions are fulfilled, and if the condition is not fulfilled, the seller may not deliver the
goods.

Statutory Provisions of Auction Sales Under Sale of Goods Act, 1930

The statutory provisions pertaining to auction sales are found in the Sale of Goods Act, 1930.
Section 64 of the Act provides rules regarding the auction sale, which are explained below:

1. When the goods are in lots and are put up for auction sale, each category or lot of
goods will be subjected to a separate contract of sale.
2. The sale of goods at auction is said to be complete only when the auctioneer declares
it to be completed by the fall of the hammer or any other usual method or by
announcing. Until then, the bidder can retract their bid at any time.
3. The seller at the auction can reserve the right to bid and must expressly reserve such
right. They can appoint a person to bid on their behalf.
4. If the seller does not expressly notify their right to bid, they cannot bid at the auction
nor appoint anyone on their behalf to bid. The auctioneer should not accept such bids,
and any sale done in contradiction to this rule is unlawful and will be declared
fraudulent by the buyer.
5. The reserve price, once declared, cannot be sold below this price by the auctioneer.
6. If the seller or their agent purposely and knowingly pretends to bid to raise the price
of the goods, such a sale is voidable at the option of the buyer.
7. The property in the auction cannot be sold on credit at the auctioneer's discretion.

CASE LAWS

1. COFFEE BOARD V. FAMOUS COFFEE AND TEA WORKS: In this case under
the Madras High Court, the seller expressly declared that he can accept any bid, be it
the highest or lowest, whichever he believes to be a fair price for the property. This
decision is final and conclusive; he is not bound by the highest bid.

2. MCMANUS V. FORTESCUE: The auctioneer mistakenly sold the property below

the reserved price stated in the catalogue for each lot, leading the seller to refuse to
sign the memorandum of sale. The court relieved the auctioneer as it was a mistake.
 3. BOMBAY SALT AND CHEMICAL V. JOHNSON & ORS.: It was held that the
highest bidder can claim rights over the property in the auction sale only when the
auction sale is accepted and approved by the seller, and the sale deed is executed in
their favor. Until then, the highest bidder has no rights over the property.

4. BARRY V. DAVIS: If no reserve price exists for the property to be sold at auction,
the property should be sold to the genuine highest bidder. Exceptions include
unlawful selling of goods, unauthorized sellers, or buyers without sufficient funds.

5. PAYNE V. CAVE: Mr. Cave made the highest bid for a good at the auction but
decided not to buy it and withdrew his bid before the auctioneer put down the
hammer. The court held that he had the right to withdraw his bid anytime before the
auction was declared complete.

6. HARRIS V. NICKERSON: An advertisement was given that certain items would be

auctioned. The plaintiff wanted to buy certain goods, but the goods were withdrawn.
The court held that an advertisement for auction does not amount to an offer; thus, the
advertiser can withdraw goods anytime prior to the auction.

ILLUSTRATIONS

1. A being the auctioneer in the auction sale accepts the highest bid by B and declares
the auction complete. Later, B decides not to buy the property. B cannot deny buying
the property and must pay the consideration to A.
2. A held the auction of a house. B made the highest bid, but before the hammer was
slammed down, the seller decided to withdraw the property. B cannot enforce the sale
of the property.
3. A, the auctioneer, sold property at a price below the reserve price to B. The seller
denied selling the property, and B cannot claim the property from the seller.

Conclusion

The auction sale is covered under Section 64 of ‘The Sales of Goods Act, 1930’. The Sales of
Goods Act specifically deals with movable property only. An auction sale can be defined as a
public sale in which various prospective buyers are invited to a particular area where the
auction is conducted.

There are two main parties involved: the auctioneer, who conducts the auction, and the buyer,
who bids the highest. The auction is complete only when the hammer is dropped or in a
customary manner. The ownership of the property passes from the owner to the highest
bidder on the fall of the hammer. The seller cannot bid themselves or appoint anyone to bid
on their behalf. The auctioneer should always be an authorized person and act in the seller's
benefit with bona fide intentions. A bidder can revoke their bid any time before the
completion of the auction. A bid can be considered an offer, and acceptance is completed
only when the sale deed has been executed in the name of the highest bidder.