Definitions — Goods, Buyer, Seller, Price, Property, Possession (Section 2)

Section 2 of the Sale of Goods Act, 1930 is the most consequential section in the statute. It does no substantive work on its own; it simply assigns meanings. But every later rule of the Act — passing of property, conditions and warranties, the unpaid seller's rights, suits for breach — runs on the definitions packed into this single section. A buyer who is not a buyer in the Section 2 sense gets none of the Act's protections; a thing that is not goods within Section 2(7) is outside the statute altogether; a price that is not money is not a price at all but the consideration for a barter. To master the Act you must master Section 2 first, with examiner's discipline.

This chapter walks the reader through every operational sub-clause of Section 2 in the order in which it bears on a transaction — first the parties (buyer and seller, mercantile agent), then the subject-matter (goods, specific goods, future goods, deliverable state, quality of goods), then the consideration and the moments of transfer (price, property, delivery, document of title), and finally the residual concepts (insolvency, ascertained goods). Each definition is paired with a short worked example and the leading authority that fixes its meaning, so that you can return to a problem with the right tool already in hand.

Statutory anchor — Section 2 and its place in the Act

Section 2 reads, in its opening words, "In this Act, unless there is anything repugnant in the subject or context..." It then runs through fifteen-odd sub-clauses, each labelled with a numeral. The escape clause at the start matters: a Section 2 definition controls only "unless there is anything repugnant in the subject or context". If a later section uses a defined word in a sense plainly different from Section 2, the contextual sense prevails. In practice this is rare; the Act is drafted with great consistency. But it is the answer to the occasional examiner's trick question on whether a Section 2 definition is conclusive.

The architecture of Section 2 mirrors the lifecycle of a sale. You begin with the parties — who is selling and who is buying. You move to the goods and their state at the moment of contract. You then ask about price, about whether property has passed, and about whether possession or delivery has changed hands. Section 2 sequences these questions for you. Once you read it as a chronological flowchart, the seemingly random order of the sub-clauses falls into place.

Buyer and seller — Sections 2(1) and 2(13)

Section 2(1) defines a buyer as "a person who buys or agrees to buy goods". Section 2(13) defines a seller as "a person who sells or agrees to sell goods". The pairing of "buys or agrees to buy" and "sells or agrees to sell" is deliberate. It captures both the executed sale (where property has already passed) and the executory agreement to sell (where property is still to pass). This is the foundation for Section 4's central distinction between sale and agreement to sell, taken up in detail in our chapter on the contract of sale and the sale-versus-agreement-to-sell distinction.

Three points repeatedly trouble candidates. First, a person who has only an option to buy or to return — a customer in a sale-or-return arrangement, a hirer under a hire-purchase agreement — is not a person who has agreed to buy until he exercises the option. He is therefore not yet a buyer for the Act. The decision in Helby v Mathews (1895) AC 471 turned on this very distinction; the customer in a hire-purchase had only an option to purchase, was not a buyer, and could not transfer good title to a sub-buyer. The contrast is with Lee v Butler (1893) 2 QB 318 where the customer was bound to buy, did qualify as a buyer in possession, and could pass good title under what is now Section 30(2) of the Act.

Second, the seller and buyer must be distinct legal persons. A person cannot sell to himself. The classic illustration is State of Gujarat v Ramanlal & Sons Co. AIR 1965 Guj 60, where, on dissolution of a partnership firm, the surplus assets including some goods were divided in specie among the partners. The sales-tax authorities sought to treat the distribution as a sale to the partners. The court refused. The partners were already joint owners of the firm's goods; they could not be both sellers and buyers, and no money consideration moved. The same logic explains Madiammal v G.C. AIR 1977 Mad 209 — distribution between a partner and the representative of a deceased partner is not a conveyance.

Third, there can be a contract of sale between one part-owner and another. Two co-owners of a horse can contract such that one buys out the other's share. A partner can sell goods to the firm, or the firm to a partner, where the transaction is genuine and supported by money consideration. The Act follows the Contract Act here in privileging substance over form, an approach mirrored in the implied warranties of quiet possession and freedom from encumbrance.

Goods — Section 2(7), the central operative term

Section 2(7) defines "goods" as "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". Three lessons follow.

First, the definition is enumerative on the inclusion side and exclusive on the exception side. Stock and shares, growing crops, grass, and severable land-attachments are all goods regardless of whether they would naturally count as movables in a layperson's sense, and our chapter on the subject-matter of the contract — existing, future, specific, ascertained and unascertained goods works through the consequences in detail. Standing timber agreed to be cut and removed is goods, even though it stands attached to land at the moment of contract; in Shantabai v State of Bombay AIR 1958 SC 532, the Supreme Court drew the line by asking whether the subject-matter was in a state ready for severance. A standing tree continuing to draw nourishment from the soil is immovable and falls within the Transfer of Property Act regime for sale of immovable property; standing timber agreed to be felled is movable. Doors, windows, and the debris of a demolished building, once severed under the agreement, become goods; before severance they remain part of the immovable.

Second, intangibles count if they are forms of movable property. Copyright, goodwill, trade marks, patents, ships, and even decrees have all been treated as goods. Lottery tickets are goods, as H. Anraj v Govt. of Tamil Nadu AIR 1986 SC 63 confirmed — the transfer of the right to participate in the draw is a transfer of beneficial interest in movable property. The claim for the prize on a winning ticket, however, is itself an actionable claim and falls outside the definition.

Third, the metaphysical objections to electricity, water, gas and steam fail. Commr. of Sales Tax v M.P. Electricity Board AIR 1970 SC 732 rejected the argument that intangibility prevented electric energy from being movable property. Energy can be transmitted, transferred, delivered, stored and possessed — it has all the attributes of movable property, and that is enough. The Calcutta High Court reached the same conclusion in Associated Power Co. Ltd. v Ram Taran Roy AIR 1970 Cal 75. By extension, water in pipelines is goods, and even capable of being stolen.

Actionable claims and money — the two exclusions in Section 2(7)

Money in current circulation — legal tender — is excluded because it is the price-medium itself; you cannot sell rupees for rupees, a point that becomes important when you read the discussion of consideration in the general law of consideration under the Contract Act. Old or rare coins which have ceased to be legal tender, however, can be the subject of sale (Moss v Hancock (1899) 1 QB 111). Foreign currency, when sold for Indian rupees, is goods. Cheques and credit cards are equivalent to money in commercial usage and not goods.

Actionable claims — meaning unsecured debts and beneficial interests in movable property not in the possession of the claimant — are also excluded. A claim for arrears of rent, a claim on an insurance policy, a debt owed by a third party — these are choses in action, recoverable only by suit, and are dealt with by the assignment provisions of the Contract Act and the Transfer of Property Act, 1882. They cannot be the subject of a contract of sale under this Act.

Specific goods — Section 2(14)

Section 2(14) defines specific goods as "goods identified and agreed upon at the time a contract of sale is made". The keyword is identification at the time of contract. If A contracts to sell B "my grey horse named Mahesh standing in the third stall", that is specific goods. If A contracts to sell B "a grey horse from my stables", it is not specific goods because no particular horse has yet been singled out. The distinction matters because most of the rules in Sections 19 to 22 — those that govern when property passes by default — apply only to specific goods in a deliverable state. Unascertained goods cannot pass property under Section 18 until they are first ascertained.

Specific goods must be distinguished sharply from ascertained goods. The Act does not define ascertained goods, but the term is used in Section 18 and judicially explained as goods which were unascertained at the time of contract but have since been identified and earmarked for the contract. Specific goods are ascertained at the moment of contract; ascertained goods become so only later. The two are sequential stages, not synonyms. The pitfall in problem-solving is to read "specific" and "ascertained" as interchangeable; they are not.

Future goods — Section 2(6)

Section 2(6) defines future goods as "goods to be manufactured or produced or acquired by the seller after the making of the contract of sale". An agreement to supply wheat that is yet to be grown, or watches that are yet to be manufactured, or imported textiles that the seller has yet to procure — all are contracts in respect of future goods. By Section 6(3), a contract in respect of future goods operates as an agreement to sell, not as a sale. Property cannot pass at the moment of contract because the goods do not yet exist.

The link between specific, ascertained and future goods is the spine of Sections 18 to 25. The full machinery is unpacked in our chapter on transfer of property between seller and buyer, but the definitions you will use there all live here in Section 2.

Deliverable state — Section 2(3)

Section 2(3) defines goods as being in a "deliverable state" when they are "in such state that the buyer would under the contract be bound to take delivery of them". Two ideas matter. First, the test is contractual — what does the contract require the goods to look like before the buyer is obliged to take them? Second, the test is objective in the sense that it does not depend on the buyer's whim; he is bound to take if the contract terms are satisfied.

The leading authority is Underwood v Burgh Castle Brick & Cement Syndicate (1922) 1 KB 343. A condensing engine was sold F.O.R. London. At the time of contract it stood installed at the seller's premises. While being dismantled and loaded onto a truck for transport, it was damaged. The Court of Appeal held that the engine was not in a deliverable state at the moment of contract; the seller was still required to expend significant trouble and expense to put it on rail. Property therefore had not passed and the loss fell on the seller. Bankes LJ's formulation became canonical: a deliverable state "does not depend upon the mere completeness of the subject-matter in all its parts, but on the actual state of the goods at the date of the contract and the state in which they are to be delivered by the terms of the contract".

Quality of goods — Section 2(12)

Section 2(12) defines "quality of goods" as "their state or condition". The wording is elastic on purpose. State or condition includes physical attributes (size, weight, colour, freshness), commercial attributes (merchantable grade, conformity to sample), and even functional attributes (fitness for the buyer's known purpose). The implied conditions in Sections 14 to 17 — title, description, sample, merchantable quality, fitness for purpose — all draw on this definition. The reader who has internalised "quality" as state or condition will find the implied-condition machinery in our conditions and warranties chapter easier to follow.

Price — Section 2(10) and Section 9

Section 2(10) defines "price" as "the money consideration for a sale of goods". Three consequences flow. First, price must be in money. If goods are exchanged for goods, it is barter, not sale. The Sale of Goods Act does not apply to barter; remedies for breach of a barter contract lie under the general Contract Act. Second, where goods are exchanged for goods plus a money difference — an old car traded in for a new one with cash on top — Indian courts treat the transaction as a sale, because money has moved as consideration alongside the part-exchange (see the discussion in our price, ascertainment and earnest money chapter). Third, the price need not be fixed at the moment of contract. By Section 9, it may be fixed by the contract, left to be fixed in a manner agreed, or determined by the course of dealing between the parties. If none of these mechanisms produces a figure, the buyer must pay a reasonable price. The granular working out of these rules — and of earnest money — is in our chapter on price, ascertainment and earnest money.

The High Court in M.P. Laghu Udyog Nigam v Gwalior Steel Sales AIR 1992 MP 215 confronted the unusual case of corn delivered on terms that on demand either the price would be paid or an equal quantity of corn would be returned. The transaction was held to be a sale, not a loan, because the contemplated alternative — return of an equal quantity — was a discharge of the price obligation, not a contradiction of the price requirement.

Property — Section 2(11), the most important definitional move in the Act

Section 2(11) defines "property" as "the general property in the goods, and not merely a special property". This three-word distinction is the engine of the entire Act. General property means ownership — the full bundle of rights to possess, use, transfer and exclude. Special property means a limited interest — typically possession plus some derivative rights, as held by a bailee, a pledgee, or a hirer under a hire-purchase agreement.

A contract of sale exists only where the seller transfers or agrees to transfer the general property. A bailment, a pledge, a mortgage, a hire-purchase before the option is exercised — none of these transfer the general property and therefore none of them are sales. This is why a hire-purchase agreement is not a contract of sale until the hirer exercises the option to purchase, as the Supreme Court explained in K.L. Johar & Co. v Commr. Tax Officer AIR 1965 SC 1082. The fuller treatment of this distinction lives in our chapter on sale distinguished from hire-purchase, bailment, mortgage and pledge.

The general/special distinction also determines who bears the risk under Section 26. Risk prima facie passes with property — that is, with the general property — and not with possession. A buyer who has paid the price but to whom property has not yet passed bears no risk if the goods are accidentally destroyed before property passes. A seller who has parted with possession but retained property bears the risk. The phrase "risk follows property, not possession" is a one-line application of Section 2(11) and is the foundation of performance of contract — delivery and acceptance, where Section 33 elaborates the modes of delivery from the Section 2(2) base.

Delivery — Section 2(2)

Section 2(2) defines "delivery" as "voluntary transfer of possession from one person to another". The word "voluntary" is the operative qualifier. A taking of possession by a thief is not delivery; an attornment by a warehouseman to the buyer's instructions is. Section 33 of the Act elaborates the modes of delivery, but the conceptual base is here in Section 2(2).

Delivery may be actual, symbolic or constructive. In actual delivery, the goods are physically handed over. In symbolic delivery, a symbol representing control over the goods — the key to a warehouse, the bill of lading on a maritime shipment, the railway receipt for a consignment — is handed over, with the consequence that the buyer can now exercise control. In constructive delivery (also called fictitious delivery, or delivery by attornment), no physical transfer occurs but the parties agree to treat possession as having changed hands; the seller continues to hold the goods, but his legal character has shifted from owner to bailee. Section 36(3) extends constructive delivery to the case where the goods are in the possession of a third person who acknowledges to the buyer that he holds the goods on the buyer's behalf — the consent of all three parties is essential, as Godts v Rose (1855) 17 CB 229 makes clear.

Note carefully that delivery is independent of property. Property may pass without delivery — the seller may continue to hold the goods as bailee for the buyer — and delivery may occur without property passing — as where goods are sent on approval. The two concepts run on parallel tracks and intersect only because Section 26 ties risk to property and not to possession.

Document of title to goods — Section 2(4)

Section 2(4) defines a "document of title to goods" as including a bill of lading, dock-warrant, warehouse-keeper's certificate, wharfinger's 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 authorising or purporting to authorise its possessor to transfer or receive the goods thereby represented. The definition is open-textured by design. The list is illustrative, not exhaustive.

The functional test is whether the document is treated in the trade as proof of possession or control such that its transfer effects a transfer of possession. A delivery order issued by a seller to his own warehouseman is not a document of title in this sense unless it is signed and accepted by the warehouseman; before acceptance it is merely an authority to deliver. A bill of lading, by contrast, is a document of title from the moment it is issued because the carrier who issued it is bound to deliver to the holder. The transfer of a bill of lading is therefore a symbolic delivery of the goods at sea, with no further attornment necessary.

Mercantile agent — Section 2(9)

Section 2(9) defines a "mercantile agent" as "a mercantile agent having in the customary course of his business as such agent authority either to sell goods, or to consign goods for the purposes of sale, or to buy goods, or to raise money on the security of goods". The definition matters most for the second exception to nemo dat in Section 27, which gives a buyer in good faith from a mercantile agent in possession of the goods or of documents of title with the owner's consent good title against the owner. The detailed treatment of mercantile agency lives in our chapter on transfer of title by non-owner — the nemo dat rule and exceptions; here it is enough to anchor the definition.

The four conditions of the definition are conjunctive in their structural importance. The agent must be in business as such an agent. He must have customary authority of the kind listed. He must be in possession with the owner's consent. The buyer must take in good faith without notice of the want of authority. Strip any of these and the Section 27 exception fails. The wider doctrine of caveat emptor and its exceptions assumes the buyer's classification under Section 2 is settled before any of the warning rules can apply.

Insolvent — Section 2(8)

Section 2(8) defines a person as insolvent "who has ceased 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". The definition is broader than the technical bankruptcy law definition; it captures commercial insolvency without requiring an adjudication. The definition is operationally important for Section 50 (right of stoppage in transit) and Section 53 (effect of sub-sale), where the seller's right to interdict the goods turns on the buyer's insolvency. Without the broader Section 2(8) definition, a seller would have to wait for an adjudication before exercising his statutory remedies — by which time the goods would have reached the insolvent buyer and be beyond reach. The detailed working out lies in our chapter on the unpaid seller's right of stoppage in transit.

Putting Section 2 to work — a quick worked example

Imagine that S, a Mumbai dealer, contracts on 1 March to sell B, a Delhi buyer, "100 bales of unginned cotton from my warehouse on Marine Drive". The warehouse holds 500 bales of identical cotton. Payment is to be made on delivery. On 5 March, S marks 100 bales with B's name and notifies B. On 6 March, the bales are accidentally destroyed by fire before any physical handover.

To resolve who bears the loss, you must run through Section 2 in order. Are S and B a seller and buyer in the Section 2(1) and 2(13) sense? Yes — S agreed to sell, B agreed to buy. Are the bales goods within Section 2(7)? Yes — movable property, not actionable claims, not money. Were they specific goods at the moment of contract under Section 2(14)? No — at 1 March, only 100 of an undifferentiated 500 were promised; no particular bales had been identified. They were therefore unascertained goods. Property could not have passed at the moment of contract because Section 18 forbids the passing of property in unascertained goods until ascertainment. Did ascertainment occur on 5 March? Yes — S marked 100 bales with B's name and notified B. Did appropriation under Section 23 occur, vesting property in B? On these facts, yes — appropriation with the buyer's assent (the marking with B's name, communicated to B). Risk has therefore passed with property under Section 26. The fire on 6 March falls on B.

Notice that not a single substantive section was needed to start the analysis. Sections 2(1), 2(7), 2(13) and 2(14) carried the early steps; only at the appropriation stage did Sections 18, 23 and 26 come in. That is how Section 2 works in practice — it is the foundation against which every problem under the Act must be read.

Why these definitions repay early mastery

Examiners reach for the Section 2 definitions in three predictable ways. They contrast specific goods with ascertained goods to test whether the candidate knows the timing distinction. They contrast property (general) with property (special) to test whether the candidate distinguishes a sale from a bailment, pledge or hire-purchase. They contrast price (money) with consideration (which may be anything of value under the Contract Act) to test whether the candidate knows that barter is not sale. A candidate who has internalised the four ideas — buyer/seller as parties, goods as movable property other than money and actionable claims, price as money consideration, property as general property — will navigate every problem under the Act with confidence.

The remaining chapters in this Sale of Goods Act notes series work through the substantive provisions in turn. The next chapter takes up Section 4 directly — the contract of sale and the sale-versus-agreement-to-sell distinction — and shows how the Section 2 definitions ripen into operative legal consequences when a real transaction is tested against the Act.

Frequently asked questions

What is the difference between specific goods and ascertained goods under the Act?

Specific goods are goods identified and agreed upon at the time of contract under Section 2(14). Ascertained goods are goods which were unascertained at the time of contract but have since been identified and earmarked for the contract. The two are sequential stages, not synonyms. If A contracts to sell B "my grey horse Mahesh in stall 3", those are specific goods. If A contracts to sell B "100 bags of rice from my godown of 1000 bags", they are unascertained goods at the time of contract, and become ascertained only when 100 bags are set aside and marked for B.

Are electricity, water and gas goods under Section 2(7)?

Yes. In Commr. of Sales Tax v M.P. Electricity Board AIR 1970 SC 732, the Supreme Court held that intangibility does not exclude electricity from movable property — energy can be transmitted, transferred, delivered, stored and possessed in the same way as any other movable. The Calcutta High Court reached the same conclusion in Associated Power Co. v Ram Taran Roy AIR 1970 Cal 75. By the same reasoning, water in pipelines, gas, and steam are goods. The Section 2(7) exclusions are limited to actionable claims and money in current circulation.

Why does Section 2(11) define property as general property and not merely special property?

Because a contract of sale requires transfer of ownership, not just transfer of possession. General property is the full bundle of ownership rights — possess, use, transfer, exclude. Special property is a limited interest such as a bailee's right of possession or a pledgee's right to hold as security. A bailment, pledge, mortgage or hire-purchase before the option is exercised transfers only special property and is therefore not a sale. The distinction also drives Section 26: risk prima facie passes with general property, not with possession or special property.

Is a delivery order issued by the seller to his own warehouseman a document of title under Section 2(4)?

Not by itself. A delivery order is merely an authority to deliver. It becomes a document of title only when the warehouseman accepts it — that is, attorns to the buyer's right. A bill of lading, by contrast, is a document of title from issue, because the carrier who issued it is bound to deliver to the holder. The functional test under Section 2(4) is whether the document is treated in the trade as proof of possession or control such that its transfer effects a transfer of constructive possession of the goods.

Are foreign currency notes goods within Section 2(7)?

Yes, when sold for Indian rupees as a transaction. The Section 2(7) exclusion of money is confined to current legal tender — the rupee in India — because money cannot be sold for itself. Foreign currency, when bought and sold for Indian rupees, is treated as goods. So are old or rare coins which have ceased to be legal tender; the leading English authority is Moss v Hancock (1899) 1 QB 111. Cheques and credit cards remain outside the definition because they function as money equivalents in commercial usage.