The Sales of Goods Act, 1930

Meaning of Contract of Sale of Goods

The Sales of Goods Act 1930 is one of the
most important Act whose provisions
govern purchase/ sale transactions. The act
lays down the essentials of a sale
transaction as well as rights and liabilities of
parties to sale transaction

The Sales of Goods Act, 1930

According to Section 4 of the Act:
a contract of Sale of Goods is a contract where
the seller transfers or agrees to transfer the
property in goods to the buyer for a price
The above definition suggest that:

A contract of sale is a bilateral contract

The Sales of Goods Act, 1930

It includes an actual sale as well an agreement to sale.

Where the contract is executed (i.e. property in goods
has passed from seller to buyer), it is called sale.
And where the contract is executory (i.e. transfer of
property of the goods is to take place at a future date
or subject to certain conditions being fulfilled), it is
known as an agreement to sell

It deals only with only movable goods

Price consideration is a must for the sale of goods

Essentials of a Contract of Sale

Followings are the essentials of a contract of
sale
1.
Involvement of two parties
A sale is a bilateral contract and it must
involve two parties; a buyer and a seller.
- A buyer means a person who buys or agree
to buy goods (Section 2 (1) and seller
means
a person who sells or agree to
sell goods
Section 2 (13)

Essentials of a Contract of Sale

- Since a contract of sale involves change
of ownership, it is essential that the buyer
and
seller must be different persons.
- One cannot buy from and sell goods to
himself.
- An exception to this rule is provided in
Section- 4(1) of the Sales of Goods Act
which states that a part owner can sell
goods to
another part owner

Essentials of a Contract of Sale

2.

Movable Goods
The Sale of Goods Act deals deal with only
movable goods
- According to Act, goods mean every kind of
movable property other than auctionable
claims and money,
- & includes stock and shares, growing crops,
grass and things attached to or forming part
of land which are agreed to be severed
before sale or under contract of sale

Essentials of a Contract of Sale

3.

Delivery in Goods

Delivery means voluntary transfer of

possession (i.e. ownership rights) from
one person to another.
- If transfer of ownership rights takes
place immediately, contract is known as
sale
- & if transfer of ownership is to take
place at
a future date or subject to
some conditions being fulfilled, contract
is called agreement to sell

Essentials of a Contract of Sale

4.

Price
Price is the money consideration.
And money consideration is must for sale of
good
Essential elements of valid contract
Sale is an agreement and an agreement to
become contract (legally binding) must
satisfy essential conditions of a valid
contract.

Difference between sale and

agreement to sell
A contract for sale of goods may be either (i) a
sale or (ii) an agreement to sell.

a)

- Section 4(3) of the Act differentiate clearly

between these two by stating
Sale
Where under a contract of sale, property in
goods is immediately transferred from seller
to buyer, the contract is known as sale

Difference between sale and

agreement to sell
b)

Agreement to sell:
Where under contract of sale, the property
in goods is to be transferred at a future
time or subject to fulfillment of certain
conditions, the contract is called
agreement to sell
From the above definition, we can conclude
the following five major difference between
sale and agreement to sell

Characteristic Difference between

sale and agreement to sell
BASIS OF
DIFFERENE

1. Transfer of
Ownership

2. Nature of
contract

SALE
In sales, the
property
In goods
(ownership)
Passes to buyer at
once

AGREEMENT TO SELL
In agreement to sell,
the property in goods
does not pass to the
buyer at the time of
contact.
The seller remains the
owner till an actual
sale take place

Agreement to sell is
Sale is an executed executory contract
contract (i.e. sale is (i.e. sale is to take
completed)
place in future

Characteristic Difference between

sale and agreement to sell
BASIS OF
DIFFERENE

SALE

Sellers breach of
3. In case of breach
contract gives buyer
by the seller
double remedy
namely
i.
Sue seller for
damage
ii.
Dispose off the
goods as he
4.In the case of
likes
breach by the
Seller can sue buyer
buyer
For contracted price
of

AGREEMENT TO SELL
Sellers breach of
contract gives the
buyer only the right
to sue supplier for
damages

The seller can sue

the buyer only for
damages

Characteristic Difference between

sale and agreement to sell
BASIS OF
DIFFERENE

5. Incidence of
risk of loss

SALE
Since the title in the
goods (ownership)
has passed to the
buyer, if goods are
accidentally
destroyed or
damaged, the loss is
that of the buyer
even if the goods
were in the
possession of seller

AGREEMENT TO SELL
Since the title in the
goods has not passed
to the buyer, if goods
are accidentally
destroyed, the loss is
that of the seller,
even if the goods
were in the
possession of the
buyer

Characteristic Difference between

sale and agreement to sell
When an arrangement to sell becomes
a sale
An agreement to sell becomes a sale when
prescribed period elapses or the condition,
subject to which property in goods is to be
transferred, are fulfilled

Conditions and Warranties in the

Contract of sale
Conditions and warranties are stipulations in
contract of sale
-

Such stipulation may be either essential or

collateral to the main purpose of contract.

Stipulation essential to the contract are

called conditions and those collateral to the
contact are called warranties

Conditions and Warranties in the

Contract of sale
-

The breach of a condition gives buyer the

right to treat the contract repudiated while
breach of a warranty gives buyer the
right to put claim for damages and not the
right to reject the goods and treat the
contract as repudiated

The Act differentiates between conditions

and warranties as under

Conditions
According to Section 12 (2), A condition is
stipulation essential to the main purpose of the
contract, breach of which gives rise to a right to
treat the contract as repudiated.
-According to Section 12 (4), where a
stipulation in contract of sale is a condition or a
warranty depends in each case on construction
of contract. A stipulation may be a condition
though called a warranty in contract

Implied conditions in the contract of

sales:
Following are implied condition in contract of
sales
i)

Condition to the title:

In a contract, there is an implied condition
that
- In case of sale, seller has a right to goods &
- In case of an agreement to sell, the seller
will have a right to sell the goods at the time
when the property is to pass.

Implied conditions in the contract of

sales:
ii)

iii)

Sale by description:
section 15 provides that when there is contract
of sale of goods by description, there is an
implied condition that the goods shall
correspond with the description
Sale by sample:
Where there is a contract for sale of goods by
sample , there is an implied condition that
goods shall correspond to the sample, Section

Implied conditions in the contract of

sales:
17(2) of the Act provides that : In the case of a
contract for sale by sample, there is implied
condition

That bulk shall correspond with the sample in quality

That the buyer shall have a reasonable opportunity

of comparing the bulk with sample

That goods shall be free from any defect, rendering

them unmerchantable which would not be apparent
on reasonable examination of sample

Implied conditions in the contract of

sales:
iv)

v)

v)

Sale by description as well as sample

In a contract of sale by description as well as sample,
there is an implied condition that the goods shall
correspond both with the description and the sample.
Conditions as to quality and fitness for purpose
Condition as to merchantability
In a contract of sale by description, the goods sold
must be of merchantable quality.

Implied warranties in a contract for

sale
Following are implied warranties in contract of sale
i)

Implied warranty of quiet possession

there is an implied warranty that the buyer shall
have same right after paying for goods (i.e. after
transfer of title) as the seller has before transfer of
title (i.e. after transfer of title, buyer become owner).
- This implies that sellers title to the goods sold is
clear and buyer has the right to sue supplier for
damages if title to the goods is defective

Implied warranties in a contract for

sale
ii)

Implied warranty of freedom fro

encumbrance
This implied warranty stipulates that the goods sold
are free from any charge or encumbrance in favour
of any third party not declared to the buyer or
unknown to the buyer before or at the time of
contract
- If the buyer has to suffer due to existence of any
charge or encumbrances on goods bought, buyer
can sue seller for damages for breach of warranty

Caveat emptor
The doctrine of caveat emptor is the fundamental principle
of law of sale of goods. It means let the buyer beware
The doctrine states that it is no part of seller duty to
point out the defect in his own goods. It is upto buyer to
inspect goods to find out their suitability for the purpose.
Doctrine of caveat emptor however, is subject to
following exceptions
i) Where the seller makes a false representation and buyer
relies upon it.

Caveat emptor
ii)

iii)

Where seller actively conceals the defect in the

goods and the buyer even after reasonable
examination cannot discover them
Where the buyer makes known to the seller the
purpose for which he is buying goods and relies
upon the supplier for the quality. There is implied
condition that if the goods are purchased for
specific purpose, they must be reasonably fit for
such purpose.

Delivery of goods
Delivery is the transfer of ownership rights from seller
to buyer of goods

i)

Of right quality (i.e. right specifications)

In deliverable state
At right time
At right place
Right quality means goods of correct specification
e.g.
if buyer wants 5HP motor while supplier send 10HP

Delivery of goods
motor, even for the same price, delivery of goods
cannot be considered to have taken place. Such
goods shall represent only sellers proposal.
ii)

Right time implies within period of transfer of

ownership right. within one month, at the
earliest, urgently etc do not specify anything. It is
better to be specific, such as
Delivery within three months of this order
Delivery after three months of acceptance this order.
Delivery on or before 30th September

Delivery of goods
iii)

Place represents point of transfer of ownership

rights
Delivery and supply are two different things.
Former is the transfer of ownership right while
latter is physical transfer of materials, For
example, delivery period of 3 months at sellers
works may require two years to reach buyer, in
which event seller is not responsible for the delay.
Shipping terms (F.O.R. /FOB/Ex-works) specify the
place of delivery.

Delivery of goods
Different rules relating to delivery of goods are as
under
i)

Place of delivery:
Unless other specified, the goods sold are to
delivered at the place at which they are at the
time of sale and goods agreed to be sold are to be
delivered at the place where they are at the time
of agreement to sell, or if then in existence, at the
place the place at the place at which they
manufactured or produced.

Delivery of goods
ii)

iii)

Time of delivery:
If no time for the delivery is specified in the contract,
delivery is to be effected within a reasonable time.
Reasonable time in each case, depends unto the
particular circumstances, the nature of commodity etc
Failure to supply goods within reasonable time
amounts to breach of contract
Commencement of delivery period
Delivery period starts after receipt of buyers order
by the seller. It is, there better for the buyer to check
up

Delivery of goods
with the supplier after 3-4 days of release of order
as to whether supplier has received buyers
purchase order
iv) Delivery by allotment
Where goods at the time of sale are in possession
of a third person, there is no deliver to the buyer
unless and until such third person acknowledges
to the buyer that he holds the goods on buyers
behalf.

Delivery of goods
v)

vi)

Demand for deliver:

Demand of delivery must be made at a reasonable
time failing which delivery is treated as ineffectual.
Delivery of goods less than contracted to sell:
If the seller delivers to the buyer quantity of goods
less then he contacted to sell, the buyer may reject
them, but if the buyer accepts the goods so
delivered he must pay for them at the contracted
price.

Delivery of goods
vii) Delivery o goods greater than contracted to sell
If the quantity delivered by the seller is greater than
the contracted quantity, buyer may accept goods
included in the contract and reject the rest, or he may
reject the whole lot. However, if the buyer accepts
whole lot, he
must pay for them at the contracted price.
viii) Delivery of goods in mixed condition
If seller delivers to buyer goods he contracted to sell
mixed with goods of different description not included
in contract, buyer may accept goods which are as per
contract and reject rest, or may reject whole lot.

Delivery of goods
ix)

Delivery in installments
Unless otherwise agreed, buyer is not obliged
to accept delivery of goods by installments.
- If the contract specify delivery by installment,
a
defective delivery of one or more
installment does
not give a right to buyer to
treat the whole contract repudiated.

Delivery of goods
x)

xi)

Delivery to carrier:
Where, in pursuance of contract of sale, the seller is
authorized or required to send goods to buyer, delivery
of goods to a carrier whether named by buyer or not, is
deemed to be delivery of goods to the buyer
Delivery of goods involving sea transit:
Unless otherwise agreed, where goods are sent by the
seller to the buyer by route involving sea transit, in
circumstances in which it is usual to insure, the seller
must give such notice to yhe buyer as may enable him

Delivery of goods
to insure them during their sea transit, and the
seller fails to do so ensure, the goods remain at
sellers risk during sea transit
xii) Buyer to apply for delivery:
The seller of goods is not bound to deliver them
until the buyer applies for deliver

Buyers Right
1

Right to reject the goods delivered in wrong quantity

If seller delivers goods in less quantity than

contracted for, or in excess quantity than
contracted for, or when the goods contracted for
have been mixed with other goods, the purchaser
gets the right to reject goods

i)

Section 37 of the contract provides:

Where seller deliver to buyer a quantity of goods
less than he contracted to sell, buyer may reject
them, but if buyer accepts the goods so delivered
he shall pay for them at the contract rate.

Buyers Right
ii)

Where seller delivers to the buyer

- a quantity of goods larger than he contracted to
sell,
- buyer may accept goods included in the contract
and reject the rest or he may reject the whole.
- If the buyer accepts whole of the goods so
delivered,
he shall pay for them at contract
rates

Buyers Right
iii)

Where the seller delivers to buyer goods he

contracted to sell
- mixed with goods of a different description not
included in the contract,
- buyer may accept goods which are in
accordance with the contracted and reject the
rest, or
- may reject the whole

Buyers Right
2.

Right of examining of goods :

Buyer has the right to inspect the goods before
making payment
- to determine whether or not the goods delivered
by
the conform to contract specifications.
- If the method, place and time of inspection forms
part of the terms of contract, then the inspection is
required to be done as per agreement

Buyers Right
And if the time is not stated in the contract, buyer
can inspect the goods within reasonable time after
receipt of the goods
These facts are stated in Section 41 of the Act
which
reads as under
Where goods are delivered to the buyer which has
not previously examined, he is not deemed to have
accepted them unless and until he had a reasonable
opportunity of examining them for the purpose of
ascertaining whether they are in conformity with the
contract

Buyers Right
3.

Right to reject non-conforming goods:

A buyer has legal right to reject the goods which do
not conform to terms of contract. If desired the
buyer can accept substandard lot if the supplier
agrees to price adjustment
- The substandard lot can be accepted by the buyer
either in part or full
When buyer wants to reject whole lot or part of it,
he must inform seller within reasonable time. Failure
to

Buyers Right
intimate to seller of his rejection within reasonable time
is deemed as acceptance of the goods by the buyer.
Unless otherwise agreed, the buyer is not bound to
return the rejected goods. It is sufficient if he intimates
the seller about such rejection.
Goods once accepted cannot be rejected subsequently
on the discovery of defects.
if it is not possible to discover the defect at the time
of inspection, buyer can claim the damages if he

Buyers Right
informs seller of the defect as soon as defects are
known.
However, goods bought on assurance of quality,
can
be rejected if they fail to comply with agreed
terms.
If the buyer after receiving the goods start using
goods resulting in substantial changes in the condition
of the goods, he cannot reject goods in case of
defects. However, he can claim the damages.

Buyers Right
4.

5.

Right to sue for damages for non-delivery:

If seller neglects or refuses to deliver the contracted
goods to buyer, buyer can sue seller for damages for
non-delivery
Right to sue for breach of warranty:
where there is breach of warranty by seller, buyer can
a)
Set up against seller the breach of warranty
in diminution or extinction of the price, or
b) Sue the seller for damages for breach of warranty

Buyers Right
6.

7.

Right to sue for price and interest:

In case breach of contract on the part of seller, buyer
can sue seller and claim refund of price (if price is
paid in advance) and also interest on amount of price.
Right to repudiate contract before due date:
Where supplier cancels the contract before date of
delivery, buyer may either treat contract as subsisting
and wait till the date of delivery, or he may treat the
contract as rescinded and sue for damages for breach.

Buyers Right
8.

Right to cancel the order and sue foe damages:

If supplier refuses to deliver the goods or neglects to
deliver goods to the buyer,
- the buyer can cancel order and/ or sue for damages
suffered by him (Buyer)
- The amount of damages varies from situation to
situation as under
i) If supplier does not deliver goods or delay delivery
of goods and the buyer subsequently purchases
goods

Buyers Right
from other supplier (this being possible if the goods
are readily available),
- Buyer can recover damages to the extent of
difference between price paid to new supplier &
contract price e.g. A contract with B to supply
2000 kgs of alloy steel at Rs. 50 per kg. B fails to
deliver materials. A purchases same alloy steel
from another supplier at Rs. 60 per kg. Here A can
collect damages to extent of 10x 2000= Rs. 20,000
from B

Buyers Right
ii) If goods contracted are manufactured to buyers
design, such goods are generally not readily
available for purchase from other suppliers.
- The buyer under such a situation has no choice but
to wait until the supplier delivers the goods.
- The buyer thus suffers production losses which can
be claimed in case of default by supplier.
- Fixation of damages is usually difficult and can
become subject of dispute when the purchaser fails

Buyers Right
to buy materials from another source
- The solution lies in visualizing and
incorporating a
penalty clause into the
contract e.g. A clause
stating that
damages of Rs. X per week will be
paid to
the purchaser for the delayed delivery.

An unpaid seller and his rights

According to the provision of Section 45 of the Act
The seller of goods is deemed to be an unpaid seller
within the meaning of this Act
(a) when whole of price has not been paid or tendered
(b) when a bill of exchange or other negotiable
instrument has been received as conditional payment,
and the condition on which it was received has not
been fulfilled by the reason of the dishonour of the
instrument
or otherwise

An unpaid seller and his rights

An unpaid seller has been given certain rights under
the Act. These rights are as under
1.

Right of lien:
Lien mean right to hold property till debt on it
is paid and, therefore, the right of lien to seller
gives him right to retain the possession of
goods until payment of price. However, this
right can be exercised only when the goods are
in the possession of the supplier.

An unpaid seller and his rights

2. Right of stoppage of goods in transit:
Supplier has the right of stopping of goods in transit
after he has parted with the possession of them
and resuming their possession until payment or
tender of the price.
This right is available to the supplier when the
buyer
becomes insolvent and goods are in
transit.
Section 50 of the Act provides:

An unpaid seller and his rights

subject to this Act, when buyer of goods become
insolvent, unpaid seller who has parted with
possession of goods has right of stopping them in
transit, that is to say, he can resume possession of
goods as long as they are in course of transit, and
may retain them until payment or tender of price
3. Right of re-sale:
Supplier can resell goods in case of default of
payment by the purchaser. Again this right can be
exercised only if supplier is in possession of goods

An unpaid seller and his rights

4. Right to sue for price:
Where the seller has delivered the goods and buyer
refuses to pay for the goods, the seller can sue
buyer for price of the goods, Section 55 reads as
under
where under a contract of sale the property of the
goods has passed to the buyer and buyer wrongfully
neglects or refuses to pay for the goods according to
the terms of the contract, the seller mar sue him for
the price of the goods.

An unpaid seller and his rights

In relation to the goods where possession of the
goods has not been passed,
- Section 55(2) of the Act states that Where
under a
contract of sale price payable on a
certain day irrespective of delivery and the buyer
wrongfully neglects or refuses to pay such price,
the seller may sue him for the price although
property in goods has not passed and the goods
have not been appropriated to the contract

An unpaid seller and his rights

5. Right to sue for interest:
Supplier can also sue buyer for the interest for the
period of late payment.
The amount payable by buyer in case of default
of
payment is for the Court to decide.
Section 61 (2) of the act observes
In the absence of a contract to the contrary, the
Court may award interest at such rate as it thinks
fit on the amount of the price to the seller in a suit

An unpaid seller and his rights

by him for the amount of the price, fro the date of
the tender of goods or from the date on which the
price was payable
6. Right to sue for damages for non-acceptance
Seller can also sue the buyer for damages if the
latter refuses take delivery of good.
Section 44 of the act provides that
When seller is ready and willing to deliver goods
and request buyer to take delivery, and buyer does

An unpaid seller and his rights

not , within a reasonable time after such request,
take delivery of the goods, he is liable to the seller
for any loss occasioned by his neglect or refusal to
take delivery, and also for a reasonable charge for
the care and custody of goods
7. Right to cancel the contract before due date
Where the buyer cancels the contract before the
date of delivery, supplier can also treat the contract
cancelled and sue the buyer for damages for the
breach.

An unpaid seller and his rights

Since purchase order is a legal document, a number
of terms and conditions as relevant to the
companys needs are incorporated in the form of
clauses to give legal protection to the buyers
firm
Rarely, in India buyer or seller drag each other in
the court but still all issues must be dealt from
legal point of view
to avoid litigation later

General Purchase Conditions of NTPC

(GPC)
1.
2.
3.
4.
5.
6.
7.
8.
9.

Definition
Reference
Specifications & Drawings
Price Basis
Taxes, Levies & Duties
Inspection/Checking Testing
Access to Vendors premises
Removal of Rejected Goods and Replacement
Terms of Payment

General Purchase Conditions of NTPC

(GPC)
10. Addition/ Alteration/ Modification
11. Delivery Schedule
12. Liquidated Damages fir Delay in Delivery
13. Source of Supply
14. Patent Rights
15
Force Majeure
16
Cancellation
17
Waiver
18
Compliance with Regulator

General Purchase Conditions of NTPC

(GPC)
19. Sub-letting & Assignment
20. Vendors Drawing & Data
21. Information provided by the Purchaser
22. Spare Parts, Oil & Lubricants
23. Vendors Liability
24. Purchasers Materials
25. Packing & Marking
26. Sale Conditions
27. Modifications

General Purchase Conditions of NTPC

(GPC)
28. Performance Guarantee
29. Mode of Despatch
30. Demurrage/ Wharfage
31. Acceptance
32. Arbitration
33. Jurisdiction