Sale of Goods Act, 1930 notes — Unit 4

The Sale of Goods Act, 1930 governs contracts where the seller transfers or agrees to transfer the property (ownership) in goods to the buyer for a price.

⇒1.1 Sale vs. Agreement to Sell (Sec 4)

This is the most critical distinction in the Act, as it determines who bears the risk if the goods are destroyed.

⇒1.2 What are 'Goods'? (Sec 2(7))

Every kind of movable property other than actionable claims and money. It includes stocks, shares, growing crops, and things attached to the earth which are agreed to be severed before sale.

Every statement made by a seller is not legally binding. But statements that form the basis of the contract are stipulations. They are divided into two types based on their importance.

⇒Condition (The Heart of the Contract)

A stipulation essential to the main purpose of the contract.
Breach: If a condition is broken, the buyer has the right to completely reject the goods, terminate the contract, and demand a refund.

⇒Warranty (Collateral to the Contract)

A stipulation collateral (secondary) to the main purpose of the contract.
Breach: If a warranty is broken, the buyer CANNOT reject the goods. The buyer must keep the goods but can sue the seller for damages.

Even if the seller says nothing, the law automatically reads certain 'implied conditions' into every contract of sale.

• Condition as to Title (Sec 14): The seller implicitly guarantees that he has the right to sell the goods. If the goods turn out to be stolen, the buyer must return them to the true owner, but can sue the seller for a full refund.
• Sale by Description (Sec 15): The goods must correspond exactly with the description. (If you order 'Dehradun Basmati', you must get exactly that, not local rice).
• Sale by Sample (Sec 17): The bulk must correspond with the sample in quality, and the buyer must have a reasonable opportunity to compare them.
• Condition as to Quality or Fitness (Sec 16): Generally, there is NO implied condition of quality (Caveat Emptor). BUT, if the buyer tells the seller his specific purpose, relies on the seller's skill, and the seller deals in those goods, the condition applies.

The fundamental principle of commercial law is Caveat Emptor (Let the buyer beware). It means the seller is not duty-bound to point out defects in his own goods. It is the buyer's duty to examine the goods thoroughly before buying.

⇒Exceptions to Caveat Emptor

The rule is practically dead in modern times due to massive exceptions:

• 1. Fraud: If the seller actively conceals a defect or commits fraud.
• 2. Fitness for Buyer's Purpose (Sec 16(1)): If the buyer tells the seller exactly what he needs the goods for, and relies on the seller's expertise (e.g., buying a hot water bottle from a chemist. If it bursts, the chemist is liable).
• 3. Merchantable Quality (Sec 16(2)): Goods bought by description from a dealer must be of 'merchantable quality' (commercially saleable).
• 4. Sale by Sample (Sec 17): If the bulk doesn't match the sample.

When exactly does ownership transfer? This is vital because of the maxim Res Perit Domino (Risk follows ownership). Whoever owns the goods at the moment they are destroyed bears the financial loss, regardless of who has physical possession.

⇒Rules for Passing of Property (Sec 18-24)

• Specific, Deliverable Goods (Sec 20): Ownership passes immediately when the contract is made. (It does not matter if payment or delivery is postponed).
• Goods needing some act (Sec 21 & 22): If the seller has to weigh, measure, or test the goods to determine the price, ownership does not pass until that act is done and the buyer is notified.
• Unascertained Goods (Sec 23): Ownership passes only when the goods are appropriated to the contract (i.e., separated from the bulk and designated for the buyer with mutual consent).
• Goods on 'Approval' (Sec 24): Ownership passes when the buyer signifies approval, or does an act adopting the transaction (like reselling them), or keeps them beyond a reasonable time.

A seller is 'unpaid' when the whole price has not been paid, or if a cheque was given but dishonored (bounced). The Act gives the unpaid seller devastating rights against the goods.

⇒1. Right of Lien (Sec 47-49)

The right to retain physical possession of the goods until paid.

• Only applies if the seller still has possession of the goods.
• Applies even if ownership has legally passed to the buyer.
• Termination: The lien is lost the moment the seller hands the goods to a carrier (transporter) without reserving the right of disposal, or when the buyer gets lawful possession.

⇒2. Right of Stoppage in Transit (Sec 50-52)

What if the seller already put the goods on a train, and then finds out the buyer is bankrupt?

• The seller has the right to stop the goods while they are in transit, regain possession, and retain them until paid.
• Conditions: The buyer MUST be insolvent, and the goods MUST be in transit (not yet delivered to the buyer).

⇒3. Right of Resale (Sec 54)

If the goods are perishable, or if the seller gives notice of his intention to sell and the buyer still doesn't pay, the seller can resell the goods to a third party.

⇒Summary of Master Concepts

• Sale vs Agreement to Sell: Immediate ownership vs future ownership. Determines who bears the risk.
• Condition vs Warranty: Essential (can reject goods) vs Collateral (can only claim damages).
• Caveat Emptor: Buyer beware. Has massive exceptions like fitness for purpose and merchantable quality.
• Passing of Property: Res perit domino. Risk follows ownership, not possession.
• Unpaid Seller: Armed with Lien (if in possession), Stoppage (if in transit), and Resale.

⇒University Exam Tips for this Unit (Premium Advice)

• The 'Risk' Problem: Examiners will ask: 'A buys a horse from B. A pays the price but leaves the horse with B to collect tomorrow. The horse dies of a stroke that night. Who bears the loss?'
  Answer: A bears the loss. It was a sale of specific goods in a deliverable state (Sec 20). Ownership passed immediately. Res perit domino applies.
• Stoppage vs Lien: Never confuse the two. Lien is used when the seller has possession. Stoppage is used to regain possession from a transporter, but ONLY if the buyer goes bankrupt.
• Section 16 is Gold: If you write an answer on Caveat Emptor without detailing the exceptions under Section 16 (Fitness for purpose / Merchantable quality), you will lose heavy marks.