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CMA Intermediate Business Laws and Ethics★ The Sale of Goods Act, 1930 — roughly 14 marks. Transfer of ownership, conditions and warranties, and the unpaid seller's rights account for nearly all of the questions set.

The Sale of Goods Act, 1930

When property in goods passes and why that single question decides who bears the loss — conditions and warranties, transfer of ownership, the exceptions to nemo dat, and the unpaid seller's rights.

⏱ 32 min readModerate difficulty✓ Free · exam-pattern aligned

Timed practiceMCQs from this chapter with instant scoring

FlashcardsFormulas & traps on spaced repetition

CMA Intermediate PYQsSolved previous-year questions

By the end of this chapter you'll be able to…

1State the essentials of a contract of sale and classify goods as existing, future or contingent, and as specific, ascertained or unascertained
2Distinguish a sale from an agreement to sell and trace the consequences for risk, insolvency, remedies and the nature of the right created
3Distinguish sale from hire purchase, bailment and a contract for work and labour
4Distinguish a condition from a warranty and state the three situations in which a condition sinks to a warranty
5State every implied condition and warranty, including the patent-name exception to fitness for purpose
6State the rule of caveat emptor and its six exceptions
7Apply section 26 to decide who bears the loss, and apply the rules for passing of property in specific, unascertained and approval-basis goods
8State the nemo dat rule and identify which exception protects a bona fide purchaser on given facts
9Identify an unpaid seller and distinguish lien, stoppage in transit and resale by the conditions each requires
10State the consequences of reselling with and without notice, and when the seller may sue for the price rather than damages

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Why this chapter matters in CMA Intermediate

The Act has one organising question — when does property pass — and almost everything else follows from it. Risk passes with property under section 26 regardless of who holds the goods, so the answer to 'who bears the loss' is never about possession. Whether the seller may sue for the price or only for damages depends on the same question, and so does the buyer's position on the seller's insolvency. A candidate who can state the passing-of-property rules precisely can reason through most of the chapter without memorising outcomes.

Before you start — revise these

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Contract Act: Performance, Breach & Special Contracts

The Sale of Goods Act was originally Chapter VII of the Contract Act; the general law of contract and the damages provisions continue to apply to sales.

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The Regulatory Framework & Contract Formation

Offer, acceptance and consideration come from the Contract Act — this Act supplies only what is special to sales.

The Sale of Goods Act, 1930

Weightage: Roughly 14 marks. The chapter has one organising question — when does property pass? — and a candidate who can answer it can answer most of what the chapter asks, because risk, the seller's remedies and the buyer's remedies all follow from it.

The Sale of Goods Act was originally part of the Indian Contract Act as Chapter VII, and was separated out in 1930. That history matters: the general law of contract continues to apply to a contract of sale, and the Act supplies only what is special to sales. So capacity, free consent and consideration come from the Contract Act, while the passing of property, implied terms and the unpaid seller's rights come from this one.

Definitions and scope

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. The essentials follow from the definition:

Two parties. A person cannot buy his own goods, though a part-owner may sell to another part-owner.
Goods as the subject matter.
Transfer of property, meaning ownership, not merely possession.
A price in money. An exchange of goods for goods is barter, not sale; but where goods are exchanged partly for goods and partly for money, it is a sale.
All the essentials of a valid contract under the Contract Act.

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.

Goods are classified as:

Existing goods, owned or possessed by the seller at the time of the contract. These are further divided into specific goods, identified and agreed upon at the time the contract is made; ascertained goods, identified after the contract is made; and unascertained goods, defined only by description.
Future goods, to be manufactured, produced or acquired by the seller after the contract is made.
Contingent goods, a type of future goods, the acquisition of which depends on a contingency which may or may not happen.

Price is the money consideration. It may be fixed by the contract, left to be fixed in an agreed manner, or determined by the course of dealing. Where it is not determined by any of these, the buyer must pay a reasonable price, which is a question of fact.

Sale and agreement to sell

This distinction is the foundation of the chapter and generates a distinguishing question at almost every sitting.

Where the property in the goods is transferred from the seller to the buyer, the contract is a sale. Where the transfer is to take place at a future time or subject to some condition thereafter to be fulfilled, it is an agreement to sell.

The differences, and the reason each matters:

Nature. A sale is an executed contract; an agreement to sell is executory.
Transfer of property. In a sale property passes immediately; in an agreement to sell it passes later.
Risk of loss. In a sale, risk passes with property, so if the goods are destroyed the buyer bears the loss even if he has not received them. In an agreement to sell, the seller bears the loss, since property has not passed.
Nature of the right created. A sale creates a right in rem — a right against the whole world, since the buyer is the owner. An agreement to sell creates a right in personam — a right against the seller only.
Consequences of the seller's insolvency. In a sale, the buyer is the owner and may claim the goods from the Official Assignee. In an agreement to sell, the buyer is merely a creditor and can only prove in the insolvency for the price paid.
Consequences of the buyer's insolvency. In a sale, the seller must deliver to the Official Assignee and prove for the price. In an agreement to sell, the seller may refuse to deliver unless paid.
Remedy for breach. In a sale, the seller may sue for the price; in an agreement to sell, only for damages for non-acceptance.

Sale distinguished from other transactions

Hire purchase. In a sale, property passes at once and the buyer is bound to pay. In hire purchase, the hirer takes possession as a bailee with an option to purchase, property passes only on payment of the last instalment, and the hirer may terminate and return the goods at any time. The hirer cannot pass good title before exercising the option, which is why finance companies use the form.

Bailment. In a sale, ownership passes and the goods are not returned. In bailment, possession passes but ownership does not, and the same goods must be returned or dealt with as directed.

Contract for work and labour. Where the substance of the contract is the exercise of skill and the delivery of goods is incidental, it is a contract for work and labour and not a sale — a portrait painted to order is the classic example. Where the substance is the transfer of a chattel, it is a sale.

Conditions and warranties

A stipulation in a contract of sale with reference to goods may be a condition or a warranty.

A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated.

A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and repudiate.

Whether a stipulation is a condition or a warranty depends in each case on the construction of the contract, not on what the parties call it. A stipulation may be a condition though called a warranty.

When a condition sinks to a warranty. Section 13 provides three situations:

Where the buyer waives the condition, or elects to treat the breach of condition as a breach of warranty.
Where the contract is not severable and the buyer has accepted the goods or part of them. Once goods are accepted under an indivisible contract, the buyer cannot reject; his remedy is in damages.
Where the fulfilment of the condition is excused by law by reason of impossibility or otherwise.

Implied conditions

Unless the circumstances show a different intention, the Act implies the following conditions:

Condition as to title — that the seller has a right to sell the goods. This is the most fundamental of them. A buyer who receives goods the seller had no right to sell may recover the entire price, even after using the goods, because there has been a total failure of consideration: he paid for ownership and got none.

Sale by description — that the goods shall correspond with the description. This applies wherever the buyer has not seen the goods and relies on a description, and also where he has seen them but relies on the description for some quality not apparent.

Sale by sample — that the bulk shall correspond with the sample in quality; that the buyer shall have a reasonable opportunity of comparing the bulk with the sample; and that the goods shall be free from any defect rendering them unmerchantable, which would not be apparent on reasonable examination of the sample.

Sale by sample as well as description — the bulk must correspond with both. Correspondence with the sample alone is not enough.

Condition as to quality or fitness for purpose — where the buyer expressly or by implication makes known to the seller the particular purpose for which the goods are required, so as to show that he relies on the seller's skill or judgement, and the goods are of a description which it is in the course of the seller's business to supply, there is an implied condition that the goods shall be reasonably fit for that purpose. Note the exception: where an article is sold under its patent or trade name, there is no implied condition of fitness for any particular purpose, because the buyer has relied on the name rather than the seller's judgement.

Condition as to merchantable quality — where goods are bought by description from a seller who deals in goods of that description, there is an implied condition that the goods are of merchantable quality. But where the buyer has examined the goods, there is no implied condition as regards defects which such examination ought to have revealed.

Condition as to wholesomeness — in the case of provisions and foodstuffs, that the goods are fit for human consumption.

Implied warranties

Quiet possession — that the buyer shall have and enjoy quiet possession of the goods.

Freedom from encumbrance — that the goods are free from any charge or encumbrance in favour of a third party not declared or known to the buyer.

Disclosure of dangerous nature — where goods are dangerous and the buyer is ignorant of it, the seller must warn him, and failure to do so makes the seller liable for the resulting injury.

Caveat emptor and its exceptions

The rule is that the buyer must beware: the seller is under no duty to reveal the faults of his goods, and a buyer who does not get what he wanted through his own failure to specify or examine has no remedy.

The exceptions are the implied conditions above, and they have so far eroded the rule that in practice it now operates only where none of them applies. The recognised exceptions are:

Where the buyer makes known the particular purpose and relies on the seller's skill or judgement.
Where goods are bought by description from a seller dealing in such goods, and are not of merchantable quality.
Where the sale is by sample and the bulk does not correspond.
Where the sale is by sample as well as description and the goods do not correspond with both.
Where the seller is guilty of fraud or makes a misrepresentation, or actively conceals a defect not discoverable on reasonable examination.
Where a trade usage annexes an implied condition or warranty and the seller deviates from it.

Transfer of ownership

This is the organising question of the Act, because risk follows property.

Section 26 provides that unless otherwise agreed, the goods remain at the seller's risk until the property in them is transferred to the buyer, but when the property is transferred the goods are at the buyer's risk whether delivery has been made or not. The proviso adds that where delivery has been delayed through the fault of either party, the goods are at the risk of the party in fault as regards any loss which might not have occurred but for that fault.

So the question "who bears the loss?" is always answered by asking "had property passed?" — and never by asking who had possession.

Specific or ascertained goods

The governing rule is intention: property passes when the parties intend it to pass, and their intention is ascertained from the terms of the contract, the conduct of the parties and the circumstances. Where the intention is not apparent, the Act supplies these rules:

Rule 1 — specific goods in a deliverable state. Property passes when the contract is made, and it is immaterial whether the time of payment or the time of delivery, or both, is postponed.

Rule 2 — specific goods not in a deliverable state. Where the seller is bound to do something to the goods to put them into a deliverable state, property does not pass until that thing is done and the buyer has notice of it.

Rule 3 — specific goods in a deliverable state but requiring weighing or measuring to ascertain the price. Property does not pass until the seller has weighed, measured or tested them and the buyer has notice of it. Note that this rule applies only where it is the seller who must do the weighing.

Rule 4 — goods delivered on approval or on sale or return. Property passes when the buyer signifies his approval or acceptance, or does any other act adopting the transaction; or, if he does not signify approval but retains the goods without giving notice of rejection, on the expiry of the time fixed for return, or if no time was fixed, on the expiry of a reasonable time.

Unascertained or future goods

Property does not pass unless and until the goods are ascertained. Once ascertained, property passes when goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the buyer's assent or by the buyer with the seller's assent, the assent being express or implied and given before or after appropriation.

Delivery to a carrier or other bailee for transmission to the buyer, without reserving the right of disposal, is an unconditional appropriation.

Reservation of the right of disposal. Where the seller reserves the right of disposal until certain conditions are fulfilled, property does not pass until those conditions are satisfied, notwithstanding delivery to the buyer or to a carrier. Taking the bill of lading or railway receipt to the seller's own order is the standard means, and its effect is that the seller retains ownership as security for the price.

Transfer of title by non-owners

The general rule is nemo dat quod non habet — no one can give what he does not have. Where goods are sold by a person who is not the owner and who does not sell under the authority or with the consent of the owner, the buyer acquires no better title than the seller had.

The exceptions all protect a bona fide purchaser for value without notice, in circumstances where the true owner has himself made the appearance of authority possible:

Estoppel — where the owner by his conduct leads the buyer to believe the seller has authority to sell, he is precluded from denying it.
Sale by a mercantile agent in possession of the goods or documents of title with the owner's consent, acting in the ordinary course of business, where the buyer acts in good faith without notice of the want of authority.
Sale by one of several joint owners who is in sole possession with the permission of the others.
Sale by a person in possession under a voidable contract, before the contract has been rescinded, where the buyer acts in good faith without notice of the defect.
Sale by a seller in possession after sale — where a seller who has sold goods continues in possession of them or of the documents of title, a further sale by him to a buyer acting in good faith without notice passes good title.
Sale by a buyer in possession before property passes — where a buyer has obtained possession with the seller's consent before property has passed to him, a sale by him to a person acting in good faith without notice of the seller's lien passes good title.
Resale by an unpaid seller exercising his right of resale.
Sale by a finder of goods and sale by a pawnee in the circumstances the Contract Act permits.

Performance of the contract

Delivery is the voluntary transfer of possession from one person to another. It may be actual, symbolic — as by handing over the key to a warehouse — or constructive, where a person in possession acknowledges that he holds for the buyer.

The rules on delivery:

Delivery and payment are concurrent conditions unless otherwise agreed.
The seller must deliver according to the contract; delivery of a smaller or larger quantity, or of goods mixed with goods of a different description, entitles the buyer to reject.
Part delivery made in progress of the delivery of the whole has the same effect as delivery of the whole; part delivery made with the intention of severing it from the whole does not.
The buyer must apply for delivery; the seller is not bound to deliver until he does.
The place of delivery is the place specified, or where none is specified, the place at which the goods are at the time of sale.
The buyer has a right to examine the goods before acceptance, and is not deemed to have accepted them until he has had a reasonable opportunity of examining them.

The buyer is deemed to have accepted the goods when he intimates acceptance, when he does any act in relation to them inconsistent with the seller's ownership, or when after a reasonable time he retains them without intimating rejection.

The unpaid seller

A seller is an unpaid seller where the whole of the price has not been paid or tendered, or where a negotiable instrument was received as conditional payment and has been dishonoured.

The unpaid seller has two sets of rights.

Rights against the goods

Lien — the right to retain possession of the goods until paid. It is available where the goods have been sold without any stipulation as to credit; where the goods have been sold on credit but the term has expired; or where the buyer becomes insolvent. The lien depends on possession, not on title, and is lost when the seller delivers the goods to a carrier for transmission to the buyer without reserving the right of disposal, when the buyer or his agent lawfully obtains possession, or by waiver.

Stoppage in transit — the right to resume possession of goods in the course of transit and retain them until paid. It is available only where the buyer has become insolvent and the goods are in transit. Transit ends when the buyer or his agent takes delivery, when the carrier acknowledges to the buyer that he holds the goods on the buyer's behalf, or when the carrier wrongfully refuses to deliver to the buyer.

The relationship between the two is worth stating: lien is available while the seller retains possession; stoppage in transit arises after he has parted with possession but before the buyer has obtained it. Lien is available whether or not the buyer is insolvent, provided one of the three grounds exists; stoppage requires insolvency.

Resale — the right to resell the goods. The unpaid seller may resell where the goods are of a perishable nature; where he has given notice to the buyer of his intention to resell and the buyer does not within a reasonable time pay or tender the price; and where the contract expressly reserves a right of resale on default.

Where notice is given, the seller may recover any loss on the resale from the original buyer and keep any profit. Where notice is not given, he cannot recover the loss and must account for any profit — which is why giving notice matters so much in practice.

Rights against the buyer personally

Suit for the price, where property has passed to the buyer and he wrongfully neglects or refuses to pay, or where the price is payable on a day certain irrespective of delivery.

Suit for damages for non-acceptance, where the buyer wrongfully refuses to accept and pay. Note the connection with the earlier distinction: the seller can sue for the price only where property has passed, and is otherwise confined to damages.

Suit for interest on the price from the date of tender or from the date the price was payable.

Auction sales

Where goods are put up for sale in lots, each lot is prima facie a separate contract of sale. The sale is complete when the auctioneer announces its completion by the fall of the hammer or in another customary manner, and until then any bidder may retract his bid.

A right to bid may be reserved expressly by or on behalf of the seller, and where it is, the seller or one person on his behalf may bid. Where a sale is not notified as subject to a right to bid on the seller's behalf, it is not lawful for the seller to bid himself or to employ any person to bid, and any sale contravening this may be treated as fraudulent by the buyer. The practice of employing such a person is known as puffing.

A sale may be notified as subject to a reserve price, and goods may be knocked down below it only if the seller consents.

How this chapter is examined

The recurring practical problems are: goods destroyed after the contract but before delivery, testing whether property had passed under the relevant rule; a buyer relying on the seller's skill for a particular purpose, or buying under a patent name, testing the fitness condition and its exception; a sale by sample where the bulk differs; a sale by a person without title, testing which exception to nemo dat applies; and an unpaid seller retaining, stopping or reselling goods, testing which right is available on the facts.

Descriptive and distinguishing questions ask for sale against agreement to sell, condition against warranty, sale against hire purchase, and lien against stoppage in transit. In every such answer, state the consequence — who bears the risk, whether the goods can be rejected, whether the seller may sue for the price — because the consequence is what shows the distinction has been understood rather than memorised.

Key formulas & results

Everything to memorise for the exam hall, in one card. Screenshot this for revision.

Risk follows property (section 26)

Unless otherwise agreed, goods remain at the seller's risk until property passes; once property passes they are at the buyer's risk whether or not delivery has been made

Never answer 'who bears the loss' by asking who had possession. The proviso shifts risk to the party at fault where delivery was delayed by that fault.

Rule 1 — specific goods in a deliverable state

Property passes when the contract is made, irrespective of postponement of payment or delivery or both

This is why a buyer can bear the loss of goods he has neither paid for nor received.

Rule 2 — specific goods not in a deliverable state

Property passes when the seller has done the thing required to put them into a deliverable state AND the buyer has notice of it

Both limbs are required; doing the act without notifying the buyer does not pass property.

Rule 3 — weighing or measuring to fix the price

Property passes when the seller has weighed, measured or tested the goods AND the buyer has notice of it

Applies only where it is the seller who must do the act. If the buyer must weigh, the rule does not apply.

Rule 4 — goods on approval or sale or return

Property passes on approval, on an act adopting the transaction, or on retention beyond the fixed time or, if none, a reasonable time without notice of rejection

Selling or pledging the goods is an act adopting the transaction, so property passes at that moment.

Unascertained and future goods

Property passes when goods of that description and in a deliverable state are unconditionally appropriated to the contract with the assent of the other party

Delivery to a carrier without reserving the right of disposal is an unconditional appropriation. Property never passes while goods remain unascertained.

Nemo dat quod non habet

A seller who is not the owner and sells without the owner's authority or consent gives the buyer no better title than he had

Every exception protects a bona fide purchaser for value without notice in circumstances where the true owner made the appearance of authority possible.

Lien versus stoppage in transit

Lien: seller retains possession; available on non-credit sales, expiry of credit, or buyer's insolvency. Stoppage: seller has parted with possession but the buyer has not obtained it; available only on the buyer's insolvency.

Lien does not require insolvency; stoppage always does. Transit ends when the buyer or his agent takes delivery or the carrier acknowledges holding for the buyer.

Resale with and without notice

With notice: the seller may recover any loss on resale from the buyer and keeps any profit. Without notice: he cannot recover the loss and must account for any profit.

Notice is not required where the goods are perishable or the contract expressly reserves a right of resale, but giving it is what preserves the claim for loss.

CMA Intermediate test series

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The Sale of Goods Act, 1930 shows up in every CMA Intermediate paper — sit a timed one and find out where you actually stand.

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Traps CMA Intermediate sets — and how to dodge them

These are the exact option-traps and misreads that cost marks under negative marking.

WATCH OUT

✗ Deciding who bears the loss by asking who had possession of the goods

✓ Section 26 makes risk follow property, not possession. Establish whether property had passed under the applicable rule, then apply the risk consequence.

WATCH OUT

✗ Treating delivery as necessary for property to pass in specific goods

✓ Under Rule 1, property in specific goods in a deliverable state passes when the contract is made, even though payment and delivery are both postponed.

WATCH OUT

✗ Applying Rule 3 where the buyer is to do the weighing

✓ The rule postpones the passing of property only where the seller is bound to weigh, measure or test. If the act is the buyer's, property is not held back by it.

WATCH OUT

✗ Omitting the notice requirement in Rules 2 and 3

✓ Both rules require the act to be done AND the buyer to have notice of it. Doing the act alone does not pass property.

WATCH OUT

✗ Applying the implied condition of fitness where goods were bought under a patent or trade name

✓ Where an article is sold under its patent or trade name there is no implied condition of fitness for any particular purpose, because the buyer relied on the name rather than the seller's skill or judgement.

WATCH OUT

✗ Allowing rejection after acceptance under an indivisible contract

✓ Where the contract is not severable and the buyer has accepted the goods or part of them, a breach of condition can only be treated as a breach of warranty. The remedy is damages, not rejection.

WATCH OUT

✗ Saying a sale by sample requires only that the bulk match the sample

✓ Where the sale is by sample as well as by description, the bulk must correspond with both. Correspondence with the sample alone is insufficient.

WATCH OUT

✗ Treating lien and stoppage in transit as alternatives available in the same circumstances

✓ They are sequential. Lien operates while the seller has possession; stoppage operates after he has parted with it and before the buyer obtains it. Only stoppage requires the buyer's insolvency.

WATCH OUT

✗ Allowing the seller to sue for the price whenever the buyer refuses to pay

✓ A suit for the price lies only where property has passed, or where the price is payable on a day certain irrespective of delivery. Otherwise the remedy is damages for non-acceptance.

WATCH OUT

✗ Assuming an unpaid seller who resells must always account for the profit

✓ Where he gave notice of the intention to resell, he keeps any profit and may recover any loss. It is the seller who resells without notice who cannot recover the loss and must account for the profit.

Exam-pattern practice

PYQ-style questions with full solutions. Work through them as a readiness check — mark yourself honestly and get your gap report at the end.

Readiness check

Are you exam-ready for The Sale of Goods Act, 1930?

15 problems from this chapter. Try each one, reveal the worked solution, mark yourself honestly — get your gap report at the end.

15 questions~11 min

5-minute revision

The whole chapter, distilled. Read this the night before the exam.

•Risk follows property under section 26, not possession, and not delivery.
•Rule 1: property in specific goods in a deliverable state passes when the contract is made, however long payment and delivery are postponed.
•Rules 2 and 3 both require the act to be done AND the buyer to have notice of it.
•Rule 3 applies only where the seller must weigh or measure, not the buyer.
•Property in unascertained goods never passes until ascertainment, then on unconditional appropriation with assent.
•Delivery to a carrier without reserving the right of disposal is an unconditional appropriation.
•Taking the bill of lading or railway receipt to the seller's order reserves the right of disposal, so property and risk both stay with the seller.
•On approval, property passes on approval, on an act adopting the transaction, or on retention beyond a fixed or reasonable time.
•A condition goes to the root of the contract and permits rejection; a warranty is collateral and gives damages only.
•A condition sinks to a warranty on waiver, on acceptance under an indivisible contract, or where performance is excused by law.
•No implied condition of fitness where goods are bought under a patent or trade name, but merchantable quality survives.
•Sale by sample as well as description requires correspondence with both.
•Fraud gives a voidable title that can be passed before rescission; theft gives no title at all.
•Lien needs possession and does not require insolvency; stoppage needs the buyer's insolvency and goods still in transit.
•Resale with notice: recover the loss, keep the profit. Without notice: cannot recover the loss, must account for the profit.
•A suit for the price lies only where property has passed or the price is payable on a day certain.

CMA Intermediate question blueprint

How this topic is asked, tier by tier — so you can prep to the pattern.

Typical weightage: 14

Exam-hall strategy

Battle-tested tips from mentors and toppers for this topic under the sectional clock.

Classify the goods first — specific, ascertained, unascertained, future — because the applicable rule follows from the classification.
State the rule for passing of property by name and number before applying it, then state expressly whether property passed.
Only after settling property, apply section 26 and its proviso to allocate the loss.
In conditions and warranties problems, check section 13 before allowing rejection — acceptance under an indivisible contract is the usual trap.
For nemo dat problems, name the specific exception relied on and check each of its requirements, especially good faith and absence of notice.
Distinguish lien from stoppage by asking who holds the goods, then whether the buyer is insolvent.
In resale questions, state whether notice was given before computing anything, since it decides who bears the loss and who keeps the profit.

Beyond the exam

Where this skill shows up in the job you're competing for — and in life.

Documentary sales in international and domestic trade rel…

Documentary sales in international and domestic trade rely on reservation of the right of disposal, with the bill of lading taken to the seller's order until payment or acceptance of a bill of exchange.

Hire purchase and lease financing are structured precisel…

Hire purchase and lease financing are structured precisely so that property does not pass, which lets the financier repossess on default and prevents the hirer from passing title to a third party.

The exceptions to nemo dat protect buyers in ordinary com…

The exceptions to nemo dat protect buyers in ordinary commerce, and underpin the security of dealings with mercantile agents and with sellers left in possession after sale.

Retention of title clauses in supply contracts are the co…

Retention of title clauses in supply contracts are the commercial application of the passing-of-property rules, keeping ownership with the supplier until payment.

Where else this topic is tested

Prepare once, score in every exam that asks it.

CA Intermediate Paper 2 — Corporate and Other Laws

CA Foundation Paper 2 — the Indian Contract Act, whose general law applies to sales

CS Executive — Setting up of Business Entities and Closure, and Jurisprudence papers

CMA Foundation — Fundamentals of Business Laws

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Questions aspirants ask

Pulled from the Q&A community and mentor sessions.

Never by asking who had them. Establish the class of goods, apply the correct rule for passing of property, then apply section 26 — risk follows property whether or not delivery has been made. Check the proviso last: if delivery was delayed through one party's fault, that party bears any loss which might not have occurred but for the fault.

Because Rule 1 makes the making of the contract the operative moment for specific goods in a deliverable state, and expressly says it is immaterial that payment or delivery or both are postponed. The parties can always agree otherwise, since the whole scheme is subject to their intention — the rules only supply an answer where intention is not apparent.

No. The exception applies where the buyer asks for a specified article under its patent or trade name, showing reliance on the name rather than the seller's skill. If the buyer describes his purpose and the seller then recommends a particular branded model, the buyer has relied on the seller's judgement and the condition applies despite the order being placed by name. Merchantable quality is unaffected in either case.

Once he has accepted them under an indivisible contract, section 13 converts the breach of condition into a breach of warranty and the remedy is damages only. Acceptance occurs when he intimates acceptance, does an act inconsistent with the seller's ownership such as using or reselling the goods, or retains them beyond a reasonable time without intimating rejection. He is entitled to a reasonable opportunity of examination first.

Possession and insolvency. Lien is the right to retain goods the seller still holds, and is available on any of three grounds — a cash sale, expiry of credit, or the buyer's insolvency. Stoppage is the right to regain goods that have left the seller but not reached the buyer, and is available only where the buyer is insolvent. Stoppage begins where lien ends.

Because a contract induced by fraud is voidable, not void. Until it is rescinded, the fraudster holds a real though defective title, and he can pass what he has to a buyer acting in good faith without notice. A thief has no title at all — nothing ever passed to him — so there is nothing for him to pass on. The timing of rescission is therefore decisive in the fraud case.