CONTRACT OF SALES OF GOODS

ACT -1930
Module - 2
 Syllabus – 2nd Mid Term
• Definitions
• Essential characteristics of valid contract of sales
• Difference between sales and other analogous terms
• Goods and their classification
• Conditions and warranties
• Doctrine of caveat emptor
• Sales by non owner
• Unpaid seller and his rights
Introduction
 The sales of goods Act contains the basic principles as well as the
legal framework of transactions of sale and purchase.
 Sales of Goods Act,1930 came into force from 1 July 1930 .
 It extends to whole of India except the state of Jammu and Kashmir.
 Prior to sales of Goods Act, the law relating to sale of goods was
given in Indian contract Act
Definitions
 Buyer - Section 2(1) – Buyer means a person who buys or agrees to
buy the goods.
 Seller – Section 2(13) – Seller means a person who sells or agrees to
sell the goods.
 Delivery – Section 2(2) – Delivery means voluntary transfer of the
possession of goods from one person to another. Usually the goods are
delivered from the seller to the buyer. Immediate delivery of goods is
not necessary or mandatory.
• Price – Section 2(10) – Price means the money consideration for
the sale of goods. The money here means the currency in
circulation. Any contract without consideration is not a valid
contract.

• Goods – Section 2(7) – 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 a part of the land, which are agreed to be served before
the sale or under the contract of sale.
• For example: shares, debentures, goodwill, water, fruit, simcard,
newspaper are considered as goods.
• Agreement to sell – where the transfer of property in goods takes
place at a future date.

• Sale – where the transfer of property in goods takes place at the time
of contract of sale.
 "document of title to goods" includes a
 bill of lading,
 dockwarrant,

 warehouse keeper's certificate,

 wharfingers' certificate,

 railway receipt,

 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 authorising or purporting
to authorise, either by endorsement or by delivery, the possessor of the
document to transfer or receive goods thereby represented ;
• Document of title – section 2(4): the document of title of goods
includes the following documents:
• The bill of lading - A bill of lading is a legal document between the
shipper of goods and the carrier detailing the type, quantity and
destination of the goods being carried. The Bill of Lading also serves
as a receipt of shipment when the goods are delivered at the
predetermined destination. This document must accompany the
shipped goods, no matter the form of transportation, and must be
signed by an authorized representative from the carrier, shipper and
receiver.
• The dock warrant : Dock warrant, in law, a document by
which the owner of a marine or river dock certifies that the
holder is entitled to goods imported and warehoused in the
docks.

• The warehouse keeper certificate : Lien that gives

a warehouse keeper the right to retain goods in
the warehouse until their rental and/or warehouse charges
are paid in full. Also called warehouseman's lien.
• The railway receipt: A railway receipt is a document
of title but not a negotiable instrument. As in the case
of bill of lading, every transferee who derives the
title from the previous transferor takes it subject to the
defects which the transferor himself had. In other
words, the transferee cannot get a better title than
that of the transferor, since the instrument is not
negotiable.
• The warrant
• The order for the delivery of goods
 Insolvent : A person is said to be insolvent when he ceased to pay his
debts in the ordinary course of business, or cannot pay his debts as
they becomes due, whether he has committed an act of insolvency or
not.
• Property – section 2(11) – Property means the general property in
goods. The property can be understood in two ways with reference to
any goods; general property and special property.
• The general property in goods means the ownership of goods.
• The special property means the possession or control of goods.
Therefore the transfer of property in goods is different from the delivery
of goods. The delivery of goods means a transfer of special property in
goods.
Formation of contract of sale of goods/Essentials

 A contract of sale of goods is a contract whereby the seller transfer or

agrees to transfer the property in goods to the buyer for a price. –
Section 4
 The term contract of sale is a generic term and includes both a sell as
well as an agreement to sell.
Essential Elements of Sale
 Two Parties
 The subject matter of sale must be goods
 Price/ Consideration
 Transfer of property
 A contract of sale must be absolute or conditional
 Other elements of contract
Two parties
 There must be two parties to form a contract. So in contract of sale
also there must be two parties – a seller and a buyer. One cannot sell
to himself.
 Partner are not regarded as separate person for the purpose of sale,
amongst themselves, of the partnership property. They are joint owners
and as such they cannot be both seller and buyer.
 However, a partner can buy the goods from the firm in which he is a
partner.
Subject matter of sale must be goods
 The subject matter of sale must be goods. The goods must be movable.
Immovable things are out of the purview of contract of sale. The
goods may be present or future.
 For example: standing trees can be sold as goods provided they are
to be removed before sale.
Essential features of definition
 Goods must be movable property.
 Stocks and shares, growing crops, grass, agreed to be served before
sale etc are included in goods
 Actionable claims and money have been expressly excluded from the
definition.
Kinds of Goods
 Existing goods
 Specificgoods
 Ascertained goods

 Unascertained goods

 Future goods
 Contingent goods
Existing Goods
 Existing goods are in actual existence at the time of contract of sale.
The existing goods are the goods which are owned and possessed by the
seller at the times of sale. Only the existing goods can be sold.
 For Example: A car dealer has 10 cars. He contacts to sell one of the
car to B.
 Types of existing Goods
 Specificgoods
 Ascertained goods

 Unscertained goods
Specific Goods

 The goods which are identified and agreed upon by the parties at
the time of contract of sale are specified goods. It should be noted
that the goods must be identified and agreed upon by the parties.
 For example: if A shows a particular car UP85 – 0000 to B at the
time of contract of sale. It will be a contract for sale of specific
goods. If the car has been identified and agreed upon by the
parties at the time of contract of sale.
Ascertained goods
• Ascertained goods are the goods which are identified after the
formation of contract of sale. When the unascertained goods are
identified and agreed upon by the parties, the goods are called as
ascertained goods.
• However in practice no distinction has been made in specific and

ascertained goods.
For example: if after the contract of sale. A informs B that he will sell
UP-85-1111 and B consent to it , the car becomes ascertained goods
Unascertained goods
 These are the goods which are not indentified and agreed upon at the
time of contract of sale. These goods are merely described by the
parties at the time of contract of sale.
 For example: if at the time of contract of sale, or even subsequently
the parties have not agreed which of the cars has to be sold, the car
remains unascertained goods.
Future Goods
 Future goods are those goods which do not exist at the time of contract
of sale. These goods are to be manufactured or acquired by the seller
after the contract of sale. The future goods cannot be sold but there
can be only an agreement to sell.
Contingent goods
 It is a kind of future goods. These goods are those goods, the
acquisition of which is contingent upon the happening or non happening of
an uncertain event.
 For example: A agrees to sell the cargo loaded on the ship “Vikrant”
which is coming from London to Mumbai. The ship may or may not
arrive. So these goods will be called as contingent goods.
 It should be noted that there cannot be sale of future or contingent
goods as ownership in goods cannot pass unless they are owned or
possessed by the seller at the time of contract of sale. Therefore there
can only be an agreement to sale and not contract of sale.
Consequence or effects of destruction of goods
• A contract of sale becomes void on the destruction of goods.
Following are the consequences of destruction of specific goods which
are as follows:
1. If goods perish before making of contract of sale

2. Where a part of the goods is perished before making of contact of

sale.
3. If goods perish after the agreement to sell but befoe sale
Goods perish before making of contract of sale
 Where there is a contract for sale of specific good, if at the time when
the contract was made, the goods have without the knowledge of the
seller perished or becomes so damaged as no longer answer to the
description in the contract, the contract becomes void.
 It is noted that if the seller has knowledge about the destruction of
goods, even then he enters into the contract of sale with the buyer then
the seller is bound to compensate the buyer.
Where a part of the goods is perished before
making of contract of sale
 The deciding factor in this case is that where the contract is divisible or
not. If the goods were divisible then the contract can be enforced
partly but if the goods were indivisible then the contract becomes
void.
 For example: A contract to sell one wagon containing 600 bags of
groundnuts to B. Unknown to A bags had been stolen at the time of
sale. Therefore, A made a delivery of 550 bags. B is not bound to
accept as the sale becomes void
Price / Consideration
 Price is the consideration for the contract of sale of goods. Under
section 2(10) price defined as “money consideration for sale of
goods”. Money here means currency in circulation.
 The price must be paid or payable but it is not necessary that it must be
fixed before hand.
Modes of fixation of Price
 Method 1 – the price is specified under the contract of sale. It is the
most common method of determining the price. Here the parties
decide the price in advance.
 Method 2 – The price may be determined as per the method specified
in the contract. . Here the parties decided in advance the method of
determining the price.
• Method 3 - The price may be determined in accordance to the custom
or usage of the trade. This method is applicable if the parties regularly
trade.
where the price is not determined in accordance with the provisions,
the buyer shall pay the reasonable price. Reasonable price is a question
of fact and circumstances. Under contract of sale reasonable price means
the market price.
 Method 4 - the price may be determined by the third party. If it is so,
the contract shall specify the name of the third party. If the third party
fails to specify the price the contract is void.
 But it the goods are delivered to the buyer and used by him, he is
required to pay a reasonable price.
 If third party is prevented from fixing the price the defaulting party is
liable for the damages.
 For example: A agrees to sell certain goods to B at a price to be
fixed by C. if C fails to fix the price, the agreement can be avoided.
 On the other hand, if C is prevented from fixing the price by B, A may
sue B to recover damages.
Formalities of contract of sale
 The agreement may be express or implied from the conduct of the
parties.
 Section 5 of sale of goods act 1930 lays down the rule as to how a
contract of sale may be and has nothing to do with the transfer or
passing of property in the goods. A contract of sale may be made in
any of the following manner:
 There may be a immediate delivery of goods
 There may be a immediate payment of price, but it may be agreed that
the delivery is to be made at some future date
 there may be immediate delivery of goods and immediate payment of
price.
 It may be agreed that the delivery or payment or both to be made in
installments
 It may be agreed that the delivery or payment or both are to be made at
some future date.
Transfer of Property or Ownership
 The main purpose of contract of sale is transfer property.
 The property in the goods means ownership i.e., general property as
against special property.
 Possession of goods means physical custody or control over the goods
Why it is necessary to know when property or
ownership passes from seller to buyer??
 It is necessary to know, the precise moment of time of passing of
property from seller to buyer to set out various rights and liabilites of
buyer and seller.
 For ascertaining risk and loss – “Risk follows Property”
 For ascertaining right of action against the wrong doer.

 For ascertaining rights in insolvency of the seller or the buyer

When property or owership in the goods passes
from seller to buyer ??
 Passing of ownership will depend upon whether the goods are
Unascertained, specific or ascertained.
 Unascertained goods (Sec. 18) – where there is a contract of sale of
the unascertained goods, the property in the goods is not transferred
to the buyer unless the goods are ascertained.
 Specific or ascertained goods ( Sec 19) – where there is a contract for
the sale of specific or ascertained goods, the property in the goods is
transferred to the buyer when the parties are intend it to be transferred.
How to ascertain Intention of parties
 For the purpose of ascertaining the intention of the parties:
 The terms of the contract
 The conduct of the parties

 The circumstance of the case, should be taken into considerations

Intentions can be divided into two parts

Express Intentions : the parties may agree that the ownership will pass on payment or on
acceptance of the bill or in case of auction sale on falling of hammer etc.
 Case of Sacks v. Tilley ( 1915): Certain diamonds were sold to the buyer with the
express condition that property in them would pass on the bill being accepted.
 The diamonds were sent along with the bill and the invoice. The bill was never
accepted.
 Held the property did not pass as the parties had intended it to pass only on
acceptance which was never there.
 Implied Intentions : where the intention of the parties is not expressed, it may be
implied from the conduct of the parties or circumstances of the case.
 Appleby v. Myers (1857) : A offered to sell a certain machine to B. B refused to buy
unless the machine was repaired. Thereupon the seller, agreed with the buyer that the
buyer would get the machine repaired and the repair charges be adjusted in the sale
price.
 The buyer handed over the machine for repairs. Without any fault of the repairer, the
machine was destroyed during the course of repair.
 Held that the circumstance implied that the property in the goods would pass only
when the machine was repaired.
 When there is neither an express agreement nor it can be inferred
from the conduct or circumstances of the case, then intention of the
parties as to passing of property can be ascertained from the rules
given under sec. 20 to 24 of the act. These rules are as follows:
 IN CASE OF SPECIFIC GOODS
 IN CASE OF UNASCERTAINED OR FUTURE GOODS
In case of specific goods
 When goods are in a deliverable state (Sec. 20)
 When goods are not in delieverable state (Sec. 21)
 When goods are in deliverabe state but the seller is bound to do
something in order to ascertain the price of the goods. (Sec 22)
In case of Unascertained goods or future goods

 The rules relating to passing of property in unascertained or future goods are given in
sec 18 and 23 of the Act.
 Where there is a contract for the sale of unascertained goods the property in the
goods is not transferred until and unless the goods are ascertained.
 For passing of property in unascertained or future goods, there should be
 There should be ascertainment of goods

 There should be unconditional appropriation of such goods to the contract.

 Ascertainment is the act of identifying the goods answering the
descriptions.
 Appropriation means common intention of the buyer and the seller to
use the goods for performance of the contract.
 The appropriation can be done either by the seller with the consent of
the buyer or by the buyer with the consent of the seller.
 The consent of the seller or buyer may be express or implied and may
be given before or after the appropriation is made.
Appropriation of goods by the seller

 By separating the quantity sold for the lot or other goods and
informing the buyer.
 By putting the goods sold in suitable receptacles e.g. tins, bags,
etc and informing the buyer.
 By delivery of goods to the carrier – appropriation of goods
may also be done by making delivery of the goods to the carrier
for transmission to the buyer.
Doctrine of Caveat Emptor
 Caveat Emptor is a latin word. It means „ let the buyer beware‟. It is
the duty of the buyer to select the goods of his requirement and the
seller is not bound to supply the goods which shall be fit for any
particular purpose of the buyer. It suggest that the buyer, while
purchasing the goods must act with a third eye and ear i.e.,
 He should be careful to see that the goods purchased will serve the purpose
well.
 If the buyer is not careful and he finds later on that the goods do not serve
his purpose, he cannot hold the seller liable for it.
 The seller is under no obligation to tell the defects of his article.
Exceptions of doctrine of Caveat Emptor
• If the buyer selects the goods as per his requirement and the goods
are not satisfying his requirement, he cannot claim anything against the
seller. However in the following exceptions, the doctrine of caveat
emptor is not applicable.
1. Where the implied conditions as to the quality or fitness for the buyer
purpose is applicable. It means when the buyer has specified his purpose
and relied on the skill of seller, the doctrine of caveat emptor is not
applicable.
2. When the goods are sold by description, it should be of merchantable
quality. In such case the doctrine of caveat emptor is not applicable.
3. In case of edible items, the implied conditions of wholesomeness is
applicable and the goods should be of merchantable quality. If the
goods are not fit for human consumption then the buyer is not liable
but the seller will be liable.
 Custom may provide that a particular defect will amount to unfitness
and the buyer can reject the goods. Here the doctrine of caveat
emptor is not applicable.
 When the consent of the buyer is obtained by fraud, the provision of
doctrine of caveat emptor is not applicable.
 For example: A goes to B shop and purchase a silk saree, thinking that
it is made of banarasi silk. The shopkeeper knows that A thinking is
wrong. He however does not correct A‟s impression. Later on when A
discovers that the saree is not made of banarasi silk he can avoid the
contract.
Price/ Consideration
 The price is the consideration for the contract of sale of goods. The
exchange of goods for goods is a barter. Exchange is partly for goods
and partly for money is a sale.
 In case where the promissory note or the negotiable instrument is given in
exchange of the transfer of goods, it will be a sale since a negotiable
instrument is always paid in money.
Transfer of property
 A transaction of sale involves transfer of property. Property is
of two types; General Property and special property. In sale,
General property, i.e., ownership is transferred from the seller
to the buyer whereas in bailment, only special property i.e.,
possession is transferred by the bailor to the bailee.
Form of contract of sale
 No form of contract of sale is prescribed under the sales of
Goods Act. The contract of sale can be express or implied. The
contract of sale may be in writing or by word of mouth. The
contract of sale can be conditional or absolute.
Difference between sale and agreement to sell
Basis of difference Sale Agreement to sell

Transfer of Property In case of sale, the property passes In case of an agreement to sell
from the seller to the buyer at the property in the goods is to pass at a
time of contract so as to make him future time or subject to fulfilling
the owner of the goods certain conditions

Nature of contract A sale is an executed contract, An agreement to sell is an executory

because the ownership has passed contract as the property has to pass
from the seller to the buyer in future.
Risk of loss The buyer bears the risk The seller bears the risk
Types of goods involved
Remedies for breach of contract
General or particular property
A sales takes place in the case
of existing goods
In a sale if buyer fails to pay the
price or refuses to accept the
delivery of goods, the seller has
a right to file a suit for the price
of the goods, even if the goods
are in the possession of the seller
himself.
A sale create just in rem i.e., it
gives the buyer a right to enjoy
the goods against the whole
world.
An agreement to sell takes
place in the case of future
goods.
In an agreement to sell, the
seller has only one right i.e., to
sue for damages and not for
price even if the goods are in
possession of the buyer.
An agreement to sell creates
only just in personam i.e., gives
the buyer a right against an
individual, as such in case of
breach,the buyer can sue the
seller for breach of contract.
Insolvency of buyer In case of sale, if the buyer
becomes insolvent before
paying the price, the seller
cannot retain the goods as the
buyer becomes the owner of
the goods. The seller in such a
case will only be entitled to
rateable dividend, for the price
of goods from the estate of
insolvent buyer.
Insolvency of seller In case of sale, if the seller
becomes insolvent, before the
delivering the goods to the
buyer, the official Assignee or
Receiver of the seller cannot
refuses to deliver the goods.
In an agreement to sell, the
seller continues to be the owner
of the goods as no property
passes to the buyer. In such a
case seller can refuse to deliver
the goods to the official
assignee or Receiver.
In case of agreement to sell, if
seller becomes insolvent, the
official Assignee or Receiver of
the seller can refuse to deliver
the goods. The buyer can only
claim a rateable dividend from
the estate of the insolvent seller.
Sale and Hire Purchase Agreement
Basis of Difference Sale Hire Purchase Agreement

Scope of Agreement A sale includes a sale proper and an A hire purchase agreement includes
agreement to sell and agreement to sell and bailment.

Passing of ownership In a sale, ownership in the goods Like an agreement to sell, ownership
passes immediately. in a hire purchase agreement passes
on the fulfillment of certain conditions
i.e., payment of all installments.
Options to pay In a sale, there is no option not to In a hire purchase agreement there
pay the price. The ownership in is an option to pay. If all the
goods is transferred once for all. installments are paid, it becomes a
sale, otherwise the property goes
back to the seller.

Relationship of parties In case of sale the relationship In a hire purchase agreement, the
between the parties is of seller and relationship before payment of all the
buyer installment is that of bailor and
bailee and of after payment of all
the installments is that of buyer and
seller.
Adjustment of instalments In a sale also payment can
towards price be made by installments. If
the buyer is not able to pay
all the installments,
installments paid are
adjusted towards the price
even.
Applicable Act Sales of Goods Act 1930
Mode of framing contract A contract of sale can be
made orally or in writing
Return of goods The buyer cannot return the
goods usually
In a hire purchase
agreement, if the buyer is
not able to pay all the
installments these
installments are not
adjusted towards the price
but are adjusted towards
the hire charge.
Hire Purchase Act , 1970
The hire purchase agreement
should always be in writing.
The hirer can return the
goods
Sales tax The sales tax is payable The sales tax is payable
immediately when all the installments
are paid

Risk The risk of loss passes to the The risk of loss does not
buyer passes the bailee as the
ownership is not transferred,
it will pass to the hirer when
the last installment is paid.
Sale by Non Owner – Section 27

 As a general rule, only an owner of the goods can transfer of

ownership in the goods.
 The general maxim is “ Nemo dat quo non habet, i.e., no one can pass
a better title than what he has”.
 The object of this rule is to protect the owner. Thus if a person buys
goods from a thief, will also be called as thief.
 Such a person will not get a good title even if he has paid the price
and does not known that the goods were stolen property.
Exception of the principle
 Estoppel
 Sale by mercantile agent
 Sale by one of the joint owner
 Sale by seller in possession after sale
 Sale by buyer in possession after agreement to sale
 Sale by unpaid seller
 Sale in market overt
 Miscellaneous
 Sale by finder of goods
 Sale by pawnee

 Sale by official receiver

 Sale by official liquidator

Estoppel
 Estoppel means that a person who by his conduct or words leads another
to believe that certain sate of affairs existed, would be estopped from
denying later on that such a state of affairs exists.
 Or
 Where the owner of the goods acts, in such a manner so as to lead
others to believe that the person selling the goods has authority to sell
the goods, he will be estopped from denying seller‟s authority to sell the
good.
 For example:
 A tells B within the presence and hearing of C that he is the owner of
certain goods. In fact C is the owner of these goods. Later on A sells
these goods to B. B will get a good title to these goods as C will be
estopped from denying A‟s right to sell
Sale by Mercantile Agent
 Where a mercantile agent with the consent of the owner, in possession of
goods or documents of tiltle of the goods any sale made by him, when
acting in the ordinary course of business of a mercantile agent, shall be
valid as if he were expressly authorized by the owner of the goods.
 But the buyer should have acted in goods faith and had no notice at the
time of sale, that the seller has no authority to sell.
 A buyer will acquire a good tile to the goods if following conditions are
satisfied:
 The agent must be mercantile
 The goods must be in possession of the mercantile agent in his capacity
as mercantile agent
 The goods must be in possession of the mercantile agent with owner
consent.
 The buyer must have acted bonafide i.e. in goods faith and should have
no knowledge that the agent had no authority to sell.
Sale by one of the joint owner
 If one of the several joint owners of the goods has the sole possession of
them by permission of the other joint owners, the property in the goods is
transferred to any person who buys them of such joint owner in good
faith and without notice that the seller has no authority to sell.
 For example: A and B are the joint owner of a car. A took the car to his
house with the consent of B. Later on A sold the car to an innocent
purchaser. The purchaser will get a good title.
Who is mercantile agent?
 A mercantile agent is one who in the customary course of business has
as such agent, authority either to sell the goods or to buy the goods or to
raise money on the security of goods
 It should be noted that this rule will not apply to sale by any other
person like caretaker, servant, clerk etc of the seller.
Sale by seller in possession after sale
 The buyer after purchasing he goods may leave them with the seller. If
the seller re sells these goods to another buyer, that buyer will acquire
a good title to the goods if he acted in good faith and without the
notice that the seller had no authority to sell the goods.
 This rule does not apply to the cases where the goods have been
delivered by the seller and subsequently, the goods again come back
to the seller as a bailee or in any other capacity.
Sale by person in possession after sale or
agreement to sale
 Where a person having bought or agreed to buy the goods, obtains with
the consent of the seller the possession of the goods or document of title
to the goods, the delivery or transfer by that person or by a mercantile
agent, acting for him, of the goods, or documents of title under any sale,
pledge or other disposition thereof receiving the same in good faith and
without notice of any lien or other right of the original seller in respect of
the goods shall have effect as if such lien or right did not exist.
 This rule does not apply where the buyer has got merely an option to
buy as in hire purchase agreement. He cannot transfer title to any person
as option to buy does not mean an agreement to buy.
Sale by an unpaid seller
 Where an unpaid seller who has exercised his right of lien or stoppage
in transit, re-sells the goods, the buyer acquires a good title to the goods
as against the original buyer even if no notice of resale is given.
Sale in Market overt

 Market overt means an open, public and legally constituted market.

According to this rule, if a person buys goods in market overt, the buyer
acquires a good title to the goods, even if the goods sold were obtained
by theft.
 The only condition being the buyer should buy the goods in good faith and
without knowledge of any defect or absence of title. This rule is applicable
in England.
 It is not recognized in India as it will encourage the thieves to steal things
and sell them in market overt.
Sale by person in possession under voidable contract

 A person who has obtained possession of the goods under a voidable

contract and before the contract has been rescinded, sells these goods,
the buyer will acquire a better title.
 It should be noted that the rule does not apply to the cases in which the
agreement was void.
Unpaid seller and his rights

 Who is an unpaid seller?????

 A seller is deemed to be an unpaid seller:
 When the whole of the price has not been paid or tendered.

 When a bill of exchange or other negotiable instrument has been

received as conditional payment and it has been dishonoured
For an unpaid seller the following conditions must
satisfy:
 The price must be due but not paid.
 A negotiable instrument like cheque and bill of exchange was
received but the same has been dishonoured.
 The seller who has obtained a decree for the price of the goods will
also be an unpaid seller if the decree has not been satisfied.
 When the seller has been paid a large amount but small portion of the
payment remains to be paid.
• When the price has been paid but some other expenses which were
payable to the seller has not been paid.
• The seller must have an immediate right of action against the price.

however the seller is not an unpaid seller if the buyer has tendered the
price and the seller has refused to accept it.
Rights of unpaid seller
 Rights of an unpaid seller can be divided into two parts:
 Rights against the goods
 Right against the buyer personally
Right against the goods
 When property in the goods has transferred
 Right of lien
 Stoppage in transit

 Right of resale

 When property in the goods has not transferred

 Withholddelivery
 Stoppage in transit
Right against the buyer personally
 Suit for price
 Suit for damages
 Rescission of contract
 Suit for interest
Right of Lien
• A lien is a right to retain possession of goods until the buyer pays the
price. The unpaid seller can retain the goods in his possession in the
following cases:
1. The goods have been sold on credit
2. The goods have been sold on credit but the period of credit has
expired.
3. The buyer has become insolvent
Right of lien can be exercised in following cases:

 Right of lien is a possessory right means it can only be exercised only

when the goods are in possession.
 If the possession is lost, the right of lien is also lost.
 The right of lien can be exercised even if the document of title has
been delivered but the goods are in possession of the seller.
 This right is a personal right of an unpaid seller which can be exercised
by him alone and not by any other person.
 Right of lien cannot be exercised on goods repossessed after the sale.
 Right of lien can be exercised only when the price is due and not for
other expenses. For example Dock dues, Warehouse charges etc.
‘credit suspends lien but does not destroy it’
 Right of lien cannot be exercised where the right of lien has been
expressly excluded.
 If the seller has made part delivery, the lien may be exercised on the
goods remaining in possession.
When the right of lien is terminated or lost?

• When the buyer or his agent lawfully obtains possession of the goods
• When the seller waives his right of lien. For example: when the credit period
is extended by the seller.
It should be noted that the seller cannot exercise his right of lien where he has
already delivers the goods to the purchaser. It should be noted that the unpaid
seller of goods, having a lien thereon does not lose his lien by reason only
that he has obtained a decree for the price of the goods.
Right of stoppage in Transit – sec. 50-52
 Right of stoppage in transit is the extension of the right of lien. It is
because of this reason it is remarked that the right of lien is a right to
retain possession while the right of stoppage in transit is a right to regain
possession.
 A seller who has lost his right to retain possession may regain possession
of goods if the goods are in transit and the buyer has become insolvent in
the meantime. He may hold the goods until the price is paid or
tendered.
Essentials of Stoppage in Transit
 Property must have passed to the buyer.
 The seller must have lost possession.
 The buyer must not have acquired possession.
 The purchaser must have become insolvent.
 The seller must be unpaid.
 The goods must be in transit.
When right of stoppage in transit be exercised?
 When the buyer has become insolvent.
 The goods are in transit.
Duration of transit?
• A carrier may hold the goods in three capacities:
1. As seller’s Agent: in this case the seller has lien on the goods so the
question of the right of stoppage in transit arise.
2. As buyers’s Agent: In this case the seller cannot exercise the right of
stoppage in transit.
3. In a independent capacity: in this case the seller can exercise the
right of stoppage in transit. It is the question of fact determined by
the court in which capacity the carrier is holding the goods.
 The goods are deemed to be in course of transit from the time they
are delivered to the carrier for the purpose of transmission to the
buyer until the buyer or his agent takes the delivery.
 The goods are in transit even if the buyer asks the carrier to take them
to some other destination, until they are delivered to the buyer at
some other destination.
 If the goods are rejected by the buyer and the goods are in
possession of the carrier, the transit is not at end, even if the seller has
also refused to take them back.
The right of stoppage of goods in transit can be
exercised either:
 By taking the actual possession of the goods
 By giving notice of his claim to the carrier who holds the goods.
 By a notice of his claim to the bailee who is in possession of the goods.
Right of resale Sec. 54
• An unpaid seller has a limited right of re-sale. When the unpaid seller
has exercised his right of lien or right of stoppage in transit, he can
resell the goods coming into his possession.
• An unpaid seller has a right to resell the goods in the following cases:
1. When the goods are of perishable nature.
2. In any other case , by serving the notice to the buyer showing his
intention to re-sell the goods and the buyer does not within a
reasonable time, pay the price.
 When the seller expressly reserves a right of re-sale in case the buyer
makes a default.
Notice of Resale
• Except in case of perishable goods or when the seller reserves a right of
re-sale, notice of resale to the buyer is necessary. It is necessary to give
the notice for the following reasons:
1. The buyer is given a reasonable opportunity to perform the contract.

2. The interest of the buyer is properly safeguarded.

If the notice is not given the seller cannot retain the surplus and cannot
recover the deficit from the first buyer.
Effects of resale
 Where on re-sale there is a profit, the seller is entitled to retain it.
 On the other hand if there is a loss, the seller can recover his loss from
the buyer.
 By resale the original contract is not rescinded, as such a reference to
arbitration can still be made
 Right of resale doesnot bar other remedies.
Right of unpaid seller when property in goods has
not passes
 Right to withhold delivery – it is similar to that of right of lien
 Right to stoppage in transit.
Right of unpaid seller against the buyer personally

• Such rights are in the nature of jus in personam i.e., right in personnam.
1. Suit for price
1. Where property has passed : where under a contract of sale, the property in
the goods has passed to the buyer and the buyer wrongfully neglects or refuses
to pay the price for the goods, the seller may sue him for the price of the goods.
2. Where property in the goods has not passed : as a rule, where
property in the goods has not passed the seller cannot file a suit for
price, he can only claim his damages.
However, where under the contract of sale, price is 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 price although the
property in the goods has not passed.
Suit for damages for non acceptance
 Where the buyer wrongfull neglects or refuses to accept and pay for
the goods, the seller may sue him for damages for non- acceptance.
Right to repudiate contract before the due date
 Where either party to a contract repudiates the contract before the
date of delivery, the other party may either treat the contract as
subsisting and wait till the date of delivery. The seller may treat the
contract as rescinded and sue for damages for the breach.
Suit for Interest
 As a rule, interest is not payable unless otherwise agreed. As such
interest may be recovered only when there is a specific agreeement in
this respect between the parties.
 In case if there is no such agreement, the seller may give notice to the
buyer of his intention to charge interest on the price when it becomes
payable from the day as indicated in the above notice.
Rights of Buyer
1. Suit for damages for non- delivery of the goods: Just as the seller has
the right to recover the damages for non acceptance of goods in the
same way buyer also has a right to recover damages for non delivery
of the goods.
2. Suit for specific performance: where damages are not the adequate
remedy, the court may at its discretion order for the specific
performance of the contract.
3. Suit for breach of warranty
4. Suit for repudiation of contract before the date of contract.
5. Right to claim for interest.
Assignment -2
 Difference between
 „Jusin Personnam‟ and „Jus in Rem‟.
 Right of lien and Right of stoppage in Transit
Auction Sale
 It means a public sale. The seller invites the interested parties by
advertisement to offer the price.
 The seller may hire the services of the auctioneer. An auctioneer is an
agent of the seller.
 The advertisement of an auction sale is not an offer but an invitation
to offer, therefore if an auction sale is not held on the specified day
then the bidder cannot claim the auctioneer.
 Every bid amount as an offer and the acceptance is given by the
auctioneer by some ususal mode of acceptance or in some customary
manner. For example: fall of hammer, one, two, three etc.
 The auction sale starts with placing of bids. The auctioner accepts the
highest bids but he may accept the lower bid without giving reason.
When the bid is accepted, a valid contract is formed.
 A bid once made can be withdrawn before the fall of hammer even if
expressly prohibited.
 In case if the goods are damaged before completion of sale, the loss
will fall on the seller.
Reserve price in auction sale
 It is usual for the auctioneer to notify the reserve price. Reserve price is
the lowest price below which the auctioneer will not sell the goods. This
reserve price is fixed by the auctioneer to protect himself from the
goods selling at extremely low price.
 Where the sale is notified subject to reserve price, the buyer is bound
by the reserve price even if the auctioneer by mistake accepted a bid
lower than the reserve price.
Damping in auction sale
 Damping is an act by which an intending bidder is discouraged from
bidding. Damping is an illegal act. It includes
 Pointing out defects in the goods
 Misleading the purchaser or doing any other act so that he may not
participate in the auction.
The damping empowers the auctioneer to withdraw the property from the
auction.
Knock out agreement in auction sale
 In knock out agreement, the buyer join their hands to eliminate
competition among themselves at an auction sale. They agree that they
will not raise the bid against each other and only one of them will bid
at the auction. When the goods have been purchased, they will share
the profit.
 Prima facia a knockout agreement is not illegal, but if the intention of
the parties to the agreement is to defraud a third party, this will be
illegal.
Conditions and warranties
 Generally, at the time of sale, the seller makes some representations,
statements or stipulations for the praise of his goods.
 Some of the representation are in the nature of opinion, while others
are in nature of facts.
 The representation as to the facts which becomes a part of the
contract of sale is called stipulation.
 The stipulation may be a condition or warranty depending upon its
importance in relation to the contract of sale.
 The stipulation which is essential to the main purpose of a contract is
known as condition. The breach of condition gives the aggrieved party
the right to terminate the contract.
 The stipulation which is collateral to the main purpose to the contract is
warranty. The breach of warranty gives rise to the aggrieved party
the right to claim damages but the contract cannot be terminated.
 The conditions and warranties may be express or implied.
 The implied condition are those which are implied by the law in the
absence of any agreement to the contrary
 In case of a conflict between the express conditions and the implied
conditions, express conditions shall prevail.
Express and Implied conditions and warranties
 Express conditions and warranties are those which the parties agrees
expressly- orally or in writing.
 For example: cash to be paid on delivery of goods, cash and carry
i.e., pay cash and take delivery of the goods immediately
 Implied conditions and warranties are those which are implied by the
law in the absence of any agreement between the parties. These are
given in section 14 to 17 of sales of goods Act
Implied conditions
1. Condition as to title – section 14(a): There is an implied on the part of the
seller that:
1. In case of a sale, the seller has a right to sell the goods.
2. In the agreement to sale, the seller will have a right to sell the goods at the time
of passing of the ownership in goods.
If the title of seller turns out to be defective, the buyer must return the goods to the
true owner and recover the price from the seller.
For example: A purchased a motor car from B and used it for four months. B has no
title to the car. A has to return the car to the true owner. Held A could get back
the price as there was a breach of implied conditions as to title.
Effect of acquiring title subsequent to sale
 it should be noted that where the seller had no title to the goods at the
time of sale, subsequent acquistion of title to the goods by the seller
will purge the defect of title of both the original as well as subsequent
buyer.
Condition as to description – section 15
 Where the goods are sold by description, there is an implied condition
that the goods shall correspond to the description. If later on, the
buyer finds that the goods are not as per description, he may reject
the goods and claim a refund for the price.
 For example: A machine was sold. The buyer has not seen the machine
but the seller described it as a new one. However, it was found to be a
old one. Held the machine was not according to the description.
Nature and scope of description
 It should be noted that the description must be of a facts and not of
opinion.
 A manufacture of goods is bound to supply the goods of his own make
and not that of other manufacture, even if the goods are of the same
quality.
 Where the seller has agreed to supply goods of a particular
brands,the goods must bear that brand. The buyer is not bound to
accept goods which do not bear the label, even if the goods of the
brand have been made by the same manufacturer.
 The expression contract of sale of goods by description applies to all
cases where the buyer has not seen the goods, but solely relies on the
description given by the seller
 Packaging of the goods must be according to description. If it is not so
the buyer is entitled to reject the goods.
Sale by sample – Section 17
 Where the goods are sold by the sample, following are the implied
conditions:
 The bulk shall corresponds to the sample in quality.
 The buyer shall be given a reasonable opportunity to compare the goods
with the sample.
 The goods shall be free from any defect rendering them un-merchantable. It
should be noted that this implied condition applies only in the case of latent
defectsi.e., those defects which cannot be discovered by an ordinary
inspection.
Sale by description as well as sample- Section
15
 If the sale is by sample as well as description, both the conditions shall
be satisfied.
For example: A agreed to sell C some Oil described as foreign refined
oil and warranted only equal to sample. The goods supplied were
equal to sample but contained a mixture of other oil. Held, C could
reject the goods.
Condition as to quality and fitness for buyer
purpose – section 16
 Where the buyer expressly or impliedly tell the seller the particular
purpose for which he needs the goods and relies on the skill or
judgment of the seller, there is an implied condition that the goods
shall be reasonably fit for such purpose.
 It is not necessary that the purpose should be expressed in words. The
purpose can also be ascertained from the nature or description of the
goods.
 When the article can be used only for one particular purpose, the
buyer need not to inform the seller the purpose for which the goods
are required.
 For example: A purchased a hot water bottle from a chemist. While
the bottle was being used by A‟s wife, it burst and injured A‟s wife.
Held the seller was liable for damages as the bottle was not fit for the
purpose for which it was meant.
Exceptions as to quality of fitness
 The condition as to quality of fitness will not apply, if the buyer is
suffering from an abnormality, which renders the goods unsuitable for
a particular purpose and the buyer does not inform the seller about
that abnormality.
 For example: A purchased a coat. He had abnormally sensitive skin.
By wearing the coat, he got a skin complaint. Held there was no
breach of condition as he had not disclosed the abnormality of his skin
to the seller.
 Where the goods are used for number of purposes, the buyer should
inform the particular purpose for which such goods were required. If
he does not disclose, there is no such condition of quality or fitness.
Condition as to wholesomeness
 In the case of eatables and food stuff, there is an implied condition
that the goods shall be wholesomeness i.e., free from any defect which
render them unfit for human consumption. The implied condition as to
the wholesomeness of the goods is applicable for every type of goods
in the nature of food.
 For example: A purchased a milk from B, a milk dealer. The milk
contains typhoid germs. A‟s wife on taking the milk got infected and
suffered from serious illness. A was entitled to get damages.
Condition as to merchantability Section -16
 There is an implied condition that the goods shall be of
merchantability quanlity, where the goods are bought from a seller
who deals in the goods of the description.
 Merchantability means that there is no defect in the goods, which

renders them unfit for sale

For example: a watch that will not keep time, a pen that will not write
cannot be regarded as merchantable.
The condition as to merchantability applied where the goods are bought by
description or where the goods are sold under the trade mark.
When breach of condition may be treated as
breach of warranty
 Nemo dat quod non habet, literally meaning "no one gives what he
doesn't have" is a legal rule, sometimes called the nemo dat rule, that
states that the purchase of a possession from someone who has no
ownership right to it also denies the purchaser any ownershiptitle. It is
equivalent to the civil (continental) "Nemo plus iuris ad alium transferre
potest quam ipse habet" rule, which means "one cannot transfer more
rights than he has".