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The Sale of Goods Act

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THE SALE OF GOODS ACT, 1930 What you should know? ? 15. 1Formation of Contract of Sale ? 15. 2Conditions and Warranties – Doctrine of Caveat Emptor. ? 15. 3Transfer of Ownership from seller to buyer – Transfer by non-owners ? 15. 4Performance of the Contract – Rules regarding delivery. ? 15. 5Rights of Buyer ? 15. 6Rights of Unpaid Seller ? 15. 7Auction Sales The Sale of Goods Act, 1930, governs transfer of property in goods. It does not include transfer of immovable property which is governed by the Transfer of Property Act, 1882.

As per section 3 of the Sale of Goods Act, the principles of the Contract Act relating to formation of contract, performance of contract, law of damages etc are also applicable to contract of the sale of goods in so far as they are not inconsistent with the .

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express provisions of the Sale of Goods Act. The Sale of Goods Act, 1930, contains 66 sections in VII Chapters. 15. 1 FORMA TION OF CONTRACT OF SALE. Sec. 4 (1): Contract of sale; Sec 4(3): Agreement to sell and sale, Sec 5: Contract of sale how made.

Sec 6, 7, and 8: Goods – the subject -matter of contract of sale.

Sec 9, 10: The price. Ascertainment of price. 15. 1a What is a Contract of Sale? Sec. 4 (1) of the Sale of Goods Act defines a contract of sale of goods as -“a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price”. Essential characteristics of a contract of sale: 1. Two parties – there must be two parties a Buyer and a Seller. 2. Transfer of property – a transfer of property i. e. ownership, in goods from the seller to the buyer must take place 3. Goods- the subject matter of sale must be goods. 4.

Price – transfer of property must take place for some money consideration called price. 5. It Includes both a ‘Sale’ and ‘An Agreement to Sell’. 6. It may be absolute or conditional. 7. It may be in writing/ oral or implied. 8. Essential elements of a valid contract must be present. 15. 1b Sale & Agreement to Sell: A contract for the sale of goods may be either a sale or an agreement to sell. SALE: Where under a contract of sale the property in the goods (i. e. the ownership) is transferred from the seller to the buyer the contract is called a Sale. Sec. 4(3).

The transaction is a sale even though the price is payable at a later date or delivery is to be given in the future, provided the ownership of the goods is transferred from the seller to the buyer. AGREEMENT TO SELL: When the transfer of ownership is to take place at a future time or subject to some condition to be fulfilled later the contract is called An Agreement to Sell. Sec. 4(3) When an agreement to sell becomes a sale? An agreement to sell becomes a sale when the prescribed time elapses or the conditions, subject to which the property in the goods is to be transferred, are fulfilled. Sec. 4(4).

Thus, if goods are delivered to the buyer on approval i. e. “On Sale or Return”, the transaction is an agreement to sell, but it becomes a sale and the property in the goods passes to the buyer where the buyer gives his approval or acceptance to the seller. |SALE |AGREEMENT TO SALE | |Transfer of property: The title to the goods passes to the |The title to the goods passes to the buyer on future date or on | |buyer immediately. |fulfillment of some condition. | |Nature of Contract: It is an executed contract.

It involves a |It is executory contract. The property in the goods does not pass | |contract plus a conveyance of the property. When the property |until a certain time has lapsed or until a certain condition is | |is transferred, the rights and liabilities attached to the |fulfilled. | |goods are also transferred. | | |Burden of Risk: The buyer becomes the owner immediately and |The seller remains the owner of the property until it is actually | |all the risks attached to the goods are passed on to him |transferred to the buyer at a future point of time.

As a result, | |irrespective of the fact whether the goods are delivered to |Risk of loss is that of seller. | |him or not and whether the price is paid or not. | | |Price: The seller sells the goods to the buyer for a price. |The seller agrees to sell the goods for a price and buyer agrees to | | |buy the goods for a price. | |Specifies or Ascertained: The goods are specified and |The goods may not be specified or ascertained. |ascertained. | | |Cannot re-sell the goods: The goods cannot be resold by the |The property in the goods remains with the seller. He may sell the | |seller. If he does so, the buyer can recover the goods, |goods to the third party, although he will be committing a breach. | |sometimes from third parties. | | |Nature of Rights: (a) It creates Jus-In-Rem i. e. he buyer as |4. (a) It creates just in personam that is the | |a owner gets the right to enjoy the goods against the whole |buyer has only a personal remedy | |world. |against the seller. He can sue only for | | |damages for breach and not for recovery | |(b) Remedies for breach: If the buyer fails to pay for the |of goods. |goods, the seller may sue for the price (suit for price sec | | |55) and also has other remedies available to an unpaid seller. |(b) If the buyer fails to accept and pay for | | |the goods, the seller can sue for damages. | | |(Damages for non-acceptance sec 56. | |Insolvency of Buyer: If the buyer becomes insolvent before |Since the seller continues to be the owner, he can refuse to deliver| |paying the price, the seller shall have to deliver the goods |the goods to the Official Receiver unless he is paid the price. | |to ‘Official Receiver’ on his demand. | | |Insolvency of Seller: If the seller becomes insolvent while |If the seller becomes insolvent, the buyer cannot claim the goods. |the goods are still in his possession, the buyer shall have a |If the buyer has paid the price he can claim rate able dividend from| |right to claim the goods from the Official receiver because |the estate of the insolvent seller. | |the ownership of goods has passed to the buyer. | | Sale & Hire-Purchase: Hire purchase agreement is a contract for the hire of an asset which contains a provision giving the hirer an option to purchase. A hire purchase agreement has two elements: ) Element of bailment, since the possession of goods is given to the buyer 2) Element of sale, since it contemplates an eventual sale. The hirer is given an option either to become the owner after the payment of the stipulated hire charges/ installments or to return the goods and put an end to the hiring. If the hirer defaults in paying the installments, the seller can terminate the agreement and resume the possession of the goods. If there is an immediate transfer of ownership of goods, it is sale, even though, the price is paid by installments. SALE |HIRE – PURCHASE | |In a contract of sale, the seller transfers or agrees to transfer|In hire purchase, there is an agreement for the hire of an asset | |the property in goods to the buyer for a price. |conferring an option to purchase. | |The ownership in goods passes on making the contract even if |The ownership passes when the option to purchase is finally | |price is paid in installments. exercised by the intending purchaser after complying with the | | |terms of agreement. | |The purchaser becomes owner of |In a hire purchase, the hirer is not the owner but only a bailee | |goods. |of goods. | |After a sale takes place the buyer |In a hire purchase, the hire purchaser can terminate the contract| |cannot terminate the contract and |at any time and he is not bound to pay any further installments. |refuse to pay the price of the goods. | | |On default by the buyer the seller cannot claim back the goods. |On default of any payment by the hirer, the owner of the article | | |has the right to terminate the agreement and to regain the | | |possession of the article. | Sale and contract for work and labour:- A contract of sale involves transfer of property in goods for a price.

A contract for work and labour involves exercise of skill or labour. For example, where a goldsmith is given gold for making ornaments or an artist is given paint and canvas to paint a picture, These are contracts of work and labour. But a promise by a dentist to make a set of artificial teeth to fit in the mouth of a customer is a contract of sale of goods. 15. 1c Formalities of contract of sale (sec 5) A contract of sale is formed by offer and acceptance. There is an offer to sell or buy goods for a price and the acceptance of such an offer. The contract shall provide for delivery of goods. Delivery may be immediate, simultaneous, by installments or in future. – The contract shall provide for payment of price. Payment of price may be immediate, simultaneous, by installments or in future. Contract of Sale. – How it is Made? i) May be in writing ii) May be by word of mouth iii) May be partly in writing and partly oral iv) May be implied from the conduct of parties or by course of their business. 15. 1d Goods: Subject Matter of Contract of Sale Goods means – Every kind of movable property ther than actionable claims and money. and includes – stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. Section 2 (7). Actionable claim means a right to a debt or to any beneficial interest in movable property not in the possession of the claimant, which can be recovered by a suit or legal action. Money means the legal tender or currency of the country and It does not include old coins and foreign currency. Classification of Goods:- 1. Existing Goods2.

Future Goods3. Contingent Goods – Specific – Ascertained – Unascertained 1. Existing goods – As per Section 6(1) of the Sale of Goods Act, existing goods are those which are owned or possessed by the seller at the time of contract of sale. The existing goods may be of the following kinds: (a) Specific goods- The goods which are identified and agreed upon at the time when the contract of sale is made are called ‘specific goods’ (Section 2(14) of Sale of Goods Act). For example, a Videocon washing machine, a specified and finally decided car or scooter etc. b) Ascertained goods- The term ‘Ascertained Goods’ is not defined in the Sale of Goods Act but has been judicially interpreted. Ascertained goods are those goods which are identified in accordance with the agreement after the contract of sale is made. When out of a large number or large quantity of unascertained goods, the number or quantity contracted for is identified and set aside for such contract, such number or quantity is said to be ‘Ascertained Goods’. Both, specific or ascertained goods in the ultimate analysis mean identified goods.

The difference is in the point of time when identified. In case of specific goods, they are identified at the time of making of the contract, while in case of ascertained goods, they are identified after the making but before the performance of the contract, the process being conducted in conformity with the agreement. (c) Unascertained goods- The goods which are not specifically identified and agreed upon at the time when the contract of sale is made are called ‘Unascertained Goods’. For example, X is a wholesaler dealing in wheat He agrees to sell 50 bags of wheat to Y.

This contract is for the sale of unascertained goods because the bags of wheat have not been identified at the time of the contract of sale. If I have 3 cars of the same kind and i offer to sell one particular car, the goods are un-ascertained till one particular car be appropriated towards the contract. On appropriation the goods become ascertained. If the identity of contract goods is not established by appropriating them towards the contract, the contract remains in respect of unascertained goods. . Future goods- Those goods which are yet to be manufactured or produced or acquired by the seller after the making of the contract of sale, are called ‘Future Good’. For e. g. A gives an advance of Rs. 2 lakhs for booking a maruti car which is to be delivered after three months. This is the contract for the sale of future goods. A contract for the sale of future goods is always an agreement to sell. It is never actual sale because a man cannot transfer what is not in existence. 3.

Contingent Goods – As per section 6(2) of the Act, contingent goods are those goods the acquisition of which by the seller depends upon a contingency (uncertain event) which may or may not happen. It may be noted that although the contingent goods are a type of future goods but they are different from future goods in the sense that the procurement of contingent goods is dependent upon an uncertain event or uncertainty of occurrence. Whereas the obtaining of future goods does not depend upon any uncertainty of occurrence. Effect of Destruction or Perishing of Goods

The destruction or perishing of goods may take at any of the following stages: 1. Goods perishing before making the contract (section-7) – Where specific goods had perished or become damaged – before the contract was made – without the knowledge of the seller, the agreement is void. Example: A agrees to sell B a certain horse. It turns out, that the horse was dead at the time of bargain, though neither party was aware of the fact. The agreement is void. 2. Goods perishing before sale but after agreement to sell (section 8) Where specific goods had perished or become damaged – Without the fault of seller or buyer – After the agreement to sell is made and before the risk passes to the buyer – The agreement becomes void. For example, an agreement to sell Maruti car after a certain period becomes void, if the car is destroyed or damages in the intervening period Note: 1) Perishing of goods means not only physical destruction of the goods but it also covers loss by theft or the loss in the commercial value of the goods (e. g. where cement is spoiled by water and becomes stone) ) It should be noted that both the Sections 7 and 8 as mentioned above, apply only to ‘specific goods’. It is only perishing of specific and ascertained goods that affect a contract of sale. Where, unascertained goods are perished the contract will remain valid and the seller is bound to supply the goods. For example, if X agrees to sell to Y 10 bags of wheat out of 100 bags lying in his godown and the bags in the godown are totally destroyed by fire, the contract does not become void. X must supply 10 bags of wheat or pay damages for the breach. 5. 1e Price Price is an essential condition of a contract of sale of goods. According to Section 2 (10), price is the money consideration for a sale of goods. Money means legal tender money in circulation. Old and rare coins are not included in the definition of money. How is the price of the goods ascertained? Section 9 provides 4 modes of ascertainment of price. The price in a contract of sale may be —- a) fixed by the contract . b) may be left to be fixed in an agreed manner ( such as market price or fixation of price by a third party). ) may be determined by the course of dealings between parties. (such as manufacturing cost, market price ). d) a reasonable price (if price cannot be fixed in accordance with the above provisions. Consequence of Non-Fixation of Price by Third Party (section 10):- The parties may agree to sell and buy goods on the terms that the price is to be fixed by the valuation of a third party. If such third party fails to make the valuation the contract becomes void. However, if the buyer has received and appropriated the’ goods or any part thereof, he becomes bound to pay reasonable price. –

If the third party is prevented from making the valuation by the fault of the seller or the buyer, the innocent party may maintain suit for damages against the party in fault. Stipulations regarding payment of price (see 11) In a contract of sale, stipulations as to time may be of two kinds: • Stipulations relating to time of payment, and • Stipulations not relating to time of payment, for e. g. relating to time of delivery of goods According to section 11, stipulations regarding payment of price are not deemed to be the essence of a contract of sale, unless a different intention appears from the terms of the contract.

This means that time of payment can be made essence of the contract, if there is an express provision in the contract of sale, if there is no express provision in the contract of sale, with regard to time of payment, then time of payment is not deemed to be the “essence of contract. Suppose if time of payment of price is made the essence of the contract of sale by providing express terms in this regard- what will be the remedy for the seller, if the buyer does not make the payment with in the stipulated time? Whether any other stipulation as to time (e. g. f delivery of goods) is of the essence of contract, will depend upon the terms agreed upon. It means that time of delivery of goods etc. , can also be made essence of the contract of sale if an express provision to this effect is made in it. If no such provision is made, then time of delivery of goods will not be the essence of contract. (sec11}Suppose if time of delivery of goods is made the essence of the contract of sale by providing express terms in this regard- what will be the remedy for the buyer, if the seller does not make the delivery within the stipulated time?

CONDITIONS AND WARRANTIES Sec 12 of the Sale of the Goods Act states that a stipulation (or term) in a contract of sale with reference to goods may be a condition or a warranty. Essential to the main purpose collateral to the main purpose of the contract of the contract Condition: 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. Sec-12 (2) For example, A wants to buy a car which can give a mileage of 20 kms / litre.

B, the car dealer, points out at a particular car and says” this car will suit you”. A buys the car. But later on he finds that the car is giving a mileage of only 10 kms/litre. THERE IS A BREACH OF CONDITION, because the stipulation made by B forms the very basis of the contract. Warranty: A warranty is stipulation collateral to the main purpose of the contract, the breach of which gives rise to claim for damages but not a right to reject the goods and treat the contract as repudiated – Sec, 12 (3).

For example A goes to B, a car dealer, and says, ‘” want a good car” The car dealer shows him a car and says,” It can give you a mileage of 20 kmsllitre” . A buys the car. Later on, A finds that the car is giving a mileage of10 kms/litre only. THERE IS A BREACH OF WARRANTY, because the stipulation made by the seller was only; collateral one. Whether a stipulation in a contract of sale is a condition or a warranty depends in each case on the construction of the contract. A stipulation may be a condition, though called a warranty in the contract -Sec. 12(4).

Conditions and warranties may be expressly stated or may be implied by law. Implied conditions and warranties are enumerated in sections 14 to 17. They are deemed to be incorporated in every contract of sale unless the terms of the contract show a contrary intention. When a condition can be treated as a warranty: 1. Voluntary waiver of a condition: sec 13(1) where a contract of sale is Subject to a condition to be fulfilled by the seller, the buyer may – a. waive the condition, for example a buyer may accept defective goods or accept goods beyond stipulated time. b. lect to treat a breach of condition as a breach of warranty, i. e. instead of repudiating the contract he may accept performance and sue for damages, if he has suffered any. – Sec13(1). Once a buyer decides to waive, he cannot afterwards insist on its fulfillment. 2. Compulsory waiver of a condition: sec 13(2) Where a contract of sale is not severable (i. e. indivisible) and the buyer has accepted the goods or a part thereof, he cannot repudiate the contract but can only sue for damages. In such a case, the breach of condition can only be treated as a breach of warranty, unless there is a contract to the contrary. -Sec. 3 (2). In other words, the parties may agree between themselves that section 13 (2) will not apply and the buyer shall have a right to reject the goods even though he has accepted the indivisible goods. 3. Performance excused by law sec. 13(3) A condition is treated as a warranty where the fulfillment of any condition is excused by law by reason of impossibility of performance or otherwise. |CONDITION |WARRANTY | |Condition is a term which is essential to the main purpose of the|Warranty is only a collateral term.

It is subsidiary to the main | |contract. |purpose of the contract. | |Breach of a condition gives the aggrieved party a right to |Breach of warranty entitles the aggrieved party to claim damages | |repudiate the contract and also to claim damages. |only. | |A breach of condition may under certain circumstances, be treated|But a warranty can not become a condition. | |as breach of warranty. | | Implied conditions and warranties

A stipulation (or term) in a contract of sale of goods may be express or implied. Express terms are those which have been expressly agreed upon by the parties. Implied terms are those which have been enacted in the Sale of Goods Act. Section 14 to 17 of the Act contains a list of conditions and warranties which are implied in a contract for the sale of goods, unless the circumstances of the contract are such as to show a different intention. The implied conditions and warrants are stated below: 15. 2a Implied conditions: As to Title (sec 14)

As to Description, (sec 15) As to Sample as well as by description (sec 15) Implied Conditions As to Quality or Fitness (sec 16(1) As to Merchantability (sec 16 (2) As to Sample (sec 17) As to Wholesomeness 1. Implied condition as to title: sec 14 There is an implied condition on the part of the seller that, in the case of a sale he has the right to sell the goods, and in the case of an agreement to sell, he will have the 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 is entitled to reject the goods and claim refund of the price plus damages. 2. Implied condition in a sale by description: (Sec 15) where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description. “Correspond with the description” means that the buyer must get the goods that he has asked for. The description may be given – a) by mentioning qualities or characteristics of the goods e. g. Basmati rice. b) by mentioning the trademark or brand name e. g.

Videocon TV c) by the type of packing e. g. 1 kg. packing of tea in plastic jar. If the buyer does not get the goods he has described he can reject the goods. The rule is “If you contract to sell peas, you cannot oblige a party to take beans. If the description of the article tendered is different in any respect, it is not the article bargained for, and the other party is not bound to take it”. E. g. A car is sold as a “new maruti car”. The buyer finds it to be a used one. The buyer may reject the car or retain the car and claim damages. 3 Implied condition in a sale by sample as well as by description: (Sec. 5) When goods are sold by sample as well as by description, the goods shall correspond both with the sample and with the description. 4. Implied condition as to fitness or quality: Sec. 16 (1. )The general rule is, there is no implied condition as to quality or fitness for the purpose of the buyer. This is based on the doctrine of “caveat emptor” that is, let the buyer beware. However, there are some exceptional situations when there is an implied condition as to quality or fitness for the particular purpose of the buyer. These situations are: I. When buyer relies on seller’s skill or judgement. ) Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, b) so as to show that the buyer relies on the seller’s skill, or judgement, and c) the goods are of a description which it is in the course of the seller’s business to supply (whether he is the manufacturer or not, there is an implied condition that the goods shall be reasonably fit for such purpose. E. g. • A contracts to make and deliver a set of false teeth to B. The false teeth do not fit in the mouth of B.

B is entitled to reject the goods. • X places order for lorries to be used for ‘heavy traffic in a hilly country’ . The lorries were unfit for this purpose and broke down. It was held that there was breach of condition as to fitness. II. Merchantable quality: When 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 are of merchantable quality, that is, commercially saleable or fit for the purpose for which they are meant. III.

Usage or Custom: An implied condition of fitness may be annexed to a contract of sale by usage of trade. E. g. In readymade garment business, there is an implied condition by usage of trade that the garments shall be reasonably fit on the buyer. IV. Where the seller makes representation and the buyer relies thereon the buyer is entitled to the goods in accordance with that representation. V. Where the article can be used only for one particular purpose, the buyer need not tell the seller the purpose for which he requires the article; there is an implied condition that it will be fit for that particular use.

Sale under patent or trade name: Proviso to section 16(1) lays down that in the case of a contract for the sale of a specified article under its patent or other trade name, there is no implied condition as to its fitness for any particular purpose. It is so because in such a case the buyer is not relying on the skill and judgement of the seller but relies on the patent name. For example, a dry cleaner orders a patent washing machine by its patent name for his business. The washing machine supplied was found to be unsuitable for commercial use.

The buyer has no cause of action against the seller. 5. Implied condition as to merchantability Sec. 16(2): Where goods are brought by description from a seller who deals in goods of that description, there is an implied condition that goods shall be of merchantable quality Merchantable means that the goods are commercially saleable and that they are fit for the purpose for which they are generally used. Where the buyer examines the goods prior to sale, there is no implied condition as to merchantability as regards defects which such examination ought to have revealed.

However, inspite of examination, if the goods have certain latent defects which no examination could reveal, the implied condition remains. E. g. x bought a colour TV from Mis Concord Electronics. The TV was defective right from the beginning and It did not work inspite of repairs by expert technicians. There is a breach of implied condition as to merchantability and the dealer will have to take back the defective TV and refund the amount. • X orders motor horns from a manufacturer. The horns supplied are defective. X is entitled to reject them as unmerchantable. . Implied condition in a sale by sample: (Sec. 17) When goods are to be supplied according to a sample agreed upon, the following conditions are implied: a) The bulk shall correspond with the sample in quality. b) The buyer shall have a reasonable opportunity of comparing the goods with the sample. c) The goods shall be free from any defect rendering them unmerchantable, which would not be apparent on reasonable examination of the sample. If the defect is easily discoverable on inspection and the buyer takes delivery after inspection, he has no remedy.

A sale is by sample where there is a term in contract, express or implied to that effect. The effect of the section is that where goods are sold by sample, there should not be any latent defect therein which renders them unmerchantable. 7. Implied condition as to wholesomeness:- In case of food stuff and eatables, in addition to the implied condition as to merchantability, there is another implied condition that the goods shall be wholesome that is fit for human consumption. E. g. X bought milk from Y, a dairy owner. The milk was contaminated with germs of typhoid fever.

X’s wife on taking the milk, became infected and died of it. Y. was held liable in damages. 15. 2b Implied warranties In the absence of an agreement to the contrary, the following warranties are implied in every contract of sale: 1. The buyer must get quiet possession: Sec. 14 (b). The buyer shall have and enjoy quiet possession of the goods. For e. g. : X has given his car on hire for a period of one month to Y. There after, X sold it to Z without disclosing to him that Y was entitled to use the car on account of the hire agreement. Y claims the car from Z. Z’s possession is disturbed.

He can claim damages from X. 2. The goods must be free from encumbrance: Sec. 14(c). There is an implied warranty that the goods shall be free from any charge or encumbrance in favour of a third party not declared or known to the buyer before or at the time when the contract is made. The effect of this clause is that if the buyer pays off the charge of encumbrance, he will be entitled to recover the money from the seller. 3. Warranty for quality or use by usage of trade: Sec. 16 (3). A warranty as to fitness for a particular purpose may be annexed to a contract of sale by a custom or usage of trade. 1.

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. If there is a breach of this warranty, the seller may be liable in damages. Note: I) Express terms . 16(4): An express warranty or condition does not negate a warranty or condition implied by the Act. (Unless the express terms are inconsistent with the implied conditions). This means that implied warranty or condition may co-exist with express warranty or condition. Thus, for example, where sleepers supplied to a railway company were required to e approved by its experts, it was held that it did not exclude the implied condition of merchantableness. 2. Exclusion of implied terms. Sec 62: These implied conditions and warranties may be excluded or modified by the parties to the contract by express contract, by course of dealing and by usage of trade. The Doctrine of Caveat Emptor Caveat Emptor is a Latin expression which means, “Buyers beware”. The doctrine of caveat emptor means that, ordinarily, a buyer must buy goods after satisfying himself of their quality and fitness. If he makes a bad choice he cannot blame the seller or recover damages from him.

This doctrine is stated in the opening words of section 16: Subject to the provisions of this Act and of any other law for the time being in force, 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… ? It is no part of the seller’s duty to point out defects in the goods. ? It is buyer’s duty to examine goods thoroughly. ? The buyer should ensure at the time of purchase that the goods conform to his requirements. ? If the goods turn out to be defective, buyer cannot hold the seller responsible.

EXCEPTIONS: The doctrine of caveat emptor does not apply in the following situations: 1. Fitness as to quality or use. Sec. 16(1): a) Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, b) so as to show that the buyer relies on the seller’s skill, or judgement, and c) the goods are of a description which it is in the course of the seller’s business to supply (whether he is the manufacturer or not, there is an implied condition that the goods shall be reasonably fit for such purpose. . Sale of goods by description. Sec. 16(2) Where there is a sale of goods by description, there is an implied condition that the goods are merchantable that is, fit for particular purpose. 3. Trade usage. Sec 16 (3): An implied condition of fitness may be annexed to a contract of sale by usage of trade. 4. Where the seller is guilty of fraud. Where the seller makes a false representation and buyer relies on that representation, the doctrine of caveat emptor will not apply. In such a case the buyer will be entitled to the goods according to that representation. . Where seller actively conceals a defect: Where the seller actively conceals a defect in the goods so that the same could not be discovered on a reasonable examination, the doctrine of caveat emptor will not apply. Such a contract will be voidable. 6. Sale by sample: When goods are purchased by sample, the bulk must correspond with the sample and the buyer must have reasonable opportunity of inspecting the goods. 15. 3 TRANSFER OF OWNERSHIP FROM SELLER TO BUYER 15. 3a Transfer of Ownership – time of transfer Risk passes with ownership (sec. 26) 5 3b When does property in the goods pass from seller to buyer (see 18 to 25) 153c. Transfer or title by non-owners (see 27 to 30) 15. 3a Transfer of ownership: time of transfer 15. 3a Transfer of Ownership – time of transfer Sale of goods involves transfer of ownership of property from the seller to the buyer. It is necessary to determine the precise moment of time at which the ownership of the goods passes from the seller to the buyer because of the following reasons: 1. Risk passes with property. The general rule is that risk prima facie passes with the property.

If the goods are lost or damaged by accident or otherwise, then, subject to certain exceptions, the loss falls on the person who is the owner at the time when the goods are lost or damaged. 2. Action against third parties. If the goods are damaged by the action of third parties it is the owner who can take action. 3. What is the effect of insolvency? – In case of insolvency of either the buyer or the seller it is necessary to know whether the goods will be taken over by the Official Assignee. The answer depends upon whether the ownership of the goods is with the party who has become insolvent. Suit for price. Unless the contract provides otherwise, a suit for price by the seller does not lie unless the property has passed to the buyer. LAW RELATING TO PASSING RISK IN CASE OF THE SALE OF GOODS The basic principle is the risk prima facie passes with the ownership. According to section 26 – Unless otherwise agreed, the goods remains at the seller’s risk until the 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: Thus risk and ‘property’ (ownership) go together.

But it is open to the parties to separate the risk from ownership. For example, the parties may agree that risk will pass some time after or before the property has passed. The separation of risk from property can be made in the following ways. Firstly, where delivery has been delayed due to fault of seller or the buyer, the goods are at the risk of the party in fault. Secondly, risk and property may be separated by a trade custom. Thirdly, risk and property can be separated by the agreement of the parties. 15. 3b When does property in the goods pass under the sale of Goods Act?

Sections 18 to 25 of Sale of Goods Act lay down the rules which determine when ownership of property passes from the seller to the buyer. These rules may be summarised as follow: A. TRANSFER OF PROPERTY IN UNASCERTAINED GOODS B. TRANSFER OF PROPERTY IN ASCERTAINED GOODS C. TRANSFER OF PROPERTY IN SALE BY APPROVAL D. TRANSFER OF PROPETY WHEN RIGHT OF DISPOSAL IS RESERVED A. TRANSFER OF PROPERTY IN UNASCERTAINED GOODS 1. When there is a contract for the sale of unascertained goods, property in the goods is not transferred to the buyer unless and until the goods are ascertained. (sec. 8). 2. When goods are according to description: Under Section 23(1), in a contract for the sale of unascertained or future goods by description, the property in the goods passes to the buyer when the goods of that description and 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 goods are ascertained by appropriation. Until appropriation there is merely an agreement to sell . Appropriation means selection of goods with the mutual consent of the parties.

The following are the essentials of appropriation :- a) The goods should confirm to the description and quality stated in the contract. b) The goods must be in a deliverable state. c) The goods must be unconditionally (as distinguished from an intention to appropriate) appropriated to the contract either by delivery to buyer or his agent or the carrier. d) The appropriation must be- i) by seller with the assent of buyer. ii) by buyer with the assent of seller. e) The assent may be expressed or implied. f) The assent may be given either before or after appropriation.

Thus, if A agrees to sell to B 20 tonnes of oil of a certain description in his cisterns and he has more than 20 tonnes of oil of description in his cisterns, then no property will pass to B unless the 20 tonnes are separated from the rest and they are appropriated to the contract. DELIVERY TO THE CARRIER Sec. 23(2)- When the seller delivers the goods, to a carrier for being taken to the buyer, and does not reserve the right of disposal, the property passes to the buyer. The carrier becomes the agent of the buyer and such a delivery amounts to a delivery to the buyer and the risk is, after the delivery of the buyer.

The essentials of delivery to a carrier are a) Delivery must be in pursuance of the contract i. e. the goods must be of the description and quality of the goods contracted. b) Seller delivers goods to the buyer or to a carrier or a bailee for transmission to the buyer. This must be pursuant to the contract. c) Seller does not reserve right of disposal. B. TRANSFER OF PROPERTY IN ASCERTAINED GOODS 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.

Sec. 19(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 and – the circumstances of the case. Sec. 19(2). It is only when the intention of the parties cannot be judged from their contract or conduct or other circumstances that the rules laid down in Sections 20 to 24 apply. Sec. 19(3). These rules are as follows a. Specific goods in a deliverable state: Section 20 – In case of an unconditional contract for the sale of specific goods in a deliverable state, he property in the goods passes to the buyer on making the contract, and it is immaterial whether the time of payment of the price or the time of delivery of the goods or both is postponed. b. Specific goods to be put in 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 in the goods does not pass until such thing is done and the buyer has the notice thereof. c. Specific goods to be Weighed or Measured: Section 22,

In a contract for the sale of specific goods in a deliverable state, where 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 the notice of the same. C. TRANSFER OF PROPERTY IN SALE BY APPROVAL When goods are delivered on approval (Sec. 24): When goods are delivered to the buyer on approval or ‘on sale or return,’ or on other similar terms, the property therein passes to the buyer: ) When he signifies his approval or acceptance to the seller or ii) When the buyer does any other act adopting the transaction, e. g. , pledges the goods or resells them. iii) When the buyer retains the goods, without giving notice of rejection, beyond the time fixed for the return of goods, or” if no time has been fixed beyond a reasonable time. In short, the property passes either by acceptance or by failure to return the goods within specified or reasonable time. D. TRANSFER OF PROPETY WHEN RIGHT OF DISPOSAL IS RESERVED

The object of reserving the right of disposal of goods is to secure that the price is paid before the property passes to the buyer. Property in the goods does not pass until payment is made by the buyer. For example under the VPP (Value Pre Paid) system the ownership passes to the buyer when the price is paid against the delivery of goods, till then the seller retains control over the goods. Section 25 lays down the following rules regarding reservation of the right of disposal: a) The seller reserves the right of disposal until certain conditions are fulfilled.

The property in goods does not pass to the buyer before fulfillment of conditions. In such a case, even If the goods are delivered to the buyer himself, or to a carrier or other bailee for transmission to the buyer, the buyer does not acquire ownership until the conditions imposed by the seller are satisfied. E. g. X sends certain goods by lorry to Y and instructs the lorry driver not to deliver the goods until the price is paid by Y to the lorry driver. The property passes only when the price is paid. b) When goods are delivered to railways and the goods deliverable to the order of the seller or his agent.

The property does not pass over to the buyer until the railway receipt is delivered to the buyer. c) When the bills of exchange along with the RR is sent to the buyer. The property In goods does not pass to the buyer until he accepts the bill of exchange and pays the price of the goods . If he retains the goods without accepting the bill of exchange or payment of price the property does not pass. 15. 3c Transfer of title by non-owner or No one can give a better title than he himself has. A sale is a contract plus a conveyance.

As a conveyance it involves transfer of title of goods from the seller to the buyer. If the seller’s title is defective, the buyer’s title will also be defective. A person can only transfer what he has. No one can transfer a better title to the goods than he himself possesses. This principle is expressed by the Latin phrase, “Nemo dat quad non habet”, which means “none can give who does not himself possess’. Exceptions: In each of the following cases, a person “who is not an owner, can give to the transferee a valid title to the goods: 1.

Transfer of title by estoppels (Sec,27) When the true owner of the goods by his conduct or words or by any act or omission leads the buyer to believe that the seller is the owner of the goods or has the authority to sell them, he cannot afterwards deny the seller’s authority to sell. The buyer in such a case gets a better title than that of the seller. Example: ‘0’ who is the true owner of the goods, leds the buyer ‘S’ to believe that ‘S’ has the authority to sell the goods 0 cannot afterwards question the seller’s want of title on the goods. . Sale by a mercantile agent (Proviso to sec, 27) Sale of goods by a mercantile agent give a good title to the purchaser even in cases where the agent acts beyond his authority, provided the following conditions are satisfied i) The agent is In possession of the goods or of a document of title to the goods. ii) such possession is with the consent of the owner. iii) The agent sells the goods in the ordinary course business. iv) The purchaser acts in good faith and has no notice that the agent had no authority to sell. Mercantile Agent”- ‘Mercantile agent’ means an agent having in the customary course of his business as such agent authority either 1) to sell goods, or 2) to consign goods for the purpose of sale, or 3) to buy goods, or 4) to raise money on the security of goods. Sec. 2 (9) Good faith means honestly, whether done negligently or not. Document of Title to Goods A document of title to goods is a document representing goods and is used (a) in the ordinary course of business (b) as proof of the ownership, possession or control of goods. (c) It authorises the possessor of such document to receive or transfer the goods represented thereby. ec. 2 (4). Cash memo, bill of lading, dock warrant, warehouse keeper’s or wharfingers certrficate, lorry receipt (L/R), railway receipt (R/R) and delivery order are some of the instances of document of title to goods. What is bill of lading? When thegoods are carried by sea, the carrier of goods issues to the shipper a bill of lading. It is a document of title. Transfer of goods can be effected by transfer of bill of lading The buyer may demand delivery of goods at the destination on the basis of the bill of lading. Wharfingers certificate:- A Wharf is a platform alongside the water for loading and unloading a ship.

A wharfingers certificate is a document issued by a wharfingers. It certifies that the goods specified in it are in the wharf. 3) Sale by one of several joint owners: (section 28) This section enables a co-owner to sell not only his own) share but also of his other co-owners. 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 from such joint owner provided the buyer acts in good faith and without notice that the seller had no authority to sell. Section 28 lays down three conditions for validating a sale by one of co-owners:- a) He must be in sole possession by permission of his co-owners. b) The purchaser acts in good faith i. e. , with honesty. c) The purchaser had no notice at the time of the contract of sale that the seller had no authority to sell. Example: X Y and Z own certain truck in common, X is in possession of the truck by permission of his co- owners. X sells the truck to A. A purchases bonafide. The property in the truck is transferred to A. ) Sale of goods obtained under a voidable agreement: (see 29) When the seller of goods has obtained possession thereof under a voidable agreement but the agreement has not been rescinded at the time of sale, the buyer obtains a good title to the goods, provided he buys them in good faith and without notice of the seller’s defect of title. It is to be noted that the above section applies when the goods have been obtained under a voidable agreement, not when the goods have been obtained under a void or illegal agreement.

If the original agreement is of no legal effect (void ab-initio) the title to the goods remains with the true owner and cannot be passed on to anybody else. 5) Sale by the seller in possession of goods after sale: Sec. 30(1) Under this exception, a second sale by the seller remaining in possession of the goods will give a good title to the buyer acting in good faith and without notice. Three conditions should be fulfilled under this exception: a) The seller must continue in possession of the goods or of the documents of title to the goods as seller.

Possession as a hirer or bailee of the goods from the buyer after delivery of the goods to him will not do. b) The goods must have been delivered or transferred to the buyer or the documents of title must have been transferred to him. c) Good faith and absence of notice of the previous sale on the part of the second buyer. 6) Sale by buyer in possession of goods over which the seller has some rights: Sec. 30(2): This exception deals with the case of a sale by the buyer of goods in which the property has not yet passed to him.

When goods are sold subject to some lien or right of the seller (for example for unpaid price) the buyer may pledge, or otherwise dispose of the goods to a third party and give him a good title, provided the following conditions for sell, are satisfied : i) The first buyer is in possession of the goods or of the documents of title to the goods with the consent of the seller. ii) Transfer is by the buyer or by a mercantile agent acting for him. iii) The person receiving the same acts in goods faith and without notice of any lien or other right of the original seller. ) Sale by an unpaid seller: An unpaid seller of goods can, under certain circumstances, re-sell the good. The purchaser of such goods gets a valid title of the goods. Sec. 54. 8) Sale under the Contract Act: a) A pawnee may sell the goods of pawnor if the latter makes a default of his dues. The purchaser under such a sale gets a good title. Se. 176. Contract Act. b) A finder of goods can sell the goods under certain circumstances. The purchaser gets a good title. Sec 169. Contract Act. 15. 4 PERFORMANCE OF THE CONTRACT {RULES REGARDING DELIVERY AND PA YMENT (sec. 1 to 44)} Rules regarding delivery – sec. 31 to 41 Acceptance – sec. 42 Liability of buyer for neglecting or refusing delivery of goods – sec. 44 After the conclusion of contract of sale, the next stage is of performance of that contract. The buyer & seller must perform their respective duties and obligations Sec. 31 lays down that it is the duty of the seller to deliver the goods and of the buyer to accept and pay for them in accordance with the terms of the contract of sale. 15. 4a Delivery of goods: Delivery means voluntary transfer of possession of goods from the seller to the buyer.

It may be i) actual, ii) symbolic, or (iii) constructive. Section 33 lays down that delivery of goods sold may be made by doing anything which the parties agree shall be treated as delivery or the delivery may be made by doing anything which has the effect of putting the goods in possession of the buyer. Delivery is said to be actual when the goods are handed over physically, by the seller to the buyer or his agent authorised to take possession of the goods. _ A symbolic delivery takes place when the ‘means of obtaining possession’ is handed over to the buyer.

This happens where the goods are bulky and incapable of actual delivery, e. g. a truck is delivered (symbolically} by handling over its keys to the buyer or the transfer of bill of lading / RR in the name of the buyer entitles him to obtain the goods. Delivery of the key of a godown is symbolic delivery of the goods therein. A constructive delivery is a delivery by attornment. It involves change in the possession of goods without any change in their actual and visible custody. It takes place when-the person in possession of the goods acknowledges that he holds the goods on behalf and at the disposal of the buyer.

Constructive delivery takes place in the following cases: a) when the seller, who is in possession of the goods, agrees to hold them on behalf of the buyer; b) when the buyer is already in possession of the goods and the seller agrees to the buyer’s holding the goods as owner; c) when the goods are in possession of a third person (e. g. a warehouseman, a carrier or any other bailee who acknowledges to hold them on behalf of the buyer. For instance, A sells 100 bags of sugar to B. A’s stock of sugar-bags is laying’ in X’s godown. A issues a delivery . order to X, asking him to deliver to B or his order 100 bags.

X acknowledges the delivery order and agrees to hold 100 bags of sugar on B’s behalf. This is a constructive delivery, even though the goods still continue to be in X’s possession. Rules as to Delivery: 1) Duty to deliver (Sec. 31): It is the duty of the seller to deliver the goods. It is duty of the buyer to accept the goods and to pay for them in accordance with the terms of the contract of sale. 2) Payment and delivery are concurrent conditions (Sec. 32): Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions. ) Mode of delivery (Sec. 33): Mode of delivery may be actual, symbolic or constructive. 4) Part delivery (Sec. 34): A delivery of part of the goods, in progress, of the delivery goods of the whole amount to delivery of the whole. However, where part delivery is made with the intention of separating it from the whole lot, then such part delivery is not treated as delivery of the whole quantity. 5) Buyer to apply for delivery (Sec. 35): Apart from any express contract, the seller of goods is not bound to deliver them until the buyer applies for delivery.

The buyer has no cause of action against the seller if he has not applied for delivery. 6) Place of delivery [Sec. 36(1)]: 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 terms of the contract. When nothing is agreed upon, the following rules apply – a) the goods are to be delivered at the place where they were lying, at the time of the sale or at the time of the agreement to sell; b) if the goods are future goods, they should be delivered at the place of manufacture or production thereof. ) Time for delivery [sec. 36 (2), 36(4)] : If time is fixed, and the seller is bound to send the goods to the buyer, he must send them within the fixed time. If no time is fixed, then the seller must send them within a reasonable time 36{2). The demand or tender of delivery must be at a reasonable hour 36 (4). 8) Goods in possession of third person [sec. 36 (3)]: If the goods are in possession of a third party, there is no delivery until such third party acknowledges to the buyer that he holds the goods on his behalf. ) Expenses of delivery [sec. 36(5)]: Unless otherwise agreed, expenses of making delivery are borne by the seller and expenses of obtaining delivery by the buyer. 10) Delivery of wrong quantity (sec. 37): Subject to any usage of trade, special agreement or course of dealing between parties, the following rules shall apply when delivery of wrong quantity is made — a) Short delivery If the seller delivers to the buyer a quantity less than he contracted to sell, the buyer may i) Reject the whole, or ii) Accept the whole. f he accepts, he shall pay for the accepted quantity at the rates contracted for. b) Excess delivery If the seller delivers to the buyer a quantity larger than he contracted to sell, the buyer may i) reject the whole or ii) accept the whole or iii) accept the quantity he ordered and reject the rest. c) Delivery of goods mixed with other goods: If the seller delivers to the buyer goods ordered mixed with goods of a different description, the buyer may – i) reject the whole ii) accept the agreed goods and reject the remaining goods 1) Installment deliveries (sec. 38): Unless otherwise agreed, the goods are not to be delivered by installments. There might be an agreement for delivery by installments but the price may be payable either on complete delivery or on delivery of each installment, There will be a breach of such contract in the following cases: a) If the seller makes no delivery or makes defective delivery, in respect of one or more installments; or b) If the buyer neglects or refuses to take delivery of or pay for, one or more installments,

In each of the above breach, it will depend upon the terms of the contract and the circumstances of each individual case whether i) the whole contract is repudiated, or ii) it is a severable (separable) breach giving rise to a claim for compensation but not to right to treat the whole contract as repudiated [sec. 38(2)]. 12) Delivery to a carrier or wharfingers (Sec. 39): The delivery of goods to a carrier or a wharfingers in pursuance of a contract of sale, is prima facie deemed to be delivery of goods to buyer. If the contract of sale specifies the name of the carrier, the seller must deliver the goods to such named carrier.

If the instructions of the buyer are carried out properly, the risk is with the buyer. if the instructions of the buyer are not carried out properly, the goods remain at the risk of the seller during transit. While delivering goods to the carrier, it is the seller’s duty to do whatever is necessary to secure the carrier’s responsibility for the safe delivery of goods to the buyer so that in the event of the loss, the buyer can claim compensation against the carrier. Where the goods are sent by sea it is usual for the buyer himself to insure.

In such a case it is the duty of the seller to give such notice of the shipment to the buyer as may enable him to insure the goods, If he does not, the risk does not pass to the buyer. 13) Buyer’s risk for deterioration of goods in transit (Sec. 40): Where the seller agrees to deliver the goods to the buyer at a place other than that where they are when sold, the merchantable quality of the goods may be affected due to transit. In such a case any risk of deterioration in the goods necessarily incident to the course of transit shall be borne by the buyer, unless otherwise agreed, e. . , A sold to B a certain quantity of hoop iron which was to be sent by canal at the request of B, It was rusted before it reached the buyer. The sting however was not more than what was necessarily incidental to its transmission. It was held that B was bound to accept the goods. 14) Buyer not bound to return rejected goods (Sec. 43): Where goods are delivered to the buyer and he refuses to accept them, having the right so to do, he is not bound to return them to the seller. It is sufficient if he intimates to the seller that he refuses to accept them.

This rule applies when the rejection is rightful and there is no agreement to the contrary. 15) Liability of buyer for neglecting or refusing delivery of good (Sec. 44): When the property in the goods has passed to the buyer and the seller is ready and willing to deliver the goods and requests the buyer to take delivery, but the buyer fails to take delivery within reasonable time, he is liable to the seller for any loss occasioned by his neglect or refusal to take delivery, and also for reasonable charge for the care and custody of the goods.

However, the buyer is not liable for failure to accept the delivery of goods in the following cases: i) Where the property in the goods has not passed to the buyer, or ii) Where the seller has a lien on the good, or iii) Where the buyer’s refusal to take delivery amounts to repudiation of the contract entitling the seller to sue him for damages for breach. 15. 5 RIGHTS OF BUYER General Rights (Sec. 31, 32, 37, 38, 39 41, 43) Rights against seller for breach of contracts (sec. 57 to 61) General Rights 1. Right to have delivery as per contract (Sec. 31 & 32). 2.

Right to reject the goods if they are delivered in wrong quantities (Sec. 37). 3. Right to refuse delivery of goods by installments (Sec. 38) 4. Right to notice of shipment in case the goods are sent by sea so that he may get the goods insured (Sec. 39). 5. Right to examine goods for the purpose of ascertaining whether they are in conformity with the contract (Sec. 41) RIGHTS OF A BUYER AGAINST THE SELLER FOR BREACH OF CONTRACT. A buyer has the following rights against the seller for breach of contract under the Sale of Goods Act. 1. Suit for non-delivery (Sec. 7): 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. This remedy would be available even if the property has passed to the buyer. 2. Specific performance (Sec. 58): Where property has passed to the buyer, he also can exercise another right, viz. , a right to sue for specific performance and its limits are regulated by the Specific Relief Act. In such cases the court may in its discretion grant a decree ordering the seller to deliver those specific or ascertained goods which formed the subject-matter of the contract.

It should be noted that the remedy is discretionary and will only be granted if the damages are not an adequate remedy or the goods are unique. E. g. rare book, a picture or a rare piece of jewellery. 3. Breach of Warranty (Sec. 59): Where there is a breach of warranty by the seller (i. e. defects in the goods delivered) or where the buyer elects or is compelled to treat any breach of condition on the part of the seller as a breach of warranty, the buyer has the following remedies: a) He may claim a deduction from the price b) He may refuse to pay the price altogether, if the loss equals the price. ) If the loss exceeds the price, he may not only refuse to pay the price, but also claim the excess. Or d) He may sue the seller for damages for the breach of warranty in addition to the right to claim diminution or extinction of the price” . 1. Suit for Anticipatory breach (Sec. 60): The buyer has the right to sue the seller for damages for anticipatory breach of contract Section 60 lays down that where the seller repudiates the contracts before the date of delivery, the buyer may either treat the contract has subsisting and wait till the date of delivery or he may treat the contract as rescinded and sue for damages for the breach. . Suit for interest and recovery of the price (Sec. 61): If the buyer has already paid the price and the seller fails to deliver the goods, the buyer is entitled to file a suit for the refund of the price. In such a suit, the buyer may also claim interest or special damages from the defaulting seller. In the absence of any other contract to the contrary, the court may award interest at such rate as it thinks fit on the amount of price from the date on which the payment was made. 15. 6 RIGHTS OF THE UNPAID SELLER Unpaid seller defined (sec. 45) Unpaid sellers’ rights (sec. 6 • Unpaid sellers’ lien (sec. 47 to 49) • Stoppage in transit (sec. 50 to 52) • Transfer by buyer and seller (sec. 53 & 54) • Suit for breach of the contract (sec. 55 to 61) Who is an unpaid seller? The seller is deemed to be an unpaid seller under any of the following circumstances: – a) If the whole of the purchase price is not paid on the due date. . b) If payment is made in the form of a negotiable instrument (Bill of exchange or cheque) and the instrument is dishonoured. B) Unpaid Sellers’ Rjghts (Sec. 46): Rights of an unpaid seller can Be listed s follows. 1) Against the goods -Right of Lien, Right of Stoppage in Transit and Right of Resale 2) Against the buyer personally – Suit for price, Suit for damages for non-acceptance of delivery, Suit for damages for repudiation of the contract. Suit for interest or special damages RIGHT OF UNPAID SELLER AGAINST THE GOODS I) Right of Lien or Vendor’s Lien (Sec. 47-49): The ‘Unpaid Seller’ has a lien on the goods for tile price while he is in possession, until the payment of tender of the price.

A lien is a right to retain possession of goods until payment of the price. He is entitled to lien in the following three cases, namely: i) where goods have been sold without any stipulation as to credit: ii) where goods have been sold on credit but the term of credit has expired; or iii) where the buyer becomes insolvent. RULES:- 1. The seller may exercise his right of lien notwithstanding that he is in possession of the goods as age or bailee for the buyer. 2. If the goods have been sold on credit, the seller cannot refuse to part with possession unless the term of credit has expired. . Lien can be exercised for non-payment of the price, not for any other charges. 4. Effect of part delivery (Sec. 48): When an unpaid seller has made a part delivery of the goods he can exercise lien on the balance of the goods not delivered unless the part delivery was made under such circumstances as to show an intention to waive the lien. 5. The seller can abandon or waive the lien if he so desires. 6. Termination of lien (Sec. 49): The unpaid seller of goods loses his lien thereon in the following cases: ) When he delivers the goods to a carrier or other bailee for the purpose of transmission to lie buyer without reserving the right of disposal of the goods; b) when the buyer or his agent lawfully obtains possession of the goods; and c) where the seller has waived the right of lien. The unpaid seller does not lose his lien by reason only that he has obtained a decree for the price of the goods 7 Sale not rescinded by lien \sec. 54): A contract of sale is no~ rescinded by the mere exercise of the right of lien.

The contract still remains live and the buyer can claim delivery of the goods by tendering the price However, if the buyer defaults, the sellers remedy is to resell the goods and claim damages. II) The Right of Stoppage in Transit: (Sec. 50-52) When the buyer of goods becomes insolvent and the goods are in course of transit to the buyer, the seller can resume possession of the goods from the carrier. This is known as the right of stoppage in transit. The right is exercisable by the seller only if the following conditions are fulfilled: i) The seller must be unpaid. i) He must have parted with the possession of goods. iii) The goods must be in transit. iv) The buyer must have become insolvent. v) The right is subject to provisions of the Act. The right of stoppage means the right to stop further transit of the goods to resume possession and to retain the same till the price is paid) The unpaid seller may exercise his right of stoppage in transit either – a) By taking actual possession of the goods or b) By giving notice of his claim to the carrier or other bailee in whose possession the goods are. Who is an insolvent?

The term insolvent is used here to denote a person who is financially embarrassed. It is not necessary that the buyer should be declared insolvent by a court of law before the right of stoppage in transit can be exercised. According to section 2(8), The buyer is said to be ‘insolvent’ when he 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. Rules: The following points are to be noted in connection with the right of stoppage in transit: I) Duration of transit (sec. 1): The goods are deemed to be in course of transit from the time they are delivered to a carrier or other bailee for the purpose of transmission to the buyer, until the buyer or his agent takes delivery of them. II) When does transit end? a) Delivery before destination: If the buyer or his agent obtains delivery of the goods before their arrival at the appointed destination, the transit is at an end. [sec. 51 (2)] b) Attornment by carrier to buyer: If after the arrival of the goods at the appointed destination, the carrier expressly or by implication enters into a new agreement to hold the goods for the buyer (for purpose of custody), the riginal transit comes to an end. [sec. 51 (3)] c) Goods rejected by buyer: If the goods are rejected by the buyer and they continue to be in possession of the carrier or other bailee then the transit continues even if the seller has refused to receive them back. [sec. 51 (4)] d) Delivery on ship chartered by buyer: When the goods are delivered to a carrier who is acting as agent of the buyer, e. g. when goods are delivered to a ship chartered by the buyer, the transit comes to an end as soon as the goods are loaded on board the ship. [sec. 51 (5)] ) Wrongful refusal by carrier to deliver: If the carrier wrongfully refuses to deliver the goods to the buyer, the transit is at an end, but not if he does so rightfully. [sec. 51 (6)] f) Part delivery: Where the part delivery of the goods has been made to the buyer 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. [sec. 51 (7)] III. How stoppage in transit is effected [sec. 52]: There two modes of stoppage in transit are – a) By taking actual possession of the goods or ) By giving notice to the carrier not deliver the goods to the buyer or his agent. 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 redelivery shall be borne by the seller. Effect of Stoppage: Contract Not Rescinded – 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. [sec. 54]

Effect of sub-sale or pledge by the buyer (section 53): The unpaid seller’s right of lien or stoppage in transit is not affected by any sale or pledge of the goods made by the buyer. (Example: S sells certain goods to B of Nagpur. The goods are handed over to the railways for transmission to B. In the meantime, B sells these goods to C for consideration. B becomes insolvent. Can S still exercise his right of stoppage in transit? EXCEPTIONS: In the following two cases the unpaid seller’s right of lien or stoppage in transit is affected by any sale or pledge of the goods made by the buyer: (i. e.

Unpaid seller cannot exercise right of lien or stoppage in transit. ) – a) When the seller assents to such sale or pledge; or b) When the seller has transferred a document or title to the goods, who transfers it by way of a sale, pledge or other disposition for value, to a person who takes it in good faith and for consideration. Where (I) the seller has issued or lawfully transferred a document of title to goods, e. g. a bill of lading or a railway receipt to a person as buyer and (ii) the buyer transfers the document by way of sale or pledge to a person who takes the document in good faith and for consideration.

In such a case if the transfer is by way of sale the unpaid sellers right of lien or stoppage is defeated and if it was by way of pledge, his right of lien or stoppage can only be exercised subject to the rights of the pledgee. Thus the effect of the–rule is that the seller may still exercise his rights by paying off the pledgee. DISTINCTION BETWEEN LIEN AND STOPPAGE IN TRANSIT: 1. The essence of lien is to retain possession while· the essence of the stoppage in transit is to regain possession. 2. The right of lien is applicable to goods which are in the possession of the seller.

The right of stoppage in transit is applicable to the goods which are in possession of the carrier. 3. The right of stoppage in transit is applicable to the insolvent buyer. But the right of lien is applicable to all persons, solvent or insolvent. 4. The right of stoppage in transit is applied to the buyer through the carrier. Therefore stoppage means the seller’s right to ‘regain the goods. But lien means the right to retain’ the goods. Of course both the rights are applicable to goods only. 5. When the right of lien ends the right to stop in transit begins.

III) The Right of Resale :(Sec 54) The unpaid seller who has retained possession of the goods In exercise of his right of lien or who has resumed possession from the carrier upon insolvency of the buyer, can resell the goods: a) If the goods are of a perishable nature, without any notice to the buyer, and b) In other cases after notice to the buyer, calling upon him to payor tender the price within reasonable time. and upon failure of the buyer to do so. If the money realised upon such resale is not sufficient to compensate the seller, he can sue the buyer for the balance.

But if he receives more than what is due to him, he can retain the excess. A resale does not absolve the buyer from his liabilities to compensate the seller for damages he may have suffered. Right of Unpaid seller against the buyer personally a) Suit for the price: (sec. 55): 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.

Where the property in goods has not passed to the buyer, the seller as a rule cannot file a suit for the price and his remedy is to claim damages. According to section 55 (2), where under a contract of sale the price is payable on a certain day 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. b) Suit for the damages for non-acceptance Sec. 6: Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for damages for non-acceptance. c) Suit for damages for repudiation of the contract (sec. 60): Where the buyer repudiates the contract before the date of delivery, the seller 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. d) Claim for interest and special damages {sec. 1}: The seller may recover interest or special damages in any case where by law interest or special damages may be recoverable. He may also recover the money paid where the consideration for the payment of it has failed. 15. 7 AUCTION SALE A sale by auction is a public sale where various intending buyers offer bids for the goods and try to outbid each other. Ultimately, the goods are sold to the highest bidder. An auction sale is complete when the auctioneer announces its completion by the fall of the hammer or in other customary manner.

The property in the goods thus passes on the fall of the hammer; until the fall of the hammer the bidder has the right to revoke his bid. The auctioneer is, generally not the seller but, the agent of the real owner of the goods. He is engaged to conduct the auction and his relationship with the seller is governed by the law of agency. Rules of Auction Sale (sec. 64): Following rules have been laid down to regulate the sales by auction: 1. Sale of goods in lots: Where goods are put up for sale in lots, each lot is prima facie deemed to be the subject of a separate contract of sale. . Completion of Sale: An auction sale is complete when the auctioneer announce its completion by the fall of the hammer or in other customary manner, and until then the bidder has the right to revoke or retract his bid. If before the fall of the hammer the bidder withdraws, his security amount cannot be forfeited. But if he does so after the fall of the hammer, it amounts to a breach of the contract and his security amount will be liable to be forfeited. If the conditions of sec. 0, namely, the goods should be specific and in a deliverable state, are satisfied, the property in such goods passes to the buyer at the completion of the contract (by the fall of the hammer) 3. Seller’s Right to Bid: Unless the auction is notified to be subject to a right to bid on behalf of the seller, it is not lawful – (i) for the seller to bid himself or to employ any person to bid at such sale on his behalf and (ii) for tile auctioneer to, knowingly take any bid from the seller or any such person. Any contravention of this rule renders the sale as fraudulent.

If the seller makes use of pretended bidding to raise the price, the sale is voidable at the option of the buyer. However, the seller may expressly reserve the right to bid at the auction and in such case, the seller or any one person on his behalf may bid at the auction. But there should be only one person on behalf of the seller; if there are more than one person, the intention is to raise the price and is fraudulent. 4. Reserve Price: – The seller may notify that the auction will be subject to a reserve or upset price, that is, the price below which the auctioneer will not sell.

In such a case the auctioneer is not bound to accept the highest bid unless it reaches the reserve price. Further the property in the goods, even if they are specific, will not pass if the highest bid falls short of the reserve price. 2. Knock-out agreement is a form of combination of buyers to prevent competition among themselves at an auction sale. They agree that they will not raise the bid against each other and only one of them will bid of the auction. When the goods have been purchased they will share the profits. Prima facie, a knock-out agreement is not illegal.

However, if the intention of the parties to the agreement is to defraud a third party, this will be illegal. ———————– CONTRACT OF SALE TRANSFER OF PROPERTY GOODS OWNERSHIP IN GOODS NOT YET TRANSFERRED. (AGREEMENT TO SELL) IMMEDIATE TRANSFER OF OWNERSHIP (SALE) PRICE Whether the following are Goods? – Goodwill, Patents, Copyrights. – Debt, water, gas, electricity, – Indian Currency, foreign currency, Rare Coins, Old Coins – Ship, animals A agrees to sell two of his cars to B at a price to be fixed by C. He immediately gives delivery of the first car.

C refuses to fix the price. A asks for return of the car already delivered while B claims the delivery of the second car too. Decide, STIPULATION CONDITIONS WARRENTIES The condition forms the basis of the contract itself while warranty assures performance of the contract. Warranty thus is an assurance. ‘Is there any difference between warranty and guarantee? A manufacturer gives 7year guarantee on fans. ???? *A bought a motor car from B. He used it for 3 months and thereafter the car was detected to have been stolen. A was compelled to return it to the true owner. Could A recover the sale price from B? A sells to B tins of condensed milk labelled “Nissly Brand” and this is proved to be an infringement of Nestle Company’s trade mark. Is it a breach of implied condition as to title? Difference between Document of Title to Goods and Document showing title to goods A document showing title, (for e. g. , a share certificate)shows that the person named in the document is entitled to the property (in case of share certificate, the shares) represented by it. However it does not allow that person to transfer the property (shares) mentioned therein by mere endorsement and delivery.

But in case of document of title, the goods represented by it can be transferred by its endorsement and delivery. “Force majeure”. By a clause in the contract that seller may be entitled to suspend delivery or extend the time for delivery or even cancel the contract on the happening of a specified event or events beyond his control. Such clauses are, very common in commercial contracts of sale; but force majeure clauses may assume a variety of forms and must be construed in the light of their precise wording and with regard to the nature and general terms of the contract… Delivery of the goods to the buyer does not mean acceptance of the goods’. A buyer cannot be said . to have accepted the goods unless he had an opportunity to examine the goods and ascertain that they are in conformity with the contract. (sec. 41). Delivery of goods to the buyer does not amount to acceptance thereof by the buyer, According to sec. 42 a buyer is deemed to have accepted the goods- a) When he intimates to the seller that he has accepted them, or b) When he does an act in relation to such goods which is inconsistent with the ownership of the seller, e. g. pledges or resells ) When, after the lapse of a reasonable time, he retains the goods without intimating the seller that he has rejected the goods. The three common forms of contract as regards carriage by sea are – 1. F. O. B. (Free on board), 2. C. I. F. (Cost Insurance & Freight) 3. Ex-ship. 1. F. O. B. Contracts: F. o. b. means “free on board”. In other words the seller has to place the goods on board a ship at his own expense. He has only to bear the expenses of loading the . goods. Thereafter the goods are at the buyer’s risk and he is res90nsible for freight, insurance and subsequent expenses.

The property in goods passes to the buyer only after the goods have been put on board the ship, and they are at buyer’s risk as soon as they are put on board the ship, usually named by the buyer. The seller must notify the buyer immediately that the goods have been delivered on board, so that the buyer may insure them. If he fails to do so the goods shall be deemed to be at seller’s risk during such sea transit. 2. C. I. F. Contracts: The words ‘C. I. F. ‘ stand for Cost, Insurance And Freight. A CIF contract is a type of contract where in the price includes cost, insurance and freight charges. Under a CIF contract the seller is equired to insure the goods, deliver them to the shipping company, arrange for their affreightment and send the bill of lading and insurance policy together with the invoice and a certificate of origin to a bank. The documents are usually delivered by the bank against payment of the price, or against acceptance of the bill. This method protects the seller since he continues to be the owner of goods until the buyer pays for them and obtains the documents. The buyer is equally protected as he is called upon to pay only against the documents and the moment he pays, he obtains the documents which enable him to get delivery of the goods. . Ex-ship Contracts: Under an ‘Ex-Ship’ contract the seller has to deliver the goods to the buyer at the port of destination. In Such contracts the property in the goods does not pass until actual delivery. The goods are at the seller’s risk during the voyage. It is, therefore, for the seller to insure the goods to protect his interests. The seller is to pay the freight, or other wise release the ship owner’s lien and to furnish the buyer with a delivery order or an effectual direction to the ship owner to deliver.

Cite this The Sale of Goods Act

The Sale of Goods Act. (2016, Nov 21). Retrieved from https://graduateway.com/the-sale-of-goods-act/

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