Elements of Law relating to Sale of Goods: formula sheet

Key formulas

Definition of contract of sale

Contract of sale = seller transfers or agrees to transfer property in goods to buyer + for a price

Section 4(1). Price means money consideration (Section 2(10)).

How a contract of sale is made

Offer to buy or sell goods for a price + acceptance of that offer

Section 5(1). Delivery or payment may be immediate, by instalments or postponed.

Form of the contract

Writing, or word of mouth, or partly both, or implied from conduct

Section 5(2), subject to any law for the time being in force.

Sale

Property passes at the time of the contract

Section 4(3). It is an executed contract and transfers ownership.

Agreement to sell

Property passes at a future time or on a condition to be fulfilled

Section 4(3). It becomes a sale when the time elapses or the conditions are fulfilled (Section 4(4)).

Essentials checklist

Two parties (buyer and seller) + goods + price in money + transfer of property + offer and acceptance

Drawn from Sections 2, 4 and 5. Seller and buyer include those who agree to sell or buy.

Goods (Section 2(7))

Goods = every kind of moveable property − actionable claims − money

Includes stock and shares, growing crops, grass, and things attached to land agreed to be severed before sale or under the contract.

Existing goods (Section 6(1))

Existing goods = goods owned or possessed by the seller at the time of contract

Possession alone is enough, for example goods held by an agent or on consignment.

Future goods (Section 2(6))

Future goods = goods to be manufactured, produced or acquired by the seller after the contract is made

A present sale of future goods operates only as an agreement to sell (Section 6(3)).

Contingent goods (Section 6(2))

Seller's acquisition of goods depends on a contingency that may or may not happen

The Act allows such contracts. 'Contingent goods' is the usual exam label.

Specific goods (Section 2(14))

Specific goods = goods identified and agreed upon when the contract of sale is made

Unascertained goods are not so identified.

Goods perished before contract (Section 7)

Specific goods perished without seller's knowledge at contract time → contract void

The goods must no longer answer to their description.

Goods perished after agreement to sell (Section 8)

Specific goods perish without fault of either party, before risk passes → agreement avoided

Applies to an agreement to sell. Fault means wrongful act or default.

Unascertained goods (Section 18)

No property passes in unascertained goods until they are ascertained

Goods may become ascertained by unconditional appropriation (Section 23).

Condition (Section 12(2))

Essential to main purpose → breach = right to repudiate

Buyer may reject goods and treat contract as repudiated.

Warranty (Section 12(3))

Collateral to main purpose → breach = damages only

No right to reject the goods on this ground alone.

Implied terms as to title (Section 14)

Condition: right to sell. Warranties: quiet possession; freedom from undeclared encumbrance

Applies unless circumstances show a different intention. Remember: 1 condition, 2 warranties.

Sale by description (Section 15)

Implied condition: goods correspond with description

If sale is by sample and description, matching the sample alone is not enough.

Fitness for purpose (Section 16(1))

Purpose made known + buyer relies on seller's skill + seller's usual line of business → goods reasonably fit

No implied condition if a specified article is sold under its patent or trade name.

Merchantable quality (Section 16(2))

Bought by description from a dealer in such goods → merchantable quality

No implied condition for defects an examination by the buyer ought to have revealed.

Sale by sample (Section 17(2))

Bulk matches sample; reasonable chance to compare; no hidden defect making goods unmerchantable

These are implied conditions.

Condition treated as warranty (Section 13)

Buyer waives, or elects warranty; or contract not severable and goods accepted

Unless a contract term says otherwise in the non-severable case.

Remedy for breach of warranty (Section 59)

Reduce or extinguish price, or sue for damages

Buyer may still sue if he suffered further damage.

Unascertained goods (Section 18)

Unascertained goods → no property passes until the goods are ascertained

First test for any question on goods described only by type or quantity.

Specific goods: intention (Section 19)

Property passes when the parties intend; look at contract terms, conduct and circumstances

Sections 20 to 24 apply as rules of intention unless a different intention appears.

Unconditional contract, deliverable state (Section 20)

Specific goods + unconditional + deliverable state → property passes when the contract is made

Postponed payment or delivery does not matter.

Seller must act on goods (Sections 21 and 22)

Seller must put goods in deliverable state, or weigh/measure/test to fix price → property passes only after it is done and buyer has notice

Both conditions needed: act done and notice to buyer.

Appropriation (Section 23(1))

Unascertained/future goods by description + deliverable state + unconditional appropriation + assent → property passes

Assent can be express or implied, before or after appropriation.

Delivery to carrier (Section 23(2))

Delivery to buyer or carrier for transmission + no reservation of right of disposal → deemed unconditional appropriation

Carrier may be named by the buyer or not.

Right of disposal (Section 25)

Seller reserves right of disposal → property does not pass until conditions are fulfilled, even after delivery to carrier

If goods are deliverable to the seller's order under a bill of lading or railway receipt, the seller is prima facie deemed to reserve it.

On approval or sale or return (Section 24)

Property passes on (a) approval, acceptance or adopting act, or (b) retention without notice of rejection beyond the fixed time or a reasonable time

Use a reasonable time only if no time was fixed.

Risk (Section 26)

Risk follows property, unless otherwise agreed

If delivery is delayed by one party's fault, that party bears loss that would not have occurred but for the fault.

General rule (nemo dat)

Non-owner seller, no authority or consent → buyer's title = seller's title (no better)

Section 27. Applies unless an exception or estoppel applies.

Estoppel

Owner's conduct precludes denying seller's authority → buyer gets good title

Section 27. The owner must have led the buyer to believe the seller could sell.

Mercantile agent

Agent in possession with owner's consent + ordinary course of business + buyer in good faith + no notice of lack of authority → sale valid

Proviso to Section 27. All conditions must be met. 'Mercantile agent' is defined in Section 2(9).

Joint owner

Sole possession by permission of co-owners + buyer in good faith + no notice → property passes

Section 28.

Voidable contract

Seller's contract voidable (Contract Act s.19 or 19A) + not rescinded at time of sale + buyer in good faith, no notice of defect → good title

Section 29. If rescinded before the sale, the buyer gets no good title.

Seller in possession after sale

Seller keeps goods or documents + re-delivers to a person in good faith without notice of earlier sale → effect as if authorised by owner

Section 30(1). Also covers a mercantile agent acting for him.

Buyer in possession

Buyer obtains goods or documents with seller's consent + passes to a person in good faith without notice of seller's lien or right → lien or right treated as not existing

Section 30(2). Applies to a person who bought or agreed to buy.

Section 31: duties

Seller delivers + Buyer accepts and pays, as per the contract

These are the basic performance duties.

Section 46(1): rights of unpaid seller against goods

Lien + Stoppage in transit + Resale (as limited by the Act)

Available even if property has passed to the buyer.

Section 46(2): property not passed

Right of withholding delivery ≈ lien + stoppage

It is in addition to the seller's other remedies.

Section 47: lien cases

(a) no credit stipulation; (b) credit term expired; (c) buyer insolvent

Seller must be in possession. He may use it even as agent or bailee for the buyer.

Section 48: part delivery

Lien on the remainder unless part delivery shows waiver

Part delivery does not by itself end the lien.

Sections 50 and 52: stoppage in transit

Buyer insolvent + seller has parted with possession + goods in transit

Exercised by taking actual possession or by giving notice to the carrier or bailee. Re-delivery expenses are borne by the seller.

Section 54: resale

Perishable goods or notice of intention to resell, buyer fails to pay in reasonable time → seller may resell and claim damages for loss

Without notice, the seller cannot recover such damages and the buyer is entitled to any profit on resale.

Section 54(3) and (4)

Resale gives the new buyer good title; express reserved right of resale on default rescinds the original contract

Under 54(4), the seller can still claim damages.

Section 53: sub-sale by buyer

Lien or stoppage not affected unless seller assented

Exception: document of title transferred in good faith for consideration by sale defeats the right; by pledge, the right is subject to the transferee's rights.

Section 58: specific performance

Court may direct specific performance for specific or ascertained goods

Granted at the Court's discretion, on the plaintiff's application.

Quick revision

• A contract of sale is a transfer, or agreement to transfer, property in goods for a price (Section 4).
• If property passes now, it is a sale. If it passes later or on a condition, it is an agreement to sell.
• An agreement to sell becomes a sale when the time elapses or the condition is fulfilled.
• For specific goods, a contract is void if the goods had perished, without the seller's knowledge, before the contract was made (Section 7).
• For unascertained goods, property passes when goods of that description, in a deliverable state, are unconditionally appropriated to the contract with assent (Section 23).
• Delivering goods to a carrier for the buyer, without reserving the right of disposal, is treated as unconditional appropriation.
• A buyer from a non-owner generally gets no better title than the seller had (Section 27), with listed exceptions such as a mercantile agent acting in the ordinary course of business.
• A seller who sold goods but keeps possession can pass good title to a buyer who acts in good faith without notice of the earlier sale (Section 30).
• A seller is unpaid if the whole price has not been paid or tendered, or if a negotiable instrument given as conditional payment is dishonoured (Section 45).
• An unpaid seller has a lien, a right of stoppage in transit on the buyer's insolvency, and a right of re-sale, even if property has passed (Section 46).
• Parties can exclude or vary implied terms by express agreement, course of dealing or binding usage (Section 62).
• There is no negative marking in Paper 4, so attempt every question.

Common mistakes

• Treating postponed payment or delivery as an agreement to sell Fix: Look only at when property passes. If it passes at the time of contract, it is a sale even if payment or delivery comes later.
• Calling barter a contract of sale Fix: Remember that price means money consideration (Section 2(10)). Goods for goods is not a sale.
• Treating future goods and contingent goods as the same thing. Fix: Future goods are simply acquired later. Contingent goods depend on an event that may or may not happen.
• Saying a present sale of future goods is a completed sale. Fix: Remember it operates only as an agreement to sell.
• Deciding by the word used in the contract. Fix: Apply Section 12(4): nature of the stipulation decides. A term called a warranty may be a condition.
• Saying all three title terms are conditions. Fix: Only the right to sell is a condition. Quiet possession and freedom from encumbrance are warranties.
• Thinking property passes when the price is paid or when goods are delivered. Fix: The Act uses intention, and for unascertained goods, appropriation. Under Section 20, property can pass even if payment and delivery are postponed.
• Saying property passes in unascertained goods at the time of contract. Fix: Section 18 says no property passes until the goods are ascertained. Then check Section 23.
• Saying a buyer who paid full price always gets good title. Fix: Title depends on the seller's title or an exception. Without an exception, even a paying, honest buyer gets no better title than the seller had.
• Applying the mercantile agent exception when the agent has no possession with the owner's consent. Fix: Check all conditions: possession with owner's consent, sale in the ordinary course of a mercantile agent's business, good faith, and no notice.

Exam tips

• In MCQs, the deciding fact is almost always when property passes. Ignore noise about payment dates.
• Memorise the Section 4(3) wording: 'sale' for property passing now, 'agreement to sell' for a future time or condition.
• Learn Section 5(2): writing is not compulsory unless another law says so.
• Spot the money price. Barter, gift, hire and loan questions are usually traps.
• In a written answer, list the essentials, apply them to the facts in order, and end with a one-line conclusion.
• In MCQs, look for the trigger words: 'owned or possessed' means existing, 'after the contract' means future, 'may or may not happen' means contingent.
• Learn Sections 6, 7, 8 and 2(6), 2(7), 2(14) with one line each. Questions often name the section.
• If the options give both 'void' and 'avoided', match them: void for Section 7, avoided for Section 8.