Contents

01Chapter Overview 02Scope of the Act 03Definitions 04Goods and Classification 05Delivery and Documents 06Contract of Sale 07Sale vs Agreement to Sell 08Similar Contracts 09How Contract of Sale is Made 10Subject Matter 11Perishing of Goods 12Ascertainment of Price 13Case Law Bank 14Quick Revision 15Revision Mind Map
01
FoundationChapter Overview

This unit begins the Sale of Goods Act, 1930. The central question is: when does a transaction become a contract of sale of goods? For that, students must understand the meaning of goods, sale, agreement to sell, price, delivery, and the difference between sale and similar transactions like hire purchase, bailment and work/labour contracts.

Contract of Sale = Seller transfers or agrees to transfer property in goods to buyer for a price.
What ICAI Covers in this Unit
  • Scope of the Sale of Goods Act, 1930
  • Definitions: buyer, seller, goods, delivery, price, property
  • Classification of goods: existing, specific, ascertained, unascertained, future and contingent
  • Meaning and essentials of contract of sale
  • Sale vs agreement to sell
  • Sale vs hire purchase, bailment and work/labour
  • How a contract of sale is made
  • Subject matter and perishing of goods
  • Ascertainment of price and valuation by third party
Why Students Lose Marks
  • They confuse goods with immovable property.
  • They write “possession” when the answer requires “property/ownership”.
  • They confuse sale with agreement to sell.
  • They treat hire purchase as sale from day one.
  • They forget that future goods can only create an agreement to sell.
  • They miss the effect of goods perishing before contract or after agreement to sell.
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Exam Method In every question, first identify four things: Are the goods movable? Has ownership passed? Is consideration money? Are the goods existing, future or contingent?
02
IntroductionScope of the Act

The Sale of Goods Act, 1930 deals with contracts relating to the sale of goods in India. Earlier, sale of goods provisions were part of the Indian Contract Act, 1872. Later, due to the need for a separate law, the Sale of Goods Act was enacted and came into force from 1st July 1930.

What the Act Covers

What the Act Does Not Cover

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Simple Rule Machine, stock, cotton, car, shares, crop to be severed = Sale of Goods Act. Land, factory building, shop premises = Transfer of Property Act.
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Section 2Important Definitions
TermSectionMeaning
Buyer2(1)A person who buys or agrees to buy goods.
Seller2(13)A person who sells or agrees to sell goods.
Goods2(7)Every kind of movable property except actionable claims and money.
Delivery2(2)Voluntary transfer of possession from one person to another.
Document of Title2(4)Document used in ordinary course of business as proof of possession or control of goods.
Mercantile Agent2(9)Agent who can sell, consign, buy or raise money on security of goods in ordinary course of business.
Property2(11)General property in goods, meaning ownership.
Price2(10)Money consideration for sale of goods.
Quality2(12)Includes state or condition of goods.
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Exam Point “Property” in Sale of Goods Act means ownership, not physical possession. This distinction controls sale vs agreement to sell, risk, resale and insolvency consequences.
04
Section 2(7) and Section 6Goods and Classification
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 part of land which are agreed to be severed before sale or under the contract of sale.

What Goods Include

What Goods Exclude

Classification of Goods

TypeMeaningExample
Existing GoodsGoods owned, possessed or acquired by seller at the time of contract.Car already owned by seller.
Specific GoodsGoods identified and agreed upon at the time of contract.Seller’s particular Santro car.
Ascertained GoodsGoods identified after contract from a larger lot.50 cotton bales selected from 100 bales.
Unascertained GoodsGoods not specifically identified at the time of contract; described by quantity/type/sample.One packet of salt from 100 packets.
Future GoodsGoods to be manufactured, produced or acquired after the contract.Potatoes to be grown next season.
Contingent GoodsGoods whose acquisition depends on an uncertain event.Painting to be sold only if seller can acquire it from current owner.
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Trap Future goods can never be an immediate sale. They can only create an agreement to sell because ownership cannot pass in goods that do not yet exist.
Manufacturing Example

A agrees to sell 5,000 precision turned bushes that will be manufactured next month. These are future goods. The contract is an agreement to sell, not an immediate sale.

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Section 2(2), 2(3) and 2(4)Delivery and Documents of Title

Delivery

Delivery means voluntary transfer of possession from one person to another. Delivery may be made by doing anything which has the effect of putting goods in possession of the buyer or a person authorised to hold them on the buyer’s behalf.

Form of DeliveryMeaningExample
Actual DeliveryPhysical delivery of goods.Seller hands over machine parts to buyer.
Constructive DeliveryTransfer of possession without actual physical movement.Warehouseman agrees to hold goods for buyer instead of seller.
Symbolic DeliveryDelivery of means or symbol of possession.Delivery of warehouse key, railway receipt or bill of lading.

Deliverable State

Goods are in a deliverable state when they are in such condition that the buyer would be bound to take delivery under the contract.

Example

If timber is to be bundled before delivery, it becomes deliverable only after bundling is completed.

Document of Title to Goods

A document of title is used in ordinary business as proof of possession or control of goods and authorises transfer or receipt of the goods represented by it.

Examples of Documents of Title
  • Bill of lading
  • Dock warrant
  • Warehouse keeper’s certificate
  • Wharfinger’s certificate
  • Railway receipt
  • Multimodal transport document
  • Delivery order
Important Distinction

A share certificate shows title but is not a document of title to goods. It does not allow transfer merely by endorsement and delivery like a bill of lading.

06
Section 4Contract of Sale
Section 4(1)
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.

A contract of sale may be absolute or conditional. It may result in an immediate sale or merely an agreement to sell, depending on whether ownership passes immediately or later.

Essentials of Contract of Sale

Two PartiesSeller and buyer must be different persons.
GoodsSubject matter must be movable goods.
PriceConsideration must be money, though partly in kind is possible.
Transfer of PropertyOwnership must transfer or be agreed to be transferred.
Absolute/ConditionalContract may be unconditional or subject to conditions.
Valid ContractConsent, capacity, lawful object and other essentials must exist.
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Practical Point If the consideration is fully in kind, it is barter/exchange, not sale. If consideration is partly money and partly goods, it can still be a contract of sale.
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State of Madras v. Gannon Dunkerley & Co.
Sale vs works contract

Facts The case involved building contracts where materials were used in construction. The question was whether there was a sale of materials as goods or an indivisible works contract.

Issue Does use of materials in execution of work automatically amount to sale of goods?

Held In an indivisible works contract, there was no separate sale of goods in the traditional sense because the substance of the contract was execution of work, not sale of materials as goods.

Principle and Exam Use Use this to explain the distinction between sale and contract for work/labour. The real test is the substance of the contract.
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Section 4(3) and 4(4)Sale vs Agreement to Sell

When property in goods is transferred immediately from seller to buyer, the contract is called a sale. When transfer is to happen later or after a condition is fulfilled, it is called an agreement to sell. An agreement to sell becomes a sale when the time elapses or the condition is fulfilled.

BasisSaleAgreement to Sell
Transfer of PropertyOwnership passes immediately.Ownership passes in future or after condition.
Nature of ContractExecuted contract.Executory contract.
Remedy for BreachSeller may sue for price if property has passed.Aggrieved party generally sues for damages, unless price payable on stated date.
RiskBuyer bears loss because risk follows ownership.Seller bears loss until ownership passes.
Nature of RightCreates jus in rem — right against world.Creates jus in personam — right against contracting party.
Right of ResaleSeller cannot resell because ownership has passed.Seller may resell because ownership remains with seller.
Insolvency of SellerBuyer can claim goods; official assignee cannot take them.Official assignee may take control because goods still belong to seller.
Insolvency of BuyerOfficial assignee may take goods because buyer owns them.Official assignee has no control because buyer does not own goods.
Example

X agrees on 10 October to sell his car to Y on 10 November for ₹7 lakh. Since ownership is to pass later, it is an agreement to sell.

08
DistinctionsSale Distinguished from Similar Contracts

Sale and Hire Purchase

Hire purchase looks like sale because the hirer may ultimately become owner. But until the last instalment is paid, ownership remains with the owner, and the hirer is generally like a bailee with an option to buy.

BasisSaleHire Purchase
Passing of PropertyImmediate.On payment of last instalment.
Position of PartyBuyer is owner.Hirer is bailee till final payment.
TerminationBuyer cannot terminate and return goods to avoid price.Hirer may terminate as per terms before property passes.
Risk of InsolvencySeller bears risk of buyer’s insolvency after sale.Owner can repossess goods if hirer defaults.
Transfer of TitleBuyer can pass good title to bona fide purchaser.Hirer cannot pass title until ownership passes.
ResaleBuyer can resell.Hirer cannot resell before final payment.

Sale and Bailment

BasisSaleBailment
TransferOwnership is transferred.Only possession is transferred.
Return of GoodsGoods are not to be returned as same goods.Same goods must be returned or disposed as directed.
ConsiderationPrice in money.May be gratuitous or non-gratuitous.
NatureTransfer of general property.Transfer of special property/possession for purpose.

Sale and Contract for Work and Labour

If the main substance is transfer of goods for a price, it is sale. If the main substance is exercise of skill, labour or service, it is work and labour.

ICAI-style Example

If gold is supplied to a goldsmith for making an ornament, the basic substance is skill and labour. It is not simply sale of goods.

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Lee v. Griffin
Sale vs work and labour

Facts A dentist made artificial teeth for a patient. The question was whether the contract was for sale of goods or for work and labour.

Issue How to identify whether a contract is sale or work and labour?

Held The contract was treated as sale because the end result was delivery of a chattel, namely artificial teeth.

Principle and Exam Use Use carefully with the substance test. Where the end product as goods is dominant, sale may exist; where skill/service is dominant, it is work and labour.
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Robinson v. Graves
Work and labour dominant

Facts An artist was engaged to paint a portrait. Materials such as canvas and paint were involved, but the real purpose was artistic skill.

Issue Is a portrait commission sale of goods or contract for work and labour?

Held It was a contract for work and labour because the dominant object was skill and labour, not sale of materials.

Principle and Exam Use Use for artist, tailor with customer’s material, goldsmith, consultant-design type examples.
09
Section 5Contract of Sale How Made

A contract of sale is made by offer and acceptance. The offer may be to buy or sell goods for a price, and acceptance may be given by the other party. Delivery and payment may be immediate, future or by instalments.

OfferOffer to buy or sell goods for price.
AcceptanceOther party accepts offer.
DeliveryImmediate, future or instalment delivery.
PaymentImmediate, future or instalment payment.
ModeWritten, oral or implied from conduct.
Example

R agrees to deliver his old motorcycle valued at ₹55,000 to S in exchange for a new motorcycle and agrees to pay the difference in cash. Since consideration is partly money, it can amount to a contract of sale.

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Section 6Subject Matter of Contract of Sale

The goods forming the subject matter of a contract of sale may be existing goods, future goods or goods whose acquisition depends upon a contingency.

Subject MatterLegal PositionExample
Existing GoodsMay be subject of actual sale or agreement to sell depending on intention and transfer of ownership.Seller’s existing machine.
Future GoodsAlways agreement to sell.Goods to be manufactured next month.
Contingent GoodsAgreement to sell depending on uncertain event.Goods arriving only if ship reaches safely.
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Exam Point If seller purports to make a present sale of future goods, the contract operates only as an agreement to sell.
11
Sections 7 and 8Perishing of Goods

Section 7 — Goods Perishing Before Making of Contract

Where there is a contract for sale of specific goods, the contract is void if the goods, without the knowledge of the seller, had already perished or become so damaged at the time of contract that they no longer answered their description.

Example

A agrees to sell B 50 bags of wheat stored in A’s godown. Unknown to both parties, the wheat had already been destroyed by waterlogging before the agreement. The agreement is void.

Section 8 — Goods Perishing After Agreement to Sell

Where there is an agreement to sell specific goods, and the goods subsequently perish without fault of seller or buyer before risk passes to buyer, the agreement becomes void.

SituationSectionEffect
Specific goods already perished before contract.7Contract is void.
Specific goods perish after agreement to sell but before risk passes.8Agreement is avoided / becomes void.
Future specific goods fail to come into existence.General impossibility principleContract may become void due to supervening impossibility.
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Howell v. Coupland
Failure of crop and future goods

Facts A seller agreed to sell potatoes to be grown on particular land. The crop failed due to disease, and the seller could deliver only part of the agreed quantity.

Issue Is the seller liable when the specific future crop fails without fault?

Held The seller was not liable for the undelivered quantity because performance became impossible due to failure of the specific crop.

Principle and Exam Use Use for perishing/failure of future goods where contract relates to goods from a specific source.
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Sections 9 and 10Ascertainment of Price
Price — Section 2(10)
Price means the money consideration for a sale of goods.

Section 9 — Modes of Fixing Price

By ContractPrice is expressly fixed.
By Agreed MannerPrice to be fixed by formula, market rate or valuer.
Course of DealingsPrevious trade practice between parties determines price.
Reasonable PriceIf not fixed, buyer must pay reasonable price depending on facts.

Section 10 — Agreement to Sell at Valuation

SituationLegal Effect
Price to be fixed by third party, but third party does not or cannot fix price.Agreement becomes void.
Third party is prevented by fault of one party.Defaulting party liable for damages.
Buyer has received and appropriated goods.Buyer must pay reasonable price.
Example

P agrees to sell two bikes to S at a price to be fixed by Q. P delivers one bike immediately. Q refuses to fix the price. S must pay reasonable price for the bike already received. As regards the second bike, the contract may be avoided.

13
CompactCase Law Bank
CaseTopicPrinciple
State of Madras v. Gannon Dunkerley & Co.Sale vs works contractIn an indivisible works contract, the dominant object is work, not separate sale of materials.
Lee v. GriffinSale vs work and labourIf the end product/chattel is the dominant object, the contract may be treated as sale.
Robinson v. GravesWork and labourIf skill and labour are dominant, it is not sale merely because materials are used.
Howell v. CouplandFuture goods/perishingFailure of specific future crop may discharge seller due to impossibility.
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Exam FocusQuick Revision

One-Line Revision

  • Scope: Sale of Goods Act applies to movable goods, not immovable property.
  • Goods: Movable property excluding actionable claims and money.
  • Property: Ownership, not possession.
  • Delivery: Voluntary transfer of possession.
  • Sale: Ownership passes immediately.
  • Agreement to Sell: Ownership passes later or after condition.
  • Hire Purchase: Hirer gets ownership only after last instalment.
  • Bailment: Possession passes; ownership does not.
  • Future Goods: Always agreement to sell.
  • Contingent Goods: Acquisition depends on uncertain event.
  • Section 7: Specific goods already perished before contract → void.
  • Section 8: Specific goods perish after agreement but before risk passes → agreement avoided.
  • Price: Money consideration; may be fixed by contract, agreed manner or dealings.
  • Valuation: If third party fails to value, agreement void unless goods already received and appropriated.
Revision Mind Map

Formation of Contract of Sale — One Page Recall

“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.” — Section 4(1)
1. Scope of the Act
  • Applies to sale of goods.
  • Goods mean movable property.
  • Does not cover immovable property.
  • Contract Act applies where not inconsistent.
2. Definitions
  • Buyer and seller.
  • Goods and price.
  • Delivery and documents of title.
  • Property means ownership.
3. Classification of Goods
  • Existing goods.
  • Specific goods.
  • Ascertained and unascertained goods.
  • Future and contingent goods.
4. Contract of Sale
  • Seller transfers or agrees to transfer ownership.
  • Buyer pays price.
  • May be absolute or conditional.
  • Includes sale and agreement to sell.
Core Distinction: Sale transfers ownership immediately. Agreement to sell transfers ownership later or after fulfilment of condition.
5. Similar Contracts
  • Hire purchase: ownership after last instalment.
  • Bailment: possession transferred, ownership retained.
  • Work and labour: main object is skill or service.
6. How Made
  • Offer and acceptance.
  • Immediate or future delivery.
  • Immediate or future payment.
  • Instalments allowed.
7. Subject Matter and Price
  • Goods may be existing, future or contingent.
  • Specific goods perishing may make contract void.
  • Price may be fixed, agreed later or based on dealings.
Last-Minute Recall: Start with goods, check property/ownership, decide sale or agreement to sell, then apply rules on risk, perishing and price.

High-Frequency ICAI Traps

  • Do not call immovable property “goods”.
  • Do not confuse ownership with possession.
  • Do not treat agreement to sell as sale.
  • Do not say future goods can be immediately sold.
  • Do not forget that risk usually follows ownership.
  • Do not confuse hire purchase with instalment sale.
  • Do not confuse document of title with document showing title.
  • Do not ignore Section 7 and Section 8 in perishing-goods problems.