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THE SALE OF GOODS ACT, 1930
DEFINITIONS
UNIT -1: FORMATION OF THE CONTRACT OF SALE
UNIT -1 FORMATION OF THE CONTRACT OF SALE
DEFINITIONS-
Buyer & Seller:
‘Buyer’ means a person who buys or agrees to buy goods [Sec 2(1)].
‘Seller’ means a person who sells or agrees to sell goods [Sec 2(13)].
Goods and other related terms:
Sec 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.
Fixed Deposit Receipts (FDR) are considered as goods u/s 176 of the Indian Contract Act.
before sale or under the contract of sale
EXISTING GOODS
- goods as are in existence ( owned or possessed by seller) at the time of the contract of sale (Sec 6).
(a) Specific goods- goods identified & agreed upon at the time a contract of sale is made [Sec 2(14)].
(c) Unascertained goods- 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.
(b) Ascertained Goods - goods which are identified in accordance with the agreement after the contract of sale is made. It is when from a large quantity of unascertained goods, the number or quantity contracted for is identified.
FUTURE GOODS
- goods to be manufactured or acquired by seller after making the contract of sale [Sec 2 (6)].It is always an agreement to sell & never actual sale because a man cannot transfer what is not in existence.
CONTINGENT GOODS
The acquisition of which by the seller depends upon an uncertain event are called ‘contingent goods’ [Sec 6(2)]. It also operate as ‘an agreement to sell’ & not a ‘sale’.
Delivery
Delivery means voluntary transfer of possession from one person to another [Sec 2(2)].
As a general rule, delivery of goods may be made by doing anything, which has the effect of putting the goods in possession of buyer, or any person authorized to hold them on his behalf.
Forms of 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 goods of A agrees to hold them on behalf of B.
(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 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 [Sec 2(3)].
“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 & 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. [Sec 2(4)]
The list is only illustrative & 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’ & ‘document of title’. A share certificate is a ‘document’ showing title but not a document of title. It merely shows that person named in the certificate is entitled to 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 & the delivery of the certificate.
Mercantile Agent [Sec 2(9)]:
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- auctioneers, factors, brokers, etc.
Property [Section 2(11)]:
‘Property’ here means ‘ownership’ or general property.
In every contract of sale- ownership of goods must be transferred by seller to buyer, or there should be an agreement by seller to transfer the ownership to the buyer.
General property & not merely a special property must be transferred.
It is quite possible that the general property in a thing may be in one person & a special property in the same thing may be in another.
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.
Insolvent [Sec 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.
Price [Section 2(10)]:
Price means the money consideration for a sale of goods.
Quality of goods[Section 2(12)]:
includes their state or condition.
SALE AND AGREEMENT TO SELL (SECTION 4)
Sec 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”.
A contract of sale may be absolute or conditional. [Sec 4(2)]
Sec 4(3)– “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.”
SALE AND AGREEMENT TO SELL
Sec 4(3) – “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.”
When agreement to sell becomes sale? Sec 4(4) 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.
Elements must co-exist so as to constitute a contract of sale of goods
elements
(i) There must be at least two parties, the seller & 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 seller or future goods.
(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 & 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.
DISTINCTION BETWEEN SALE AND AN AGREEMENT TO SELL
DISTINCTION
SALE DISTINGUISHED FROM OTHER SIMILAR CONTRACTS
SALE DISTINGUISHED FROM OTHER SIMILAR CONTRACTS
BAILMENT
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.
HIRE PURCHASE
Sale & Hire Purchase:
Contract of sale resembles with contracts of hire purchase very closely, & 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.
“Hire-purchase agreement” means an agreement under which goods are let on hire & under the hirer has an option to purchase them in accordance with terms of the agreement—
(a) Possession of goods is delivered by the owner to a person on condition that such person pays the agreed amount in periodical instalments, &
(b) The property in the goods is to pass to such person on the payment of the last instalment, &
(c) Such person has a right to terminate the agreement at any time before the property so passes.
CONTRACT FOR WORK & LABOUR
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.
CONTRACT OF SALE HOW MADE (SEC 5)
CONTRACT OF SALE HOW MADE
Sec 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 installments, or that the delivery or payment or both shall be postponed.
Sec 5(2)- 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.
SUBJECT MATTER OF CONTRACT OF SALE
SUBJECT MATTER OF CONTRACT OF SALE
Existing or future goods (Sec 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.
(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 (Sec 7): Where there is a contract for the sale of specific goods, 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 (Sec 8): Where there is an agreement to sell specific goods, & 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 agreement before the risk passes to buyer, the agreement is thereby avoided.
ASCERTAINMENT OF PRICE (SECTION 9 & 10)
ASCERTAINMENT OF PRICE
Ascertainment of price (Sec 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.
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.
Agreement to sell at valuation (Sec 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.
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.
UNIT - 2: CONDITIONS & WARRANTIES
(SECTION 13)
UNIT-2 CONDITIONS & WARRANTIES
(SECTION 11)
STIPULATION AS TO TIME (SECTION 11)
Unless a different intention appears from the terms of the contract, stipulations as to time of payment are not deemed to be of the essence of a contract of sale. Whether any other stipulation as to time is of the essence of the contract or not depends on the terms of the contract.
But delivery of goods must be made without delay. Whether or not such a stipulation is of the essence of a contract depends on the terms agreed upon. Stipulations as to time of delivery are usually the essence of the contract.
(Section 12)
INTRODUCTION - CONDITIONS AND WARRANTIES
At the time of selling the goods, a seller usually makes certain statements or representations with a view to induce the intending buyer to purchase the goods. Such representations are generally about the nature & quality of goods, & about their fitness for buyer’s purpose.When these statements or representations do not form a part of the contract of sale, they are not relevant and have no legal effects on the contract. But when these form part of the contract of sale and the buyer relies upon them, they are relevant and have legal effects on the contract.
A representation which forms a part of the contract of sale & affects the contract, is called a stipulation.
Condition & warranty (Section 12)
A stipulation in a contract of sale with reference to goods which are the subject may be a condition or a warranty. [(1)]
“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”. [(2)]
Ex- Car unfit for touring purpose.
“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 & treat the contract as repudiated”.[(3)]
Ex- Car's honk not working.
Whether a stipulation is a condition or a warranty depends in each case on construction of the contract.
A stipulation may be a condition, though called a warranty in the contract. [(4)]
Difference between conditions and warranties:
CONDITION TO BE TREATED AS WARRANTY (SECTION 13)
Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may waive the condition or elect to treat the breach of the condition as a breach of warranty & not as a ground for treating the contract as repudiated. [(1)]
Where a contract of sale is not severable and the buyer has accepted the goods or part thereof, the breach of condition to be fulfilled by the seller can only be treated as a breach of warranty and not as a ground for rejecting the goods and treating the contract as repudiated, unless there is a term of the contract, express or implied, to that effect. [(2)]
Nothing in this section shall affect the case of any condition or warranty fulfilment of which is excused by law by reason of impossibility or otherwise. [(3)]
Cases where a breach of condition be treated as a breach of warranty & as a result, the buyer loses his right to rescind the contract and can claim for damages only:
In the following cases, a contract is not avoided even on account of a breach of a condition:
(i) Where the buyer altogether waives the performance of the condition.
A party may for his own benefit, waive a stipulation.
(ii) Where the buyer elects to treat the breach of the conditions, as one of a warranty.
That is to say, he may claim only damages instead of repudiating the contract.
Example: A agrees to supply B 10 bags of first quality sugar @ Rs. 625 per bag but supplies only second quality sugar, the price of which is Rs. 600 per bag. There is a breach of condition and the buyer can reject the goods. But if the buyer so elects, he may treat it as a breach of warranty, accept the second quality sugar and claim damages @ Rs. 25 per bag.
(iii) Where the contract is non-severable and the buyer has accepted either the whole goods or any part thereof.
(iv) Where the fulfillment of any condition or warranty is excused by law by reason of impossibility or otherwise.
EXPRESS AND IMPLIED CONDITIONS AND WARRANTIES (SECTION 14-17)
‘Conditions’ & ‘Warranties’ may be either express or implied.
"Express Stipulations" are those, which are agreed upon between the parties at the time of contract & are expressly provided in the contract.
"Implied Stipulations" are those, which are presumed by law to be present in the contract.
It should be noted that an implied stipulations may be negated or waived by an express agreement or by the course of dealings between the parties or by usage of trade.
(SECTION 14-17)
Implied Conditions
Condition as to title [Section 14(a)]
In every contract of sale, unless there is an agreement to the contrary, the first implied condition on the part of the seller is that
(a) in case of a sale, he has a right to sell the goods, and
(b) in the case of an agreement to sell, he will have right to sell the goods at the time when the property is to pass.
If the seller’s title turns out to be defective, the buyer must return the goods to the true owner & recover the price from the seller.
Example: If A sells to B tins of condensed milk labelled ‘C.D.F. brand’, and this is proved to be an infringement of N Company’s trade mark, it will be a breach of implied condition that A had the right to sell. B in such a case will be entitled to reject the goods or take off the labels, & claim damages for the reduced value.
1
Sale by description [Section 15]:
Where there is a contract of sale of goods by description, there is an implied condition that the goods shall correspond with the description. It is based on the principle that “if you contract to sell peas, you cannot compel the buyer to take beans.” The buyer is not bound to accept & pay for the goods which are not in accordance with the description of goods.
It has to be determined whether the description was essential for identifying the goods by examining the construction of contract.
The breach of it entitles the buyer to reject the goods whether the buyer is able to inspect them or not.
Examples
1) A at Kolkata sells to B twelve bags of “waste silk” on its way from Murshidabad to Kolkatta. There is an implied condition that the silk shall be such as is known in the market as “Waste Silk”. If it not, B is entitled to reject the goods.
2) A ship was contracted to be sold as “copper-fastened vessel” but actually it was only partly copper-fastened. Held that goods did not correspond to description & hence could be returned or if buyer took the goods, he could claim damages for breach.
The Act, however, does not define ‘description’. A sale has been deemed to be by the description
(i) where the class or kind to which the goods belong has been specified, e.g., ‘Egyptian cotton’, “java sugar”, “Shffield crockery” &
(ii) where the goods have been described by certain characteristics essential to their identification, e.g., steel of specific dimension.
by reference to the place of origin or mode of packing, etc.
2
Sale by sample [Section 17]:
In a contract of sale by sample, there is an implied condition that
(a) the bulk shall correspond with the sample in quality;
(b) the buyer shall have a reasonable opportunity of comparing the bulk with the sample;
(c) the goods shall be free from any defect rendering them un-merchantable, which would not be apparent on reasonable examination of the sample. This condition is applicable only with regard to defects, which could not be discovered by an ordinary examination of the goods. If the defects are hidden, then the buyer can avoid the contract.
Example: A company sold certain shoes made of special sole by sample for the French Army. The shoes were found to contain paper not discoverable by ordinary inspection.
Held, the buyer was entitled to the refund of the price plus damages.
3
Sale by sample as well as by description [Section 15]:
4
Where the goods are sold by sample as well as by description the implied condition is that the bulk of the goods supplied shall correspond both with the sample & the description. In case the goods correspond with the sample but do not tally with description or vice versa or both, the buyer can repudiate the contract.
Example: A agreed with B to sell certain oil described as refined sunflower oil, warranted only equal to sample. The goods tendered were equal to sample, but contained a mixture of hemp oil.
B can reject the goods.
Condition as to quality or fitness [Section 16(1)]:
5
As a general rule, it is the duty of the buyer to examine the goods thoroughly before he buys them in order to satisfy himself that the goods will be suitable for his purpose for which he is buying them. This is known as rule of caveat emptor which means “Let the buyer beware”.There is no implied condition as to the quality or fitness of the goods sold for any particular purpose.
However, the condition as to the reasonable fitness of goods for a particular purpose may be implied if
-buyer had made known purpose of his purchase to the seller
&
-relied upon the skill and judgment of the seller
to select the best goods and the seller has ordinarily been dealing in those goods.
Example: ‘A’ bought a set of false teeth from ‘B’, a dentist. But the set was not fit for ‘A’s mouth. ‘A’ rejected the set of teeth & claimed the refund of price. It was held that ‘A’ was entitled to do so.
Even this implied condition will not apply if the goods have been sold under a trademark or a patent name.
Example: ‘A’ went to ‘B’s shop & asked for a ‘Merrit’ sewing machine. ‘B’ gave ‘A’ the same & ‘A’ paid the price.
‘A’ relied on the trade name of the machine rather than on the skill and judgement of the seller ‘B’.
Condition as to Merchantability [Section 16(2)]:
6
Where goods are bought by description from a seller who deals in goods of that description (whether he is the manufacturer or producer or not), there is an implied condition that the goods shall be of merchantable quality.
Except if the buyer has examined the goods, there shall be no implied condition as regards defects which such examination ought to have revealed.
“Merchantable quality” connotes goods of such a quality & in such a condition a man of ordinary prudence would accept them as goods of that description.
Examples
1) If a person orders motor horns from a manufacturer of horns, and the horns supplied are scratched and damaged owing to bad packing, he is entitled to reject them as unmerchantable.
2) A bought a black velvet cloth from C & found it to be damaged by white ants. Held, the condition as to merchantability was broken.
Condition as to wholesomeness:
7
In the case of eatables & provisions, in addition to the implied condition as to merchantability, there is another implied condition that the goods shall be wholesome.
Example: A supplied F with milk. The milk contained typhoid germs. F’s wife consumed the milk & was infected. Held, there was a breach of condition as to fitness and A was liable to pay damages.
Implied Warranties:
Implied Warranties
1. Warranty as to undisturbed possession [Section 14(b)]:
1
An implied warranty that the buyer shall have & enjoy quiet possession of the goods. That is to say, if the buyer having got possession of the goods, is later on disturbed in his possession, he is entitled to sue the seller for the breach of the warranty.
2. Warranty as to non-existence of encumbrances [Section 14(c)]:
2
An implied warranty that the goods shall be free from any charge or encumbrance in favour of any third party not declared or known to the buyer before or at the time the contract is entered into.
Example: A pledges his car with C for a loan & promises him to give its possession the next day. A, then sells the car immediately to B, who purchased it on good faith, without knowing the fact.
B, may either ask A to clear the loan or himself may pay the money & then, file a suit against A for recovery of the money with interest.
3. Warranty as to quality or fitness by usage of trade [Section 16(3)]:
An implied warranty as to quality or fitness for a particular purpose may be annexed or attached by the usage of trade.
SAME PINCH.
3
4. Disclosure of dangerous nature of goods:
Where the goods are dangerous in nature and the buyer is ignorant of the danger, the seller must warn the buyer of the probable danger.
4
CAVEAT EMPTOR (Section 16)
CAVEAT EMPTOR
The doctrine ‘Caveat Emptor’ means ‘let the buyer beware’. When sellers display their goods in the open market, it is for the buyers to make a proper selection or choice of the goods. If the goods turn out to be defective he cannot hold the seller liable. The seller is in no way responsible for the bad selection of the buyer. The seller is not bound to disclose the defects in the goods which he is selling. It is the duty of the buyer to satisfy himself before buying the goods that the goods will serve the purpose for which they are being bought.
"There is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale”.
Conditions to be satisfied to create an implied authority:
- if the buyer had made known to the seller the purpose of his purchase, &
- the buyer relied on the seller’s skill and judgement, & seller’s business to supply goods of that description.
Examples
1) A sold pigs to B. These pigs being infected, caused typhoid to other healthy pigs of the buyer. It was held that the seller was not bound to disclose that the pigs were unhealthy.
2) A purchases a horse from B. A needed the horse for riding but he did not mention this fact to B. The horse is not suitable for riding but is suitable only for being driven in the carriage. A can neither reject the horse nor can claim compensation from B.
Exceptions to the doctrine of Caveat Emptor
EXCEPTIONS
-Fitness as to quality or use [Section 16 (1)]
-Goods sold by description [Section 15]
-Goods of Merchantable Quality [Section 16(2)]
-Sale by sample [Section 17]
-Goods by sample as well as description [Section 15]
-Trade Usage [Section 16(3)]
-Seller actively conceals a defect or is guilty of fraud
Fitness as to quality or use:
Where the buyer 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 judgment and the goods are of a description which is in the course of seller’s business to supply, it is the duty of the seller to supply such goods as are reasonably fit for that purpose.
Example: An order was placed for some trucks to be used for heavy traffic in a hilly country.
The trucks supplied by the seller were unfit for this purpose and broke down.
Priest vs. Last
P, a draper, purchased a hot water bottle from a retail chemist, P asked the chemist if it would stand boiling water. The Chemist told him that the bottle was meant to hold hot water. The bottle burst when water was poured into it & injured his wife. It was held that the chemist shall be liable to pay damages to P, as he knew that the bottle was purchased for the purpose of being used as a hot water bottle.
Where the article can be used for only one particular purpose, the buyer need not tell the seller the purpose for which he required the goods. But where the article can be used for a number of purposes, the buyer should tell the seller the purpose for which he requires the goods, if he wants to make the seller responsible.
Bombay Burma Trading Corporation Ltd. vs. Aga Muhammad
Timber was purchased for the express purpose of using it as railways sleepers & when it was found to be unfit for the purpose, the Court held that the contract could be avoided.
Exception of Exception: In case where the goods are purchased under its patent name or brand name, there is no implied condition that the goods shall be fit for any particular purpose.
Trade Usage: An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade and if the seller deviates from that, this rule of Caveat Emptor is not applicable.
Example: In readymade garment business, there is an implied condition by usage of trade that the garments shall be reasonably fit on the buyer.
Seller actively conceals a defect or is guilty of fraud: Where the seller sells the goods by making some misrepresentation or fraud and the buyer relies on it or when the seller actively conceals some defect in the goods so that the same could not be discovered by the buyer on a reasonable examination, then the rule of Caveat Emptor will not apply. In such a case the buyer has a right to avoid the contract and claim damages.
UNIT - 3: TRANSFER OF OWNERSHIP AND DELIVERY OF GOODS
UNIT-3 TRANSFER OF OWNERSHIP AND DELIVERY OF GOODS
INTRODUCTION
Sale of goods involves transfer of ownership/property from seller to buyer. It is essential to determine the time at which the ownership passes from the seller to the buyer.
Importance of the time of transfer: The general rule is that risk prima facie passes with the property. In case where goods are lost or damaged, the burden of loss will be borne by the person who is the owner at the time when the goods are lost or damaged. Where the goods are damaged by the act of the third party , it is the owner who can take action. Suit for price by the seller lies only when the property has passed to the buyer (Sale).
PASSING OF PROPERTY (SECTIONS 18 – 26)
Passing/transfer of property/ownership constitutes the most important element & factor to decide legal rights & liabilities of sellers & buyers. If the property has passed to the buyer, the risk in the goods sold is that of buyer & not of seller, though the goods may still be in the seller’s possession.
Possession se fark nahi padta saahab property se padta h!
PASSING OF PROPERTY
A
A. Property (Specific or ascertained goods) passes when intended to pass (Section 19):
Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. [(1)]
For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties & circumstances of the case. [(2)]
1. Specific goods in a deliverable state (Section 20): Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment of the price or the time of delivery of the goods, or both, is postponed.
2. Specific goods to be put into a deliverable state (Section 21): Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until such thing is done & the buyer has notice thereof.
3. Specific goods in a deliverable state, when the seller has to do anything thereto in order to ascertain price (Section 22): Where there is a contract for the sale of specific goods in a deliverable state, but the seller is bound to weigh, measure, test or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until such act or thing is done and the buyer has notice thereof.
Example: A sold carpets to the Company which were required to be laid. The carpet was delivered to the company’s premises but was stolen before it could be laid. It was held that the carpet was not in deliverable state as it was not laid, which was part of the contract and hence, the property had not passed to the buyer company.
B
B. Goods must be ascertained
Where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained. [Section 18]
The rules in respect of passing of property of unascertained goods are as follows:
1. Sale of unascertained goods by description [Section 23(1)]: Where there is a contract for the sale of unascertained or future goods by description & goods of that description & in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer.
Such assent may be express or implied, & may be given either before or after the appropriation is made.
2. Delivery to the carrier [Section 23(2)]: Where, the seller delivers the goods to the buyer or to a carrier or other bailee (whether named by the buyer or not) for the purpose of transmission to the buyer, & does not reserve the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract.
Example: A bill of lading of railway parcel is made out in the name of the buyer & is sent to him, ownership in the goods passes from the seller to the buyer.
Sale of unascertained goods and Appropriation: Appropriation of goods involves 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.
The essentials are:
(a) There is a contract for the sale of unascertained or future goods.
(b) The goods should conform to the description and quality stated in the contract.
(c) The goods must be in a deliverable state.
(d) The goods must be unconditionally (as distinguished from an intention to appropriate) appropriated to the contract either by delivery to the buyer or his agent or the carrier.
(e) The appropriation must be made by:
(i) the seller with the assent of the buyer; or
(ii) the buyer with the assent of the seller.
(f) The assent may be express or implied.
(g) The assent may be given either before or after appropriation.
C. Goods sent on approval or “on sale or return” (Section 24)
C
When goods are delivered to the buyer on approval or “on sale or return” or other similar terms, the property therein passes to the buyer-
(a) when he signifies his approval or acceptance to the seller or does any other act adopting the transaction;
Example: P brought a musical instrument from a musical shop on a condition that he will purchase it, if he likes that instrument. After a week he has informed the shop owner that he has agreed to purchase the musical instrument. The ownership is transferred when he has decided to purchase the instrument as his own.
(b) if he does not signify his approval or acceptance to the seller but retains the goods without giving notice of rejection, then, if a time has been fixed for the return of the goods, on the expiration of such time, and, if no time has been fixed, on the expiration of a reasonable time; or
Example: A sends to B a water motor on approval or return in March, 2016. B to return it after trial in August, 2016. The water motor has not been returned within a reasonable time, and therefore, A is not bound to accept it and B must pay the price.
(c) he does something to the good which is equivalent to accepting the goods i,e. exercising domination over the goods showing an unequivocal intention to buy.
Example: ‘A’ delivered some jewellery to ‘B’ on sale or return basis. ‘B’ pledged the jewellery with ‘C’. It was held that the ownership of the jewellery had been transferred to ‘B’ as he had adopted the transaction by pledging the jewellery with ‘C’. In this case, ‘A’ has no right against ‘C’. He can only recover the price of the jewellery from ‘B’.
Failure or inability to return the goods to the seller does not necessarily imply selection to buy.
Sale for cash only or Return
Where the goods have been delivered by a person on “sale or return” on the terms that the goods were to remain the property of the seller till they are paid for, the property therein does not pass to the buyer until the terms are complied with, i.e., cash is paid for.
Example: ‘A’ delivered his jewellery to ‘B’ on sale for cash only or return basis. It was expressly provided in the contract that the jewellery shall remain ‘A’s property until the price is paid. Before the payment of the price, ‘B’ pledged the jewellery with ‘C’. It was held that at the time of pledge, the ownership was not transferred to ‘B’. Thus, the pledge was not valid and ‘A’ could recover the jewellery from ‘C’.
CASH OR RETURN
D. Reservation of right of disposal (Section 25)
D
Where there is a contract for the sale of specific goods or where goods are subsequently appropriated to the contract, the seller may, by the terms of the contract or appropriation, reserve the right of disposal of the goods until certain conditions are fulfilled. In such case, even if the delivery of the goods to a buyer, or to a carrier or other bailee is made for the purpose of transmission to the buyer, the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled. [(1)]
Where goods are shipped/delivered to a railway administration for carriage by railway & by the bill of lading or railway receipts, the goods are deliverable to the order of the seller or his agent, the seller is prima facie deemed to reserve the right of disposal. [(2)]
Where the seller of goods draws on the buyer for the price & transmits to the buyer the bill of exchange together with the bill of lading or the railway receipt, to secure acceptance or payment of the bill of exchange, the buyer is bound to return the bill of lading or the railway receipt if he does not honour the bill of exchange; &, if he wrongfully retains the bill of lading or the railway receipt, the property in the goods does not pass to him. [(3)]
Example: X sends furniture to a company by a truck and instructs the driver not to deliver the furniture to the company until the payment is made by company to him. The property passes only when the payment is made.
RISK PRIMA FACIE PASSES WITH PROPERTY
RISK PRIMA FACIE PASSES WITH PROPERTY (SECTION 26)
Unless otherwise agreed, the goods remain at the seller’s risk until property therein is transferred to the buyer, but when the property therein is transferred to the buyer, the goods are at the buyer’s risk whether delivery has been made or not.
Where delivery has been delayed through the fault of either buyer or seller, the goods are at the risk of the party in fault as regards any loss which occurred because of such fault.
Nothing in this section shall affect the duties or liabilities of either seller or buyer as bailee of the goods of the other party.
However, parties may by special agreement stipulate that ‘risk’ will pass sometime after or before the ‘property’ has passed.
Example: A bids for an antique painting at a sale by auction. After the bid, when the auctioneer struck his hammer to signify acceptance of the bid, he hit the antique which gets damaged. The loss will have to be borne by the seller, because the ownership of goods has not yet passed from the seller to the buyer.
Example: A contracted to sell 100 bales of cotton to B to be delivered in February. B took the delivery of the part of the cotton but made a default in accepting the remaining bales. Consequently the cotton becomes unfit for use. The loss will have to be borne by the buyer.
TRANSFER OF TITLE (SECTIONS 27 – 30)
TRANSFER OF TITLE
Sale by person not the owner (Section 27): Where goods are sold by a person who is not the owner thereof & who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller’s authority to sell. If the seller is not the owner of goods, then the buyer also will not become the owner i.e. the title of the buyer shall be the same as that of the seller. This rule is expressed in the Latin maxim “Nemo dat quod non habet” which means that no one can give what he has not got.
Where a mercantile agent is, with the consent of the owner, in possession of the goods or of a document of title to the goods, any sale made by him, when acting in the ordinary course of business of a mercantile agent, shall be as valid as if he were expressly authorised by the owner of the goods to make the same; provided that the buyer acts in good faith and has not at the time of the contract of sale notice that the seller has no authority to sell.
Example :
1)If A sells some stolen goods to B, who buys them in good faith, B will get no title to that and the true owner has a right to get back his goods from B.
2) P, the hirer of vehicle under a hire purchase agreement, sells them to Q. Q, though a bona fide purchaser, does not acquire the ownership in the vehicle. At the most he acquires the same right as that of the hirer.
If this rule is enforced rigidly then the innocent buyers may be put to loss in many cases.
Therefore, to protect the interests of innocent buyers, a number of exceptions have been provided to this rule.
EXCEPTIONS
Exceptions: In the following cases, a non-owner can convey better title to the bona fide purchaser of goods for value.
(1) Sale by a Mercantile Agent: A sale made by a mercantile agent of the goods for document of title to goods would pass a good title to the buyer in the following circumstances; namely;
(a) If he was in possession of the goods or documents with the consent of the owner;
(b) If the sale was made by him when acting in the ordinary course of business as a mercantile agent; and
(c) If the buyer had acted in good faith and has at the time of the contract of sale, no notice of the fact that the seller had no authority to sell (Proviso to Section 27).
(2) Sale by one of the joint owners (Section 28): If one of several joint owners of goods has the sole possession of them by permission of the co-owners, the property in the goods is transferred to any person who buys them of such joint owner in good faith and has not at the time of the contract of sale notice that the seller has no authority to sell.
Example: A, B, and C are three brothers and joint owners of a T.V and VCR and with the consent of B & C, the VCR was kept in possession of A. A sells the T.V and VCR to P who buys it in good faith and without notice that A had no authority to sell. P gets a good title to VCR & TV.
(3) Sale by a person in possession under voidable contract: A buyer would acquire a good title to the goods sold to him by a seller who had obtained possession of the goods under a contract voidable on the ground of coercion, fraud, misrepresentation or undue influence provided that the contract had not been rescinded until the time of the sale (Section 29).
Example: X fraudulently obtains a diamond ring from Y. This contract is voidable at the option of Y. But before the contract could be terminated, X sells the ring to Z, an innocent purchaser. Z gets the good title and Y cannot recover the ring from Z even if the contract is subsequently set aside.
(4) Sale by one who has already sold the goods but continues in possession thereof: If a person has sold goods but continues to be in possession of them or of the documents of title to them, he may sell them to a third person, and if such person obtains the delivery thereof in good faith and without notice of the previous sale, he would have good title to them, although the property in the goods had passed to the first buyer earlier. A pledge or other disposition of the goods or documents of title by the seller in possession are equally valid [Section 30(1)].
Example: During ICL matches, P buys a TV set from R. R agrees to deliver the same to P after some days. In meanwhile R sells the same to S, at a higher price, who buys in good faith and without knowledge about the previous sale. S gets a good title.
(5) Sale by buyer obtaining possession before the property in the goods has vested in him: Where a buyer with the consent of the seller obtains possession of the goods before the property in them has passed to him, he may sell, pledge or otherwise dispose of the goods to a third person, and if such person obtains delivery of the goods in good faith and without notice of the lien or other right of the original seller in respect of the goods, he would get a good title to them [Section 30(2)].
Exception:
However, a person in possession of goods under a ‘hire-purchase’ agreement which gives him only an option to buy is not covered within the section unless it amounts to a sale.
Example: A took a car from B on the condition that A would pay monthly installment of Rs 5,000 as hire charges with an option to purchase it by payment of Rs. 1,00,000 in 24 installments. After payment of few installments, A sold the car to C. B can recover it from C since A had not bought the car, he had only an option to buy it.
(6) Effect of Estoppel: Where the owner is estopped by the conduct from denying the seller’s authority to sell, the transferee will get a good title as against the true owner. But before a good title by estoppel can be made, it must be shown that the true owner had actively suffered or held out the other person in question as the true owner or as a person authorized to sell the goods.
Example: ‘A’ said to ‘B’, a buyer, in the presence of ‘C’ that he (A) is the owner of the horse. But ‘C’ remained silent though the horse belonged to him. ‘B’ bought the horse from ‘A’. Here the buyer (B) will get a valid title to the horse even though the seller (A) had not title to the horse. In this case, ‘C’, by his own conduct, is prevented from denying ‘A’s authority to sell the horse.
(7) Sale by an unpaid seller: Where an unpaid seller who had exercised his right of lien or stoppage in transit resells the goods, the buyer acquires a good title to the goods as against the original buyer [Section 54 (3)].
(8) Sale under the provisions of other Acts:
(i) Sale by an Official Receiver or Liquidator of the Company will give the purchaser a valid title.
(ii) Purchase of goods from a finder of goods will get a valid title under circumstances [Section 169 of the Indian Contract Act, 1872]
(iii) A sale by pawnee (Bank) can convey a good title to the buyer [Section 176 of the Indian Contract Act, 1872]
PERFORMANCE OF THE CONTRACT OF SALE (SECTIONS 31 – 44)
Definition of Delivery [Section 2(2)]: Delivery means voluntary transfer of possession from one person to another. Thus, if the possession is taken through unfair means, there is no delivery of the goods.
Duties of seller & buyer (Section 31): It is the duty of seller to deliver the goods & of the buyer to accept & pay for them, in accordance with terms of contract of sale.
Payment & delivery are concurrent conditions (Section 32): Unless otherwise agreed, the seller shall be ready & willing to give possession of the goods to the buyer in exchange for the price, & the buyer shall be ready & willing to pay the price in exchange for possession of the goods.
PERFORMANCE OF THE CONTRACT OF SALE
Rules
Rules Regarding Delivery of goods (Section 33-41)
(i) Delivery (Section 33): Delivery of goods sold may be made by doing anything which the parties agree shall be treated as delivery or which has the effect of putting the goods in the possession of the buyer or of any person authorised to hold them on his behalf.
(ii) Effect of part delivery: A delivery of part of goods, in progress of the delivery of the whole has the same effect, for the purpose of passing the property in such goods, as a delivery of the whole; but a delivery of part of the goods, with an intention of severing it from the whole, does not operate as a delivery of the remainder. (Section 34)
Example: Certain goods lying at wharf were sold in a lot. The seller instructed the wharfinger to deliver them to the buyer who had paid for them & the buyer, thereafter, accepted them & took away part. Held, there was delivery of whole.
(iii) Buyer to apply for delivery: Apart from any express contract, the seller of goods is not bound to deliver them until the buyer applies for delivery. (Section 35)
(iv) Place of delivery: Whether it is for the buyer to take possession of the goods or for the seller to send them to the buyer is a question depending in each case on the contract, express or implied, between the parties. Apart from any such contract, goods sold are to be delivered at the place at which they are at the time of the sale, and goods agreed to be sold are to be delivered at the place at which they are at the time of the agreement to sell or if not then in existence, at the place at which they are manufactured or produced. [Section 36(1)]
(v) Time of delivery: Where under the contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is fixed, the seller is bound to send them within a reasonable time. [Section 36(2)]
(vi) Goods in possession of a third party: Where the goods at the time of sale are in possession of a third person, there is no delivery unless & until such third person acknowledges to the buyer that he holds the goods on his behalf. Provided that nothing in this section shall affect the operation of the issue or transfer of any document of title to goods. [Section 36(3)]
(vii)Time for tender of delivery: Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour. What is reasonable hour is a question of fact. [Section 36(4)].
(viii)Expenses for delivery: The expenses of and incidental to putting the goods into a deliverable state must be borne by the seller in the absence of a contract to the contrary. [Section 36(5)].
(x) Instalment deliveries: Unless otherwise agreed, the buyer is not bound to accept delivery in instalments. The rights and liabilities in cases of delivery by instalments and payments thereon may be determined by the parties of contract. (Section 38)
(xi) Delivery to carrier: Subject to the terms of contract, the delivery of the goods to the carrier for transmission to the buyer, is prima facie deemed to be delivery to the buyer. [Section 39(1)]
(xii) Deterioration during transit: Where goods are delivered at a distant place, the liability for deterioration necessarily incidental to the course of transit will fall on the buyer, though the seller agrees to deliver at his own risk. (Section 40)
Example: P sold to Q a certain quantity of iron rods which was to be sent by proper vessel. It was rusted before it reached the buyer. The rust of the rod was so minimal and was not effecting the merchantable quality and the deterioration was not necessarily incidental to its transmission. It was held that Q was bound to accept the goods.
(ix) Delivery of wrong quantity [Section 37]: Where the seller delivers to the buyer a quality of goods less than he contracted to sell, the buyer may reject them, but if the buyer accepts the goods so delivered he shall pay for them at the contract rate. [Sub-section (1)]
Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the buyer may accept the goods included in the contract and reject the rest, or he may reject the whole. If the buyer accepts the whole of the goods so delivered, he shall pay for them at the contract rate. [Sub- section (2)]
Where the seller delivers to the buyer the goods he contracted to sell mixed with goods of a different description not included in the contract, the buyer may accept the goods which are in accordance with the contract and reject, or may reject the whole. [Sub-section (3)]
The provisions of this section are subject to any usage of trade, special agreement or course of dealing between the parties. [Sub-section (4)]
Example: A agrees to sell 1000 quintals of wheat to B at Rs. 1,000 per quintal. A delivers 1,100 quintals. B may reject the whole lot, or accept only 1,000 quintals and reject the rest or accept the whole lot and pay for them at the contract of sale.
(xiii) Buyer’s right to examine the goods: Where goods are delivered to the buyer, who has not previously examined them, he is entitled to a reasonable opportunity of examining them in order to ascertain whether they are in conformity with the contract. Unless otherwise agreed, the seller is bound, on request, to afford the buyer a reasonable opportunity of examining the goods. (Section 41)
Rule related to Acceptance of Delivery of Goods (Section 42):
The buyer is deemed to have accepted the goods when he-
(a) intimates to the seller that he had accepted the goods; or
(b) does any act to the goods, which is inconsistent with the ownership of the seller; or
(c) retains the goods after the lapse of a reasonable time, without intimating to the seller that he has rejected them.
42
Buyer not bound to return rejected goods (Section 43):
Unless otherwise agreed, where goods are delivered to the buyer & he refuses to accept them, having the right so to do, he is not bound to return them to the seller, but it is sufficient if he intimates to the seller that he refuses to accept them.
43
Liability of buyer for neglecting or refusing delivery of goods (Section 44):
44
When the seller is ready & willing to deliver the goods & requests the buyer to take delivery, & the buyer does not within a reasonable time after such request take delivery of the goods, he is liable to the seller for any loss occasioned by his neglect or refusal to take delivery and also for a reasonable charge for the care & custody of the goods.
Provided further that nothing in this section shall affect the rights of the seller where the neglect or refusal of the buyer to take delivery amounts to a repudiation of the contract.
UNIT-4
UNPAID SELLER
UNIT - 4: UNPAID SELLER
UNPAID SELLER
Reciprocal promises- In a contract of sale, if seller is under an obligation to deliver goods, buyer has to pay for it.
In case buyer fails or refuses to pay, the seller, as an unpaid seller, shall have certain rights.
Section 45(1)-The seller of goods is deemed to be an ‘Unpaid Seller’ when-
(a) The whole of the price has not been paid or tendered & the seller had an immediate right of action for the price.
(b) when a bill of exchange or other negotiable instrument has been received as conditional payment, and the condition on which it was received has not been fulfilled by reason of the dishonour of the instrument or otherwise.
The term ‘seller ‘ here includes any person who is in the position of a seller, as, for instance, an agent of the seller to whom the bill of lading has been endorsed, or a consignor or agent who has himself paid, or is directly responsible for, the price [(2)].
Example 1: X sold certain goods to Y for Rs. 50,000. Y paid Rs. 40,000 but fails to pay the balance.
X is an unpaid seller.
Example 2: P sold some goods to R for Rs. 60,000 & received a cheque for a full price.
On presentment, the cheque was dishonored by the bank. P is an unpaid seller.
RIGHTS OF AN UNPAID SELLER
RIGHTS OF SELLER AGAINST BUYER
Unpaid seller’s right (Section 46): Notwithstanding that the property in the goods may have passed to the buyer, the unpaid seller of goods, as such, has by implication of law-
(a) a lien on the goods for the price while he is in possession of them;
(b) in case of the insolvency of the buyer a right of stopping the goods in transit after he has parted with the possession of them;
(c) a right of re-sale as limited by this Act. [Sub-section (1)]
Where the property in goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies, a right of withholding delivery similar to and co-extensive with his rights of lien and stoppage in transit where the property has passed to the buyer. [Sub-section (2)]
Rights of an unpaid seller against the goods: The right of unpaid seller against goods can be categorized under two headings.
AGAINST GOODS
Seller’s lien
Seller’s lien (Section 47)
The unpaid seller of goods who is in possession of them is entitled to retain possession of them until payment or tender of the price in the following cases, namely:-
(a) where the goods have been sold without any stipulation as to credit;
(b) where the goods have been sold on credit, but the term of credit has expired;
(c) where the buyer becomes insolvent.
the seller may exercise his right of lien notwithstanding that he in possession of the goods as agent or bailee for the buyer.
It is the right to retain the possession of the goods and refusal to deliver them to the buyer until the price due in respect of them is paid or tendered.
The unpaid seller’s lien is a possessory lien i.e. the lien can be exercised as long as the seller remains in possession of the goods.
Part delivery (Section 48):
Where an unpaid seller has made part delivery of the goods, he may exercise his right of lien on the remainder, unless such part delivery has been made under such circumstances as to show an agreement to waive the lien.
Termination of lien (Section 49):
The unpaid seller of goods loses his lien thereon-
(a) when he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the right of disposal of the goods;
(b) when the buyer or his agent lawfully obtains possession of the goods;
(c) by waiver thereof.
(d) By Estoppel i.e., where the seller so conducts himself that he leads third parties to believe that the lien does not exist.
The unpaid seller of goods, having a lien thereon, does not lose his lien by reason only that he has obtained a decree for the price of the goods.
Example: A, sold a car to B for Rs. 1,00,000 and delivered the same to the railways for the purpose of transmission to the buyer. The railway receipt was taken in the name of B and sent to B. Now A cannot exercise the right of lien.
Stoppage in transit
Right of stoppage in transit (Section 50 to 52):
Right of stoppage in transit (Section 50): When the buyer of goods becomes insolvent, the unpaid seller who has parted with the possession of the goods has the right of stopping them in transit, that is to say, he may resume possession of the goods as long as they are in the course of transit, and may retain them until paid or tendered price of the goods. This right is the extension of the right of lien because it entitles the seller to regain possession even when the seller has parted with the possession of goods.
Only when the following conditions are fulfilled:
(a) The seller must be unpaid.
(b) He must have parted with the possession of goods.
(c) The goods are in transit.
(d) The buyer has become insolvent.
(e) The right is subject to provisions of the Act.
Example: B at Delhi, orders goods of A, at Mumbai. A consigns and forwards the goods to B. On arrival at Delhi, they are taken to B‘s warehouse and left there. B refuses to take these goods and stop payment. The goods are in transit and the unpaid seller can take them back.
Duration of transit (Section 51):
(1) Goods are deemed to be in the course of transit from the time when they are delivered to a carrier or other bailee for the purpose of transmission to the buyer, until the buyer or his agent in that behalf takes delivery of them from such carrier or other bailee.
(2) If the buyer or his agent in that behalf obtains delivery of the goods before their arrival at the appointed destination, the transit is at an end.
(3) If, after the arrival of the goods at the appointed destination, the carrier or other bailee acknowledges to the buyer or his agent that he holds the goods on his behalf & continues in possession of them as bailee for the buyer or his agent, the transit is at an end and it is immaterial that a further destination for the goods may have been indicated by the buyer.
(4) If the goods are rejected by the buyer and the carrier or other bailee continues in possession of them, the transit is not deemed to be at an end, even if the seller has refused to receive them back.
(5) When goods are delivered to a ship chartered by the buyer, it is a question depending on the circumstances of the particular case, whether they are in the possession of the master as a carrier or as agent of the buyer.
(unless the seller has reserved the right of disposal of the goods)
(6) Where the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent in that behalf, the transit is deemed to be at an end.
(7) Where part delivery of the goods has been made to the buyer or his agent in that behalf, the remainder of the goods may be stopped in transit, unless such part delivery has been given in such circumstances as to show an agreement to give up possession of the whole of the goods.
How stoppage in transit is effected (Section 52)
(1) The unpaid seller may exercise his right of stoppage in transit either
- by taking actual possession of the goods, or
- by giving notice of his claim to the carrier or other bailee in whose possession the goods are. Such notice may be given either to the person in actual possession of the goods or to his principal. In the latter case the notice, to be effectual, shall be given at such time and in such circumstances, that the principal, by the exercise of reasonable diligence, may communicate it to his servant or agent in time to prevent a delivery to the buyer.
(2) When notice of stoppage in transit is given by the seller to the carrier or other bailee in possession of the goods, he shall re-deliver the goods to, or according to the directions of, the seller. The expenses of such re-delivery shall be borne by the seller.
Distinction between Right of Lien and Right of Stoppage in Transit
(i) The essence of a right of lien is to retain possession whereas the right of stoppage in transit is right to regain possession.
(ii) Seller should be in possession of goods under lien while in stoppage in transit
(a) seller should have parted with the possession
(b) possession should be with a carrier, &
(c) buyer has not acquired the possession.
(iii) Right of lien can be exercised even when the buyer is not insolvent but it is not the case with right of stoppage in transit.
(iv) Right of stoppage in transit begins when the right of lien ends.
Effects of sub-sale or pledge by buyer (Section 53):
The right of lien or stoppage in transit is not affected by the buyer selling or pledging the goods unless the seller has assented to it. This is based on the principle that a second buyer cannot stand in a better position than his seller. (The first buyer).
Example: A sold certain goods to B of Mumbai and the goods are handed over to railways for transmission to B. In the mean time, B sold these goods to C for consideration. B becomes insolvent. A can still exercise his right of stoppage in transit.
Exceptions: (a) When the seller has assented to the sale, mortgage or other disposition of the goods made by the buyer.
Example: A entered into a contract to sell cartons in possession of a wharfinger to B and agreed with B that the price will be paid to A from the sale proceeds recovered from his customers. Now B sold goods to C and C duly paid to B. But anyhow B failed to make the payment to A. A wanted to exercise his right of lien and ordered the wharfinger not to make delivery to C. Held that the seller had assented to the resale of the goods by the buyer to the sub-buyers. As a result A’s right to lien is defeated (Mount D. F. Ltd. vs Jay & Jay (Provisions) Co. Ltd ).
(b) When a document of title to goods has been transferred to the buyer and the buyer transfers the documents to a person who has bought goods in good faith and for value i.e. for price, then, the proviso of sub-section (1) stipulates as follows:
(i) If the last-mentioned transfer is by way of sale, right of lien or stoppage in transit is defeated, or
(ii) If the last mentioned transfer is by way of pledge, unpaid seller’s right of lien or stoppage only be exercised, subject to the rights of the pledgee.
However, the pledgee may be required by the unpaid seller to use in the first instance, other goods or securities of the pledger available to him to satisfy his claims. [Sub-section (2)].
Effect of stoppage:
The contract of sale is not rescinded when the seller exercises his right of stoppage in transit. The contract still remains in force and the buyer can ask for delivery of goods on payment of price.
Right of re-sale [Section 54]:
Right of re-sale
The right of resale is a very valuable right given to an unpaid seller. In the absence of this right, the unpaid seller’s other rights against the goods that is lien and the stoppage in transit would not have been of much use because these rights only entitled the unpaid seller to retain the goods until paid by the buyer.
The unpaid seller can exercise the right to re-sell the goods under the following conditions:
conditions
(i) Where the goods are of a perishable nature: In such a case the buyer need not be informed of the intention of resale.
(ii) Where he gives notice to the buyer of his intention to re-sell the goods: If after the receipt of such notice the buyer fails within a reasonable time to pay or tender the price, the seller may resell the goods.
It may be noted that in such cases, on the resale of the goods, the seller is also entitled to:
(a) Recover the difference between the contract price and resale price, from the original buyer, as damages.
(b) Retain the profit if the resale price is higher than the contract price.
It may also be noted that the seller can recover damages and retain the profits only when the goods are resold after giving the notice of resale to the buyer. Thus, if the goods are resold by the seller without giving any notice to the buyer, the seller cannot recover the loss suffered on resale. Moreover, if there is any profit on resale, he must return it to the original buyer, i.e. he cannot keep such surplus with him [Section 54(2)].
(iii) Where an unpaid seller who has exercised his right of lien or stoppage in transit resells the goods:
The subsequent buyer acquires the good title thereof as against the original buyer, despite the fact that the notice of re-sale has not been given by the seller to the original buyer.
(iv) A re-sale by the seller where a right of re-sale is expressly reserved in a contract of sale: Sometimes, it is expressly agreed between the seller and the buyer that in case the buyer makes default in payment of the price, the seller will resell the goods to some other person. In such cases, the seller is said to have reserved his right of resale, and he may resell the goods on buyer’s default.
It may be noted that in such cases, the seller is not required to give notice of resale. He is entitled to recover damages from the original buyer even if no notice of resale is given.
(v)Where the property in goods has not passed to the buyer: the unpaid seller has in addition to his remedies a right of withholding delivery of the goods. This right is similar to lien and is called “quasi-lien”.
RIGHTS OF UNPAID SELLER AGAINST THE BUYER (SECTIONS 55-61)
AGAINST BUYER
Rights of unpaid seller against the buyer: An unpaid seller can enforce certain rights against the goods as well as against the buyer personally. Rights of unpaid seller against the buyer are otherwise known as seller’s remedies for breach of contract of sale. The rights of the seller against the buyer personally are called rights in person and are in addition to his rights against the goods.
right against the buyer
1. Suit for price (Section 55)
(a) Where under a contract of sale the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may sue him for the price of the goods. [Section 55(1)]
(b) Where under a contract of sale the price is payable on a day certain irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price, the seller may sue him for the price although the property in the goods has not passed and the goods have not been appropriated to the contract. [Section 55(2)].
2. Suit for damages for non-acceptance (Section 56):
Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for damages for non-acceptance. As regards measure of damages, Section 73 of the Indian Contract Act, 1872 applies.
3. Repudiation of contract before due date (Section 60):
Where the buyer repudiates the contract before the date of delivery, the seller may treat the contract as rescinded and sue damages for the breach. This is known as the ‘rule of anticipatory breach contract’.
4. Suit for interest [Section 61]:
Where there is specific agreement between the seller and the buyer as to interest on the price of the goods from the date on which payment becomes due, the seller may recover interest from the buyer. If, however, there is no specific agreement to this effect, the seller may charge interest on the price when it becomes due from such day as he may notify to the buyer.
In the absence of a contract to the contrary, the Court may award interest to the seller in a suit by him at such rate as it thinks fit on the amount of the price from the date of the tender of the goods or from the date on which the price was payable.
REMEDIES OF BUYER AGAINST THE SELLER
RIGHTS OF BUYER
If the seller commits a breach of contract, the buyer gets the following rights against the seller:
1. Damages for non-delivery [Section 57]:
Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non-delivery.
Example: ‘A’ a shoe manufacturer, agreed to sell 100 pairs of shoes to ‘B’ at the rate of ` 1050 per pair. ‘A’ knew that ‘B’ wanted the shoes for the purpose of further reselling them to ‘C’ at the rate of ` 1100/- per pair. On the due date of delivery, ‘A’failed to deliver the shoes to ‘B. In consequence, ‘B’could not perform his contract with 'C’for the supply of 100 pairs of shoes. In this case, 'B’can recover damages from ‘A’at the rate of ` 50/- per pair (the difference between the contract price and resale price).
2. Suit for specific performance (Section 58):
Where the seller commits of breach of the contract of sale, the buyer can appeal to the court for specific performance. The court can order for specific performance only when the goods are ascertained or specific.
Example: ‘A’ agreed to sell a rare painting of Mughal period to ‘B’. But on the due date of delivery, ‘A’ refused to sell the same. In this case, ‘B’ may file a suit against ‘A’ for obtaining an order from the Court to compel ‘A’ to perform the contract (i.e. to deliver the painting to ‘B’ at the agreed price).
3. Suit for breach of warranty (section 59):
Where there is breach of warranty on the part of the seller, or where the buyer elects to treat breach of condition as breach of warranty, the buyer is not entitled to reject the goods only on the bases of such breach of warranty. But he may –
(i) set up against the seller the breach of warranty in diminution or extinction of the price; or
(ii) sue the seller for damages for breach of warranty.
4. Repudiation of contract before due date (Section 60):
Where either party to a contract of sale repudiates the contract before the date of delivery, the other may either treat the contract as subsisting and wait till the date of delivery, or he may treat the contract as rescinded and sue for damages for the breach.
5. Suit for interest:
(1) Nothing in this Act shall affect the right of the seller or the buyer to recover interest or special damages, in any case where by law interest or special damages may be recoverable, or to recover the money paid where the consideration for the payment of it has failed.
(2) In the absence of a contract to the contrary, the court may award interest at such rate as it thinks fit on the amount of the price to the buyer in a suit by him for the refund of the price in a case of a breach of the contract on the part of the seller-from the date on which the payment was made.
Example 1: In case of a sale of cigarettes which turned out to be mildewed and unfit for consumption, damages were awarded on the basis of the difference between the contract price and the price released.
Example 2: In case of absence of transfer of title or registration the purchaser cannot claim damages for breach of conditions and warranties relating to sale.
AUCTION SALE (SECTION 64)
AUCTION SALE
An ‘Auction Sale’ is a mode of selling property by inviting bids publicly and the property is sold to the highest bidder. An auctioneer is an agent governed by the Law of Agency. When he sells, he is only the agent of the seller. He may, however, sell his own property as the principal and need not disclose the fact that he is so selling.
Rules of Auction sale: Section 64 of the Sale of Goods Act, 1930 provides following rules to regulate the sale by auction:
(a) Where goods are sold in lots: Where goods are put up for sale in lots, each lot is prima facie deemed to be subject of a separate contract of sale.
(b) Completion of the contract of sale: The sale is complete when the auctioneer announces its completion by the fall of hammer or in any other customary manner and until such announcement is made, any bidder may retract from his bid.
(c) Right to bid may be reserved: Right to bid may be reserved expressly by or on behalf of the seller and where such a right is expressly reserved, but not otherwise, the seller or any one person on his behalf may bid at the auction.
(d) Where the sale is not notified by the seller: Where the sale is not notified to be subject to a right to bid on behalf of the seller, it shall not be lawful for the seller to bid himself or to employ any person to bid at such sale, or for the auctioneer knowingly to take any bid from the seller or any such person; and any sale contravening this rule may be treated as fraudulent by the buyer.
(e) Reserved price: The sale may be notified to be subject to a reserve or upset price; and
(f) Pretended bidding: If the seller makes use of pretended bidding to raise the price, the sale is voidable
at the option of the buyer.
Example: P sold a car by auction. It was knocked down to Q who was only allowed to take it away on giving a cheque for the price and signing an agreement that ownership should not pass until the cheque was cleared. In the meanwhile till the cheque was cleared, Q sold the car to R. It was held that the property was passed on the fall of the hammer and therefore R had a good title to the car. Both sale and sub sale are valid in favour of Q and R respectively.
INCLUSION OF INCREASED OR DECREASED TAXES IN CONTRACT OF SALE (SECTION 64A)
TAXES
Where after a contract has been made but before it has been performed, tax revision takes place. Where tax is being imposed, increased, decreased or remitted in respect of any goods without any stipulations to the payment of tax, the parties would become entitled to read just the price of the goods accordingly. Following taxes are applied on the sale or purchase of goods:
w Any duty of customs or excise on goods,
w Any tax on the sale or purchase of goods
The buyer would have to pay the increased price where the tax increases and may derive the benefit of reduction if taxes are curtailed. Thus, seller may add the increased taxes in the price. The effect of provision can, however, is excluded by an agreement to the contrary. It is open to the parties to stipulate anything regard to taxation.