CHAPTER 2

THE SALE OF GOODS ACT, 1930

UNIT -1: FORMATION OF THE CONTRACT OF SALE
LEARNING OUTCOMES
After studying this unit, you would be able to understand-

w Definitions of certain terms.

w Meaning of contract of sale.

w Distinctions of sale from other similar contracts.

w Formalities of contract of sale.

w Subject matter of contract of sale.

w Ascertainment of price for the contract of sale.

UNIT OVERVIEW Contract of Sale

Transfer Essentials of
Agreement of Goods Price
property valid contract

Money
Immediate Yet to be consideration
Buyer Seller transferred
transfer (Agreement
(Sale) to sell)

Contingent
Existing Goods Future Goods
Goods

Specific Ascertained Unascertained

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2.2 BUSINESS LAWS

INTRODUCTION
Sale of goods is one of the specific forms of contracts recognized and regulated by law in India. Sale is a
typical bargain between the buyer and the seller. The Sale of Goods Act, 1930 allows the parties to modify
the provisions of the law by express stipulations. However, in some places this freedom is severely restricted.
Sale of Goods Act, 1930 is the Act to define and amend the law relating to the sale of goods. It extends to the
whole of India except the State of Jammu and Kashmir. It came into force on 1st July, 1930.

1.1 DEFINITIONS
The Sale of Goods Act, 1930 defines the terms which have been frequently used in the Act, which are as
follows –
(A) Buyer and Seller: ‘Buyer’ means a person who buys or agrees to buy goods
[Section 2(1)]. ‘Seller’ means a person who sells or agrees to sell goods [Section
2(13)]. The two terms, ‘buyer’ and ‘seller’ are complementary and represent the
two parties to a contract of sale of goods. Both the terms are, however, used in
a sense wider than their common meaning. Not only the person who buys but
also the one who agrees to buy is a buyer. Similarly, a ‘seller’ means not only a
person who sells but also a person who agrees to sell.
(B) Goods and other related terms:
“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 the land,
which are agreed to be severed before sale or under the contract of sale. [Section 2(7)]
This is a wider definition than contained in the English law, which does not consider ‘stock’ and
‘shares’ as goods, though it includes a ship.
‘Actionable claims’ are claims, which can be enforced only by an action or suit, e.g., debt. A debt is
not a movable property or goods. Even the Fixed Deposit Receipts (FDR) are considered as goods
under Section 176 of the Indian Contract Act read with Section 2(7) of the Sales of Goods Act.

Also
Goods Other than includes
Means every Actionable
kind of movable claims Stock & shares.
property

Money in
Growing crops
circulation

Grass, and

Things attached
to or forming
part of land
which agreed to
be severed

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 THE SALE OF GOODS ACT, 1930 2.3

Classification of Goods

Goods

Existing Goods Future Goods Contingent

Goods

Specific Ascertained Unascertained

(i) EXISTING GOODS are such goods as are in existence at the time of the contract of sale, i.e., those
owned or possessed by the seller at the time of contract of sale (Section 6).
The existing goods may be of following kinds:
(a) Specific goods means goods identified and agreed upon at the time a contract of sale is made
[Section 2(14)].
Example 1: Any specified and finally decided goods like a Samsung Galaxy S7 Edge, Whirlpool washing
machine of 7 kg etc.
Example 2: ‘A’ had five cars of different models. He agreed to sell his ‘fiat’ car to ‘B’ and ‘B’ agreed to
purchase the same car. In this case, the sale is for specific goods as the car has been identified and
agreed at the time of the contract of sale.
(b) Ascertained Goods are those goods which are identified in accordance with the agreement after the
contract of sale is made. This term is not defined in the Act but has been judicially interpreted. In actual
practice the term ‘ascertained goods’ is used in the same sense as ‘specific goods.’ When from a lot or
out of large quantity of unascertained goods, the number or quantity contracted for is identified, such
identified goods are called ascertained goods.
Example: A wholesaler of cotton has 100 bales in his godown. He agrees to sell 50 bales and these bales
were selected and set aside. On selection the goods becomes ascertained. In this case, the contract
is for the sale of ascertained goods, as the cotton bales to be sold are identified and agreed after the
formation of the contract. It may be noted that before the ascertainment of the goods, the contract was
for the sale of unascertained goods.
(c) Unascertained goods are the goods which are not specifically identified or ascertained at the time of
making of the contract. They are indicated or defined only by description or sample.
Example: If A agrees to sell to B one packet of salt out of the lot of one hundred packets lying in his
shop, it is a sale of unascertained goods because it is not known which packet is to be delivered. As soon
as a particular packet is separated from the lot, it becomes ascertained or specific goods.

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2.4 BUSINESS LAWS

(ii) FUTURE GOODS means goods to be manufactured or produced or acquired by the seller after
making the contract of sale [Section 2 (6)].
A contract for the sale of future goods is always an agreement to sell. It is never actual sale because a
man cannot transfer what is not in existence.
Example 1: 1,000 quintals of potatoes to be grown on A’s field, is not illegal, though the actual sale of
future goods is not possible. This is an example of agreement to sell.
Example 2: P agrees to sell to Q all the milk that his cow may yield during the coming year. This is a
contract for the sale of future goods.
Example 3: T agrees to sell to S all the oranges which will be produced in his garden this year. It is
contract of sale of future goods, amounting to ‘an agreement to sell.’
(iii) CONTINGENT GOODS: The acquisition of which by the seller depends upon an uncertain contingency
(uncertain event) are called ‘contingent goods’ [Section 6(2)].
Contingent goods also operate as ‘an agreement to sell’ and not a ‘sale’ so far as the question of passing
of property to the buyer is concerned. In other words, like the future goods, in the case of contingent
goods also, the property does not pass to the buyer at the time of making the contract.
Example: A agrees to sell to B a Picasso painting provided he is able to purchase it from its present
owner. This is a contract for the sale of contingent goods.
(C) Delivery - its forms and derivatives: Delivery means voluntary transfer of possession from one person
to another [Section 2(2)]. As a general rule, delivery of goods may be made by doing anything, which
has the effect of putting the goods in the possession of the buyer, or any person authorized to hold
them on his behalf.
Forms of delivery: Following are the kinds of delivery for transfer of possession:

Delivery of goods
Voluntary transfer of possession by one person to
another
Actual Constructive Symbolic
delivery delivery delivery

(i) Actual delivery: When the goods are physically delivered to the buyer.
(ii) Constructive delivery: When it is effected without any change in the custody or actual possession of
the thing as in the case of delivery by attornment (acknowledgement) e.g., where a warehouseman
holding the goods of A agrees to hold them on behalf of B, at A’s request.
(iii) Symbolic delivery: When there is a delivery of a thing in token of a transfer of something else,
i.e., delivery of goods in the course of transit may be made by handing over documents of title to
goods, like bill of lading or railway receipt or delivery orders or the key of a warehouse containing
the goods is handed over to buyer.
Goods are said to be in a deliverable state when they are in such a condition that the buyer
would, under the contract, be bound to take delivery of them [Section 2(3)]. For example, when A
contracts to sell timber and make bundles thereof, the goods will be in a deliverable state after A has
put the goods in such a condition.

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 THE SALE OF GOODS ACT, 1930 2.5

(D) “Document of title to goods” includes bill of lading, dock-warrant, warehouse keeper’s certificate,
wharfingers’ certificate, railway receipt, multimodal transport document, 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 authorizing or purporting to authorize, either by endorsement or by
delivery, the possessor of the document to transfer or receive goods thereby represented. [Section 2(4)]
Examples: Bill of lading, dock warrant, warehouse keeper’s certificate, wharfinger’s certificate, railway
receipt, warrant, an order of delivery of goods. The list is only illustrative and not exhaustive. Any other
document which has the above characteristics also will fall under the same category. Though a bill of
lading is a document of title, a mate’s receipt is not; it is regarded at law as merely an acknowledgement for
the receipt of goods. A document amounts to a document of title only where it shows an unconditional
undertaking to deliver the goods to the holder of the document.
However, there is a difference between a ‘document showing title’ and ‘document of title’. A share
certificate is a ‘document’ showing title but not a document of title. It merely shows that the person
named in the share certificate is entitled to the share represented by it, but it does not allow that person
to transfer the share mentioned therein by mere endorsement on the back of the certificate and the
delivery of the certificate.
(E) Mercantile Agent [Section 2(9)]: It means an agent having in the customary course of business as
such agent authority either to sell goods or to consign goods for the purpose of sale or to buy goods or
to raise money on the security of the goods.
Examples of such kind of agents are auctioneers, factors, brokers, etc.
(F) Property [Section 2(11)]: ‘Property’ here means ‘ownership’ or general property. In every contract of
sale, the ownership of goods must be transferred by the seller to the buyer, or there should be an
agreement by the seller to transfer the ownership to the buyer. It means the general property (right of
owner-ship-in-goods) and not merely a special property.
The property in the goods means the general property i.e., all ownership right of the goods. Note that
the ‘general property’ in goods is to be distinguished from a ‘special property’. It is quite possible that
the general property in a thing may be in one person and a special property in the same thing may be
in another e.g., when an article is pledged. The general property in a thing may be transferred, subject
to the special property continuing to remain with another person i.e., the pledgee who has a right to
retain the goods pledged till payment of the stipulated dues.
Example: If A who owns certain goods pledges them to B, A has general property in the goods, whereas
B has special property or interest in the goods to the extent of the amount of advance he has made.
(G) Insolvent [Section 2(8)]: A person is said to be insolvent when he ceases to pay his debts in the ordinary
course of business, or cannot pay his debts as they become due, whether he has committed an act of
insolvency or not.
(H) Price [Section 2(10)]: Price means the money consideration for a sale of goods.
(I) Quality of goods includes their state or condition. [Section 2(12)]

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1.2 SALE AND AGREEMENT TO SELL (SECTION 4)

According to 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”. There may be a contract of sale between one part-
owner and another.
A contract of sale may be absolute or conditional. [Section 4(2)]
Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the
contract is called a sale, but where the transfer of the property in the goods is to take place at a future time
or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell. [Section
4(3)]
An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which
the property in the goods is to be transferred. [Section 4(4)]
Analysis
A contract for the sale of goods may be either sale or agreement to sell.

Contract of
sale
Sale

Agreement
to sell

Sale: In Sale, the property in goods is transferred from seller to the buyer immediately. The term sale is
defined in the Section 4(3) of the Sale of Goods Act, 1930 as – “where under a contract of sale the property
in the goods is transferred from the seller to the buyer, the contract is called a sale.”
Agreement to Sell: In an agreement to sell, the ownership of the goods is not transferred immediately.
It is intending to transfer at a future date upon the completion of certain conditions thereon. The term is
defined in Section 4(3) of the Sale of Goods Act, 1930, as – “where the transfer of the property in the goods
is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called
an agreement to sell.”
Thus, whether a contract of sale of goods is an absolute sale or an agreement to sell, depends on the fact
whether it contemplates immediate transfer from the seller to the buyer or the transfer is to take place at a
future date.
When agreement to sell becomes sale: An agreement to sell becomes a sale when the time elapses or the
conditions are fulfilled subject to which the property in the goods is to be transferred.
The following elements must co-exist so as to constitute a contract of sale of goods under the Sale of
Goods Act, 1930:
(i) There must be at least two parties, the seller and the buyer.
(ii) The subject matter of the contract must necessarily be goods covering only movable property. It may
be either existing goods, owned or possessed by the seller or future goods.
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 THE SALE OF GOODS ACT, 1930 2.7

(iii) A price in money (not in kind) should be paid or promised. But there is nothing to prevent the
consideration from being partly in money and partly in kind.
(iv) A transfer of property in goods from seller to the buyer must take place. The contract of sale is made by
an offer to buy or sell goods for a price by one party and the acceptance of such offer by other.
(v) A contract of sale may be absolute or conditional.
(vi) All other essential elements of a valid contract must be present in the contract of sale, e.g. competency
of parties, legality of object and consideration etc.

1.3 DISTINCTION BETWEEN SALE AND AN AGREEMENT TO SELL

The differences between the two are as follows:

Basis of difference Sale Agreement to sell

Transfer of property The property in the goods passes to Property in the goods passes to the
the buyer immediately. buyer on future date or on fulfilment
of some condition.
Nature of contract It is an executed contract. i.e. contract It is an executory contract. i.e. contract
for which consideration has been for which consideration is to be paid at
paid. a future date.
Remedies for breach The seller can sue the buyer for the The aggrieved party can sue for
price of the goods because of the damages only and not for the price,
passing of the property therein to the unless the price was payable at a
buyer. stated date.
Liability of parties A subsequent loss or destruction of Such loss or destruction is the liability
the goods is the liability of the buyer. of the seller.
Burden of risk Risk of loss is that of buyer since risk Risk of loss is that of seller.
follows ownership.
Nature of rights Creates Jus in rem Creates Jus in personam
Right of resale The seller cannot resell the goods. The seller may sell the goods since
ownership is with the seller.

1.4 SALE DISTINGUISHED FROM OTHER SIMILAR CONTRACTS

(i) Sale and Hire Purchase: Contract of sale resembles with contracts of hire purchase very closely, and
indeed the real object of a contract of hire purchase is the sale of the goods ultimately.
Hire purchase agreements are governed by the Hire-purchase Act, 1972. Term “hire-purchase
agreement” means an agreement under which goods are let on hire and under which the hirer has an
option to purchase them in accordance with the terms of the agreement and includes an agreement
under which—
(a) Possession of goods is delivered by the owner thereof to a person on condition that such person
pays the agreed amount in periodical instalments, and
(b) The property in the goods is to pass to such person on the payment of the last of such instalments,
and
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2.8 BUSINESS LAWS

(c) Such person has a right to terminate the agreement at any time before the property so passes;
None the less a sale has to be distinguished from a hire purchase as their legal incidents are quite different.
The main points of distinction between the ‘sale’ and ‘hire-purchase’ are as follows:
Basis of difference Sale Hire- Purchase
Time of passing Property in the goods is transferred to
The property in goods passes to
property the buyer immediately at the time of the hirer upon payment of the last
contract. installment.
Position of the party The position of the buyer is that of the
The position of the hirer is that of a
owner of the goods. bailee till he pays the last installment.
Termination of contract The buyer cannot terminate the The hirer may, if he so likes, terminate
contract and is bound to pay the price
the contract by returning the goods to
of the goods. its owner without any liability to pay
the remaining installments.
Burden of Risk of The seller takes the risk of any loss The owner takes no such risk, for if the
insolvency of the buyer resulting from the insolvency of the hirer fails to pay an installment, the
buyer. owner has right to take back the goods.
Transfer of title The buyer can pass a good title to a The hirer cannot pass any title even to
bona fide purchaser from him. a bona fide purchaser.
Resale The buyer in sale can resell the goods The hire purchaser cannot resell unless
he has paid all the installments.
(ii) Sale and Bailment: A ‘bailment’ is the delivery of goods for some specific purpose under a contract on
the condition that the same goods are to be returned to the bailor or are to be disposed off according
to the directions of the bailor. Provisions related to bailment are regulated by the Indian Contract Act,
1872.
The difference between bailment and sale may be clearly understood by studying the following:
Basis of difference Sale Bailment
Transfer of property The property in goods is transferred There is only transfer of possession of
from the seller to the buyer. goods from the bailor to the bailee for
any of the reasons like safe custody,
carriage etc.
Return of goods The return of goods in contract of The bailee must return the goods to
sale is not possible. the bailor on the accomplishment of
the purpose for which the bailment
was made.
Consideration The consideration is the price in The consideration may be gratuitous
terms of money. or non-gratuitous.
(iii) Sale and contract for work and labour: A contract of sale of goods is one in which some goods are
sold or are to be sold for a price. But where no goods are sold, and there is only the doing or rendering
of some work of labour, then the contract is only of work and labour and not of sale of goods.
Example: Where gold is supplied to a goldsmith for preparing an ornament or when an artist is asked
to paint a picture.

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 THE SALE OF GOODS ACT, 1930 2.9

1.5 CONTRACT OF SALE HOW MADE (SECTION 5)

According to section 5(1), a contract of sale is made by an offer to buy or sell goods for a price and the
acceptance of such offer. The contract may provide for the immediate delivery of the goods or immediate
payment of the price or both, or for the delivery or payment by instalments, or that the delivery or payment
or both shall be postponed.
Further, as per sub-section (2) of section 5, subject to the provisions of any law for the time being in force,
a contract of sale may be made in writing or by word of mouth, or partly in writing and partly by word of
mouth or may be implied from the conduct of the parties.
Analysis:
A contract of sale may be made in any of the following modes:
(i) Contract of sale is made by an offer to buy or sell goods for a price and acceptance of such offer.
(ii) There may be immediate delivery of the goods; or
(iii) There may be immediate payment of price, but it may be agreed that the delivery is to be made at some
future date; or
(iv) There may be immediate delivery of the goods and an immediate payment of price; or
(v) It may be agreed that the delivery or payment or both are to be made in installments; or
(vi) It may be agreed that the delivery or payment or both are to be made at some future date.

1.6 SUBJECT MATTER OF CONTRACT OF SALE

Existing or future goods (section 6):
(1) The goods which form the subject of a contract of sale may be either existing goods, owned or possessed
by the seller, or future goods.
(2) There may be a contract for the sale of goods the acquisition of which by the seller depends upon a
contingency which may or may not happen.
Example: A contract for sale of certain cloth to be manufactured by a certain mill is a valid contract.
Such contacts are called contingent contracts.
(3) Where by a contract of sale the seller purports to effect a present sale of future goods, the contract
operates as an agreement to sell the goods.
Goods perishing before making of contract (Section 7): Where there is a contract for the sale of specific
goods, the contract is void if the goods without the knowledge of the seller have, at the time when the
contract was made, perished or become so damaged as no longer to answer to their description contract.
Example: A agrees to sell B 50 bags of wheat stored in the A’s godown. Due to water logging, all the goods
stored in the godown were destroyed. At the time of agreement, neither parties were aware of the fact. The
agreement is void.
Goods perishing before sale but after agreement to sell (Section 8): Where there is an agreement to sell
specific goods, and subsequently the goods without any fault on the part of the seller or buyer perish or
become so damaged as no longer to answer to their description in the agreement before the risk passes to
the buyer, the agreement is thereby avoided.

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1.7 ASCERTAINMENT OF PRICE (SECTION 9 & 10)

Ascertainment of price (Section 9):
(1) The price in a contract of sale may be fixed by the contract or may be left to be fixed in manner thereby
agreed or may be determined by the course of dealing between the parties.
(2) Where the price is not determined in accordance with the foregoing provisions, the buyer shall pay the
seller a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances
of each particular case.
Analysis:
‘Price’ means the monetary consideration for sale of goods [Section 2 (10)]. By virtue of Section 9, the price
in the contract of sale may be-
(1) fixed by the contract, or
(2) agreed to be fixed in a manner provided by the contract, e.g., by a valuer, or
(3) determined by the course of dealings between the parties.
Agreement to sell at valuation (Section 10):
(1) Where there is an agreement to sell goods on the terms that the price is to be fixed by the valuation
of third party and such third party cannot or does not make such valuation, the agreements is thereby
avoided:
Provided that, if the goods or any part thereof have been delivered to, and appropriated by, the buyer,
he shall pay a reasonable price therefore.
(2) Where such third party is prevented from making the valuation by the fault of the seller or buyer, the
party not in fault may maintain a suit for damages against the party in default.
Analysis
Section 10 provides for the determination of price by a third party. Where there is an agreement to sell
goods on the terms that price has to be fixed by the third party and he either does not or cannot make such
valuation, the agreement will be void. In case the third party is prevented by the default of either party
from fixing the price, the party at fault will be liable to the damages to the other party who is not at fault.
However, a buyer who has received and appropriated the goods must pay a reasonable price for them in
any eventuality.
Example: P is having two bikes. He agrees to sell both of the bikes to S at a price to be fixed by the Q. He
gives delivery of one bike immediately. Q refuses to fix the price. As such P ask S to return the bike already
delivered while S claims for the delivery of the second bike too. In the given instance buyer S shall pay
reasonable price to P for the bike already taken. As regards the Second bike, the contract can be avoided.

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 THE SALE OF GOODS ACT, 1930 2.11

SUMMARY
In nutshell, contract of sale of goods is a contract where the seller transfers or agrees to transfer the property
in goods to the buyer for a price. Where, however, the transfer of property in goods is to take place at a
future date or subject to some conditions to be fulfilled, the contract is called ‘agreement to sell’. The subject
matter of such contract must always be goods. Price for goods may be fixed by the contract or may be
agreed to be fixed later on in a specific manner.

TEST YOUR KNOWLEDGE

Multiple Choice Questions
1. A contract for the sale of goods where property would pass to the buyer on payment of total price
would be;
(a) sale (b) agreement to sell
(c) hire-purchase contract. (d) sale on approval.
2. The term “goods” under Sale of Goods Act, 1930 does not include
(a) goodwill. (b) actionable claims.
(c) stocks and shares. (d) harvested crops.
3. A contract for the sale of “future goods” is
(a) sale (b) agreement to sell.
(c) void. (d) hire-purchase contract.
4. The sale of Goods Act, 1930 deals with the
(a) movable goods only. (b) immovable goods only.
(c) both movable and immovable goods. (d) all goods except ornaments.
5. Under Sale of Goods Act, 1930 the terms “Goods” means every kind of movable property and it includes
(a) stock and share. (b) growing crops, grass
(c) both (a) and (b). (d) none of the above
6. The Sale of Goods Act, 1930 deals with
(a) sale (b) mortgage.
(c) pledge. (d) all of the above.
7. Which one of the following is true?
(a) the provisions of Sale of Goods were originally with the Indian Contract Act, 1872.
(b) the Sale of Goods Act, 1930 deals with mortgage.
(c) the Sale of Goods Act restricts the parties to modify the provisions of law.
(d) none of the above.

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8. Goods which are in existence at the time of the Contract of Sale is known as
(a) present Goods. (b) existing Goods.
(c) specific Goods. (d) none of the above.
9. Which of the following is not a form of delivery?
(a) constructive delivery. (b) structured delivery.
(c) actual delivery. (d) symbolic delivery.
10. Which one of the following is/are document of title to goods?
(a) railway receipt. (b) wharfinger’s certificate.
(c) warehouse keeper’s certificate. (d) all of the above
11. Which one of the following is not true?
(a) document showing title is different from document of title.
(b) bill of lading is a document of title to goods.
(c) specific goods can be identified and agreed upon at the time of the Contract of Sale.
(d) none of the above.
12. Mercantile Agent is having an authority to
(a) sell or consign goods. (b) raise money on the security of goods.
(c) sell or buy goods. (d) any of the above.
13. Contract of Sale is
(a) executory Contract. (b) executed Contract.
(c) both of the above. (d) none of the above.
14. In which form of the contract, the property in the goods passes to the buyer immediately:
(a) agreement to sell. (b) hire purchase.
(c) sale (d) installment to sell.
15. In case of hire purchase the hirer can pass title to a bona fide purchaser.
(a) true. (b) false.
16. In a contract of sale, the agreement may be expressed or implied from the conduct of the parties.
(a) true. (b) false.
17. In a contract of sale, subject matter of contract must always be money.
(a) true. (b) false.
18. Selection of goods with the intention of using them in performance of the contract and with the mutual
consent of the seller and the buyer is known as
(a) distribution. (b) appropriation.
(c) amortization. (d) storage.

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19. If a seller handed over the keys of a warehouse containing the goods to the buyer results in
(a) constructive delivery (b) actual delivery
(c) symbolic delivery (d) none of the above
20. If A agrees to deliver 100 kg of sugar to B in exchange of 15 mts of cloth, then it is
(a) Contract of sale. (b) Agreement to sell.
(c) Sale on Approval. (d) Barter.
21. In a hire-purchase agreement, the hirer
(a) has an option to buy the goods. (b) must buy the goods.
(c) must return the goods. (d) is not given the possession of goods.
22. A agrees to deliver his old car valued at ` 80,000 to B, a car dealer, in exchange for a new car, and agrees
to pay the difference in cash it is
(a) Contract of sale. (b) Agreement to sell.
(c) Exchange. (d) Barter.
23. Legally, a contract of sale includes
(a) sale. (b) agreement to Sell.
(c) barter. (d) both (a) and (b)
24. The Sale of Goods Act, 1930 came into force on
(a) 15th March, 1930. (b) 1st July, 1930.
(c) 30th July, 1930. (d) 30th June, 1930.
25. The person who buys or agrees to buy goods is known as
(a) consumer. (b) buyer.
(c) both (a) and (b) (d) none of the above.
26. Voluntary transfer of possession by one person to another is popularly known as
(a) transfer. (b) possession.
(c) delivery. (d) none of the above.
27. The aggrieved party can claim only damages in case of breach of warranty.
(a) true. (b) false.
28. If X commissioned Y, an artist, to paint a portrait of A for 200 dollars & Y uses his own canvas & paint then
it is
(a) Contract of sale. (b) Contract of work & materials.
(c) Sale on approval. (d) Hire-Purchase agreement.
29. The property in the goods means the
(a) possession of goods. (b) custody of goods.
(c) ownership of goods. (d) both (a) and (b)

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30. The goods are at the risk of a party who has the
(a) Ownership of goods. (b) Possession of goods.
(c) Custody of goods. (d) both (b) and (c)
31. In case of sale of standing trees, the property passes to the buyer when trees are
(a) felled and ascertained. (b) not felled but earmarked.
(c) counted and ascertained. (d) both (b) and (c)
32. In case the delivery of goods is delayed due to the fault of party, the goods shall be at the risk of
defaulting party even though the ownership is with the other party.
(a) True, as there is a provision to this effect.
(b) False, as it is against the general rule.
33. Which of the following modes of delivery of goods is considered effective for a valid contract of sale?
(a) Actual delivery. (b) symbolic delivery.
(c) Constructive delivery. (d) all of these.
Answers to MCQs

1. (b) 2. (b) 3. (b) 4. (a) 5. (c)

6. (a) 7. (a) 8. (b) 9. (b) 10. (d)
11. (d) 12. (d) 13. (c) 14. (c) 15. (b)
16. (a) 17. (b) 18. (b) 19. (c) 20. (d)
21. (a) 22. (a) 23. (d) 24. (b) 25. (b)
26. (c) 27. (a) 28. (b) 29. (c) 30. (a)
31. (a) 32. (a) 33. (d)
Theoretical questions
1. What are the consequences of “destruction of goods” under the Sale of Goods Act, 1930, where the
goods have been destroyed after the agreement to sell but before the sale is affected.
2. In what ways does a “Sale” differ from “Hire-Purchase”?
3. State briefly the essential element of a contract of sale under the Sale of Goods Act, 1930. Examine
whether there should be an agreement between the parties in order to constitute a sale under the said
Act.
Answer to Theoretical Questions
1: Destruction of Goods-Consequences:
(i) In accordance with the provisions of the Sale of Goods Act, 1930 as contained in Section 7, a contract
for the sale of specific goods is void if at the time when the contract was made; the goods without the
knowledge of the seller, perished or become so damaged as no longer to answer to their description
in the contract, then the contract is void ab initio. This section is based on the rule that where both the
parties to a contract are under a mistake as to a matter of fact essential to a contract, the contract is void.

© The Institute of Chartered Accountants of India

 THE SALE OF GOODS ACT, 1930 2.15

(ii) In a similar way Section 8 provides that an agreement to sell specific goods becomes void if subsequently
the goods, without any fault on the par of the seller or buyer, perish or become so damaged as no
longer to answer to their description in agreement before the risk passes to the buyer. This rule is also
based on the ground of impossibility of performance as stated above.
It may, however, be noted that section 7 & 8 apply only to specific goods and not to unascertained
goods. If the agreement is to sell a certain quantity of unascertained goods, the perishing of even the
whole quantity of such goods in the possession of the seller will not relieve him of his obligation to
deliver the goods.
2: Distinction between ‘Sale’ and ‘Hire Purchase’
1. In case of hire purchase, the agreement is that the hirer regularly pays the various installments agreed
between the parties. In Sale the payment-may be made cash -down or through installments.
2. The subject matter of the hire, on payment of the last installment, shall become the property of the
hirer, if such installments are not paid, the article will remain the property of the hire-vendor (seller) and
the hire vendor will be entitled to regain possession thereof. In Sale, the property in goods is transferred
to the buyer immediately on signing the contract.
3. A hire purchase agreement is both a bailment and an option to buy. In case of Sale it is not so.
4. In case of hire purchase the hirer cannot sell the article to a third party. In Sale the purchaser can do so.
This is based on the concept of ownership.
3: Essentials of Contract of Sale
The following elements must co-exist so as to constitute a contract of sale of goods under the Sale of
Goods Act, 1930.
(i) There must be at least two parties
(ii) The subject matter of the contract must necessarily be goods
(iii) A price in money (not in kind) should be paid or promised.
(iv) A transfer of property in goods from seller to the buyer must take place.
(v) A contract of sale must be absolute or conditional [section 4(2)].
(vi) All other essential elements of a valid contract must be present in the contract of sale.

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