Business Law unit- 3 - Sale of Goods Act The Sale of Goods Act, 1930, Features of Contact of Sale of Goods, Rules for Transfer of Property in Goods, Rules for Delivery of Goods, Rules of Payment of Price, Conditions and Warranties, Sale by Non-Owners, Rules for Auction Sales,

1. BUSINESS LAW
UNIT-3
PRESENTED BY
K.BALASRI PRASAD
B.Sc(KU), M.B.A(OU), NET(UGC), (Ph.D)(MGU)

2. The Sale of Goods Act, 1930
“A contract of sale 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”.

3. Features of Contact of Sale of Goods:
1. The Parties: The parties are called
the seller and the buyer. They should
be two different individuals.
2. Subject Matter(Movable goods): A
contract of goods should be made
only in respect of movable goods.
The goods may be either Existing
goods, Future goods or Contingent
goods.

4. 3. Transfer of Property: The seller
should transfer the ownership of
the goods to the buyer, so that the
buyer becomes owner of goods
after sale.
4. Consideration: The buyer should
pay value of the goods to the
seller in the form of money. It is
called price.

5. 5. Absolute or Conditional: When the
seller transfers the ownership in goods to
the buyer immediately, it is called
Absolute contract. I he agrees to transfer
the ownership at a later date or in future,
it is called Conditional contract.
6. Features of Valid Contract: All other
features of a valid contract should exist in
a contract of sale of goods also so as to
be enforced in a court of law, such as
Proposal, Acceptance, Free consent etc.

6. Transfer of Property and Delivery of Goods
After the contract of sale of
goods is made, the seller will
have to transfer the ownership
of the goods to buyer and
deliver the goods physically
and the buyer will have to pay
the price.

7. A. Rules for Transfer of Property in Goods:
The moment or point of time at
which the buyer becomes owner of
goods should be ascertained carefully
because “ the risk prima face passes
with ownership”. The owner of goods
should bear the loss of destruction.
The Sale of Goods Act has given the
following rules in this regard.

8. 1. In case of Specific Goods: In case
of Specific goods(Selected by the
buyer from the stocks of the
seller), the ownership of the
goods passes to the buyer
provided the seller is ready to sell
them and all formalities are
completed.

9. Case Example:
Badri Prasad Vs State of Madhya Pradesh
Badri Prasad purchased standing trees from the
forest department of state of M.P. The trees
were destroyed by a fire accident after they
were selected and marked by the buyer but
before they were cut down for the purpose of
delivery as agreed. So, the Court of Law held
that the loss should be borned by the seller,
because the ownership had not passed to the
buyer.

10. 2. In case of sale of Ascertained Goods (
Section 18):
The goods are known as ascertained
goods if they are separated from the
stocks of the seller for the purpose of
delivery to the buyer as per the Purchase
Order of the buyer. In this case also the
property in such goods passes to the
buyer as soon as they are ascertained
and put in a deliverable state.

11. Case Example:
Tarling Vs Baxter (Seller)
Tarling purchased certain stock (Dry grass)
which was lying on the ground of the
seller. It was destroyed by fire before the
delivery. The Court of Law held that the
buyer should bear the loss because the
grass was in a deliverable condition at the
time of fire accident.

12. 3. In case of sale of Unascertained
Goods (Section 23):
Goods are known as unascertained
goods if they are not separated from
the stocks of the seller even after
they are sold away. The property in
such goods will not pass to the buyer.
In case of destruction of such goods,
the seller should bear the loss.

13. 4. Intention of the Parties (Section 19):
While deciding whether the property
in goods has passed from the seller to
buyer or not, the intention of the
parties should also be taken into
consideration. It should be
ascertained from the terms and
conditions of the contract agreed
between the parties.

14. Case Example:
Appleby Vs Myers
A second hand machine was purchased
by Myers from Appleby on the condition
that it should be put in working condition
before sale. It was delivered to the buyer
so as to give it to a mechanic for repairs.
It was destroyed in the workshop of the
mechanic. It was held that the loss should
be bored by the seller.

15. 5. In case of goods delivered to a carrier (
Section 23):
When the goods are delivered by a seller to a
transport company for the purpose of delivery
to the buyer, the property in such goods
generally passes to the buyer provided the
Lorry Receipt or Railway Receipt is prepared in
the name of the buyer.
On the other hand, if the seller reserved the
right of transfer by preparing the L/R or R/R in
his own name or in the name of his agent, the
property in goods will not pass to the buyer.

16. 6. Goods sent on Sale or Return
basis:
When the goods are sent on
approval basis so as to sell them
or return them if not sold, the
property in such goods will not
pass to the buyer until he sells
them to a customer or uses them.

17. B. Rules for Delivery of Goods
1.Cost of Delivery: The seller should bear all the
expenses relating to packaging, weighing,
measuring, counting, marking etc. which is known
as cost of delivery.
2. Expenses of delivery: The expenses of
transportation including delivery such as labour,
carriage, freight etc. should be borned by the buyer
unless agreed otherwise.
3. Application of Delivery: The seller need not deliver
the goods unless the buyer applies for delivery or
requests the seller to deliver goods at a specified
place.

18. 4. Risk of Delivery: The risk of destruction of
the goods in transit falls upon the buyer
unless the seller agrees to bear the risk or the
property in goods is not transferred to the
buyer.
5. Place of Delivery: The buyer should take
delivery of goods from the place where the
goods were lying or kept at the time of
entering into the contract. In case of future
goods or goods under production, they should
be taken delivery from the place of
production.

19. 6. Time of Delivery: The seller should give
delivery of goods within reasonable time or
within the fixed time agreed between the
parties. Time for verification should be
allowed.
7. Examination of Goods: The buyer should be
given a reasonable opportunity to examine
the goods before taking delivery.
8. Unconditional Delivery: The goods should be
delivered in full quantity agreed. The buyer
need not accept if wrong quantity is delivered
or the goods are delivered in parts.

20. 9. Modes of Delivery:
(a)Actual Delivery: Hand to hand delivery
in case of easily portable goods.
(b) Symbolic Delivery: In case of heavy
goods, the goods are shown to the
buyer.
(c) Constructive Delivery: Delivery through
a transport company or warehouse.

21. C. Rules of Payment of Price:
The price of goods should be paid by
the buyer to the seller immediately
on delivery of goods unless agreed
otherwise.
If the parties agree mutually, the
price may be either paid before
delivery or the buyer may be given
time to pay the price at a future date.

22. Price can be fixed in any of the following four ways:
1. It may be fixed between the seller and buyer
at the time of entering into contract.
2. It may be agreed to be fixed by a third party
selected by seller and buyer.
3. The parties may agree to pay as per the
market rate prevailing on the date of
delivery.
4. The parties may agree to pay in accordance
with the quota price fixed by the
Government.

23. Conditions and Warranties:
When a contract of sale of goods
is made between a seller and
buyer, they agree upon certain
terms and conditions relating to
the subject matter of the contract.
They are known as “Stipulations”
as per Law.

24. The most important stipulations are called
“ Conditions”.
The less important stipulations are called
“Warranties”.
The seller should satisfy all the conditions
without fail otherwise the buyer can reject the
contract.
But, if the seller fails to satisfy the Warranties,
the buyer cannot reject the contract. The
seller should be allowed to perform the
contract paying reasonable damages for the
breach of Warranty.

25. Types of Conditions and Warranties:
The Conditions and Warranties
relating to a contract of sale of
goods are classified into two types:
1. Expressed Conditions and
Warranties
2. Implied Conditions and
Warranties

26. 1. Expressed Conditions and Warranties:
The stipulations agreed between the
parties either in words spoken or in
words written are known as Expressed
Conditions and Warranties.
2. Implied Conditions and Warranties:
The Conditions and Warranties
prescribed by the Sale of Goods Act-
1930 are known as Implied Conditions
and Warranties.

27. Implied Conditions as per Law:
1. Implied Condition as to Title or
Ownership(Sec-14): A person should
not sell goods under a contract of sale
of goods unless he is the owner of the
goods.
2. Implied Condition as to
Description(Sec-15): The goods sold
under any description should satisfy
the description so made by the seller.

28. 3. Implied Condition as to Description and
Sample: If goods are sold by description
and sample such goods should satisfy
both the conditions.
4. Implied Condition as to Quality and
Fitness: There is no implied condition as
to quality and fitness of goods to the
purpose of the buyer. Therefore the
buyer should be careful regarding quality
and suitability to his purpose. This is
known as the rule of “Buyer Beware”.

29. Implied Warranties as per Law:
1. Implied Warranty regarding quite
Possession: The buyer should be allowed
to possess the goods quietly without any
disturbance from seller.
2. Implied Warranty regarding Freeness
from encumbrance(Burden): The goods
sold should not have been already
mortgaged or pledged or hypothecated
to others.

30. 3. Implied Warranty regarding sale of
dangerous goods: Goods likely to cause
danger to the buyer should not be sold
under a contract of sale of goods.
4. Implied Warranty annexed by trade
custom or usage: In case garments, if
they are not suitable to the person for
whom they are purchased, such goods
are to be exchanged.

31. Sale by Non-Owners:
The seller should posses the ownership of
goods. Otherwise, the contract becomes
invalid.
“one cannot give to another what they
does not posses”
But the following persons can transfer
ownership in goods without being the
owners of such goods at the time of sale:

32. 1. Mercantile Agents: A person who is
authorized to sell the goods of a trader on
his/her behalf and in the name of the trader.
Also known as ‘factor’ in Law, Consignee in
Accountancy. Sale of goods by mercantile
agent becomes valid.
2. Joint Owner: Goods owned by two or more
persons jointly can be sold by anyone of them
on behalf of all of them with their consent.
Also, joint owner can sell goods of his share
without the permission of others only to the
extent of his right.

33. 3. Seller after sale: When a seller sells
certain goods to a customer but they
were not delivered and he/she resells
them to another buyer, the sale becomes
valid.
4. Buyer before Purchasing: If a person
enters into an agreement to purchase
some goods or hire purchase agreement
and obtains possession of the goods and
resells them, it becomes valid.

34. 5. A person holding the goods under voidable
contract: If a person obtains possession of
goods from another by coercion or undue
influence or fraud, is said to be holding the
goods under a voidable contract, sells to
another buyer before the contract is voided,
the sale becomes valid.
Resale of stolen goods becomes invalid
because there will be no valid contract
between parties.

35. 6. A person becoming owner by
Estoppel: If the true owner of goods
by his/her conduct induces the buyer
to believe that the seller (agent) is
the owner of the goods, he cannot
deny the fact at a later date. The sale
by such seller (agent) becomes valid.

36. Rules for Auction Sales:
When the goods sold through the
auctioneer in the presence of many
intending buyers is called ‘sale by
auction’. The owner of such goods
is called ‘the seller’ the auctioneer
is called ‘the agent’ the buyers are
called ‘the bidders’.

37. The following are the rules to be observed
in the “Auction Sales”:
1. Deposit Amount: The auctioneer may
request the bidders to deposit a fixed
amount before participating in the auction.
Such amount is known as “Earnest Money”.
2. Reserve Price: The owner of the goods can
fix a minimum price below which the goods
will not be sold in the auction. If it is not
received the owner can participate in
bidding and repurchase the goods.

38. 3. Knock Out the Agreement: Any agreement
between bidders not to bid against each other
and divide the profits between them is called
“Knock Out Agreement”.
4. Damping: Any act of pointing out defects of
the goods kept in auction so as to discourage
the bidders from increasing their price is
illegal.
5. Implied Warranties: Auction sales are subject
to the following implied warranties under the
law of sale of goods:

39. a) The auctioneer is having exclusive
authority to sell the goods being
auctioned.
b) The auctioneer sells the goods in
good faith, he/she does not know
any defects therein.
c) Quit possession will be given to
bidders on buying the goods in the
auction.