ICAI Notes- Unit 1: Formation of the Contract of Sale - CA Foundation PDF Download

 Page 1


 
LEARNING OUTCOMES 
THE SALE OF GOODS  
 ACT, 1930  
UNIT -1: FORMATION OF THE CONTRACT OF SALE 
 
After studying this unit, you would be able to understand- 
? Scope of the Act 
? Definitions of certain terms. 
? Meaning of contract of sale. 
? Distinctions of sale from other similar contracts. 
? Formalities of contract of sale. 
? Subject matter of contract of sale. 
? Ascertainment of price for the contract of sale. 
 
 
 
 
 
CHAPTER 
3 
   
© The Institute of Chartered Accountants of India
Page 2


 
LEARNING OUTCOMES 
THE SALE OF GOODS  
 ACT, 1930  
UNIT -1: FORMATION OF THE CONTRACT OF SALE 
 
After studying this unit, you would be able to understand- 
? Scope of the Act 
? Definitions of certain terms. 
? Meaning of contract of sale. 
? Distinctions of sale from other similar contracts. 
? Formalities of contract of sale. 
? Subject matter of contract of sale. 
? Ascertainment of price for the contract of sale. 
 
 
 
 
 
CHAPTER 
3 
   
© The Institute of Chartered Accountants of India
  BUSINESS LAWS  
 3.2 
 
 
Sale of Goods before Sale of Goods Act, 1930 
The Sale of Goods Act, 1930 deals with the laws relating to sale of goods in India. This Act is 
mainly based on English Sale of Goods Act, 1893. Before the Sale of Goods Act, 1930, all the 
provisions relating to sale of goods was covered under the Chapter VII of Indian Contract Act, 
1872. A strong need was felt to have an independent Sale of Goods Act and consequently a 
new act called the Sale of Goods Act, 1930 was passed. The Act came into force from 1
st 
July 
1930 and extends to whole of India. 
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 cases, this freedom is severely restricted.  
Sale of Goods Act, 1930 is an Act to define and amend the law relating to the sale of goods.  
1.1 SCOPE OF THE ACT 
The provisions of the Act are applicable to the contracts related to the sale of goods which 
means movable properties. The Act is not applicable for the sale of immovable properties like 
land, fields, shop or house etc. For immovable property, Transfer of Property Act, 1882 is 
applicable. Sale of Goods Act, 1930 deals only with movable property. 
The general provisions of the Indian Contract Act, 1872 apply to a Contract of Sale of Goods 
as far as they are not inconsistent with the express provisions of the Sale of Goods Act.  
Contract of Sale
Agreement
Buyer Seller
Transfer of 
Property
Immediate 
Transfer 
(Sale)
Yet to be 
transferred 
(Agreement 
to sell)
Goods
Existing 
Goods
Specific Ascertained Unascertained
Future 
Goods
Contingent 
Goods
Price
Money 
consideration
Essentials 
of valid 
contract
UNIT OVERVIEW 
© The Institute of Chartered Accountants of India
Page 3


 
LEARNING OUTCOMES 
THE SALE OF GOODS  
 ACT, 1930  
UNIT -1: FORMATION OF THE CONTRACT OF SALE 
 
After studying this unit, you would be able to understand- 
? Scope of the Act 
? Definitions of certain terms. 
? Meaning of contract of sale. 
? Distinctions of sale from other similar contracts. 
? Formalities of contract of sale. 
? Subject matter of contract of sale. 
? Ascertainment of price for the contract of sale. 
 
 
 
 
 
CHAPTER 
3 
   
© The Institute of Chartered Accountants of India
  BUSINESS LAWS  
 3.2 
 
 
Sale of Goods before Sale of Goods Act, 1930 
The Sale of Goods Act, 1930 deals with the laws relating to sale of goods in India. This Act is 
mainly based on English Sale of Goods Act, 1893. Before the Sale of Goods Act, 1930, all the 
provisions relating to sale of goods was covered under the Chapter VII of Indian Contract Act, 
1872. A strong need was felt to have an independent Sale of Goods Act and consequently a 
new act called the Sale of Goods Act, 1930 was passed. The Act came into force from 1
st 
July 
1930 and extends to whole of India. 
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 cases, this freedom is severely restricted.  
Sale of Goods Act, 1930 is an Act to define and amend the law relating to the sale of goods.  
1.1 SCOPE OF THE ACT 
The provisions of the Act are applicable to the contracts related to the sale of goods which 
means movable properties. The Act is not applicable for the sale of immovable properties like 
land, fields, shop or house etc. For immovable property, Transfer of Property Act, 1882 is 
applicable. Sale of Goods Act, 1930 deals only with movable property. 
The general provisions of the Indian Contract Act, 1872 apply to a Contract of Sale of Goods 
as far as they are not inconsistent with the express provisions of the Sale of Goods Act.  
Contract of Sale
Agreement
Buyer Seller
Transfer of 
Property
Immediate 
Transfer 
(Sale)
Yet to be 
transferred 
(Agreement 
to sell)
Goods
Existing 
Goods
Specific Ascertained Unascertained
Future 
Goods
Contingent 
Goods
Price
Money 
consideration
Essentials 
of valid 
contract
UNIT OVERVIEW 
© The Institute of Chartered Accountants of India
 
    
 
3.3 THE SALE OF GOODS ACT, 1930 
The expressions used but not defined in the Sales of Goods Act, 1930 and defined in the Indian 
Contract Act, 1872 have the meanings assigned to them in that Act. 
The customs and usages will bind both the parties if these are reasonable and are known to 
the parties at the time of entering the contract of sale. 
1.2 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/ separated from the land 
before sale or under the contract of sale. [Section 2(7)] 
 ‘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. 
 “Goods” include both tangible goods and intangible goods like goodwill, copyrights, 
patents, trademarks etc. Stock and shares, gas, steam, water, electricity and decree of 
the court are also considered to be goods.  
© The Institute of Chartered Accountants of India
Page 4


 
LEARNING OUTCOMES 
THE SALE OF GOODS  
 ACT, 1930  
UNIT -1: FORMATION OF THE CONTRACT OF SALE 
 
After studying this unit, you would be able to understand- 
? Scope of the Act 
? Definitions of certain terms. 
? Meaning of contract of sale. 
? Distinctions of sale from other similar contracts. 
? Formalities of contract of sale. 
? Subject matter of contract of sale. 
? Ascertainment of price for the contract of sale. 
 
 
 
 
 
CHAPTER 
3 
   
© The Institute of Chartered Accountants of India
  BUSINESS LAWS  
 3.2 
 
 
Sale of Goods before Sale of Goods Act, 1930 
The Sale of Goods Act, 1930 deals with the laws relating to sale of goods in India. This Act is 
mainly based on English Sale of Goods Act, 1893. Before the Sale of Goods Act, 1930, all the 
provisions relating to sale of goods was covered under the Chapter VII of Indian Contract Act, 
1872. A strong need was felt to have an independent Sale of Goods Act and consequently a 
new act called the Sale of Goods Act, 1930 was passed. The Act came into force from 1
st 
July 
1930 and extends to whole of India. 
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 cases, this freedom is severely restricted.  
Sale of Goods Act, 1930 is an Act to define and amend the law relating to the sale of goods.  
1.1 SCOPE OF THE ACT 
The provisions of the Act are applicable to the contracts related to the sale of goods which 
means movable properties. The Act is not applicable for the sale of immovable properties like 
land, fields, shop or house etc. For immovable property, Transfer of Property Act, 1882 is 
applicable. Sale of Goods Act, 1930 deals only with movable property. 
The general provisions of the Indian Contract Act, 1872 apply to a Contract of Sale of Goods 
as far as they are not inconsistent with the express provisions of the Sale of Goods Act.  
Contract of Sale
Agreement
Buyer Seller
Transfer of 
Property
Immediate 
Transfer 
(Sale)
Yet to be 
transferred 
(Agreement 
to sell)
Goods
Existing 
Goods
Specific Ascertained Unascertained
Future 
Goods
Contingent 
Goods
Price
Money 
consideration
Essentials 
of valid 
contract
UNIT OVERVIEW 
© The Institute of Chartered Accountants of India
 
    
 
3.3 THE SALE OF GOODS ACT, 1930 
The expressions used but not defined in the Sales of Goods Act, 1930 and defined in the Indian 
Contract Act, 1872 have the meanings assigned to them in that Act. 
The customs and usages will bind both the parties if these are reasonable and are known to 
the parties at the time of entering the contract of sale. 
1.2 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/ separated from the land 
before sale or under the contract of sale. [Section 2(7)] 
 ‘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. 
 “Goods” include both tangible goods and intangible goods like goodwill, copyrights, 
patents, trademarks etc. Stock and shares, gas, steam, water, electricity and decree of 
the court are also considered to be goods.  
© The Institute of Chartered Accountants of India
  BUSINESS LAWS  
 3.4 
 Classification of Goods 
 
(i)  EXISTING GOODS are such goods which are in existence at the time of the 
contract of sale, i.e., those owned or possessed or acquired by the seller at the 
time of contract of sale (Section 6). 
 The existing goods may be of following kinds: 
(a) Specific goods mean 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 
‘Santro’ car to ‘B’ and ‘B’ agreed to purchase the same ‘Santro’ 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. 
Means every 
kind of 
movable 
property
Goods
Actionable 
claims
Money in 
circulation
Other 
than
Stock & Shares
Growing crops
Grass, and 
Things
attached to or
forming part of
land which
agreed to be
severed
Also 
includes
Goods
Existing 
Goods
Specific Ascertained Unascertained
Future 
Goods
Contingent 
Goods
© The Institute of Chartered Accountants of India
Page 5


 
LEARNING OUTCOMES 
THE SALE OF GOODS  
 ACT, 1930  
UNIT -1: FORMATION OF THE CONTRACT OF SALE 
 
After studying this unit, you would be able to understand- 
? Scope of the Act 
? Definitions of certain terms. 
? Meaning of contract of sale. 
? Distinctions of sale from other similar contracts. 
? Formalities of contract of sale. 
? Subject matter of contract of sale. 
? Ascertainment of price for the contract of sale. 
 
 
 
 
 
CHAPTER 
3 
   
© The Institute of Chartered Accountants of India
  BUSINESS LAWS  
 3.2 
 
 
Sale of Goods before Sale of Goods Act, 1930 
The Sale of Goods Act, 1930 deals with the laws relating to sale of goods in India. This Act is 
mainly based on English Sale of Goods Act, 1893. Before the Sale of Goods Act, 1930, all the 
provisions relating to sale of goods was covered under the Chapter VII of Indian Contract Act, 
1872. A strong need was felt to have an independent Sale of Goods Act and consequently a 
new act called the Sale of Goods Act, 1930 was passed. The Act came into force from 1
st 
July 
1930 and extends to whole of India. 
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 cases, this freedom is severely restricted.  
Sale of Goods Act, 1930 is an Act to define and amend the law relating to the sale of goods.  
1.1 SCOPE OF THE ACT 
The provisions of the Act are applicable to the contracts related to the sale of goods which 
means movable properties. The Act is not applicable for the sale of immovable properties like 
land, fields, shop or house etc. For immovable property, Transfer of Property Act, 1882 is 
applicable. Sale of Goods Act, 1930 deals only with movable property. 
The general provisions of the Indian Contract Act, 1872 apply to a Contract of Sale of Goods 
as far as they are not inconsistent with the express provisions of the Sale of Goods Act.  
Contract of Sale
Agreement
Buyer Seller
Transfer of 
Property
Immediate 
Transfer 
(Sale)
Yet to be 
transferred 
(Agreement 
to sell)
Goods
Existing 
Goods
Specific Ascertained Unascertained
Future 
Goods
Contingent 
Goods
Price
Money 
consideration
Essentials 
of valid 
contract
UNIT OVERVIEW 
© The Institute of Chartered Accountants of India
 
    
 
3.3 THE SALE OF GOODS ACT, 1930 
The expressions used but not defined in the Sales of Goods Act, 1930 and defined in the Indian 
Contract Act, 1872 have the meanings assigned to them in that Act. 
The customs and usages will bind both the parties if these are reasonable and are known to 
the parties at the time of entering the contract of sale. 
1.2 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/ separated from the land 
before sale or under the contract of sale. [Section 2(7)] 
 ‘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. 
 “Goods” include both tangible goods and intangible goods like goodwill, copyrights, 
patents, trademarks etc. Stock and shares, gas, steam, water, electricity and decree of 
the court are also considered to be goods.  
© The Institute of Chartered Accountants of India
  BUSINESS LAWS  
 3.4 
 Classification of Goods 
 
(i)  EXISTING GOODS are such goods which are in existence at the time of the 
contract of sale, i.e., those owned or possessed or acquired by the seller at the 
time of contract of sale (Section 6). 
 The existing goods may be of following kinds: 
(a) Specific goods mean 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 
‘Santro’ car to ‘B’ and ‘B’ agreed to purchase the same ‘Santro’ 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. 
Means every 
kind of 
movable 
property
Goods
Actionable 
claims
Money in 
circulation
Other 
than
Stock & Shares
Growing crops
Grass, and 
Things
attached to or
forming part of
land which
agreed to be
severed
Also 
includes
Goods
Existing 
Goods
Specific Ascertained Unascertained
Future 
Goods
Contingent 
Goods
© The Institute of Chartered Accountants of India
 
    
 
3.5 THE SALE OF GOODS ACT, 1930 
(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 out of 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 3: 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 become 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 4: 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. 
Example 5: X has ten horses. He promises to sell one of them but does 
not specify which horse he will sell. It is a contract of sale of 
unascertained goods.   
(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 person cannot transfer what is not in existence.  
Example 6: 1,000 quintals of potatoes to be grown on A’s field is an example 
of agreement to sell.  
Example 7: 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.
© The Institute of Chartered Accountants of India