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Sale of Goods

Frequently Asked Questions on Sale of Goods

Q. 1 Discuss briefly the history of `Sales of Goods Act' and important changes brought about in the law of Sales of Goods Act.

Ans. History of Law on Sales of Goods - Prior to enactment of Sales of Goods Act 1930, provisions relating to sales of goods where contained in chapter VII of Indian Contract Act, which were not much elborate on the subject and were consisting of elementary rules. By growth of industries etc., necessity of full-fledged comprehensive law on sales of goods were felt and therefore, "Sale of Goods Act 1930" was enacted. Sales of Goods Act, 1930 is mainly based on English Sales of Goods Act 1893.

The Sale of Goods Act brings the law of sale of goods or moveable up-to-date, but it is not an exhaustive code because Section 3 of the Act lays down that the unrepealed provision of the Indian Contract Act, save in so far as they are inconsistent with the express provisions of this Act, shall continue to apply to contracts for the sale of goods. Moreover, expressions used but not defined in this Act and defined in the Indian Contract Act, 1872, will have the same meanings as are given to them in the Indian Contract Act. (Section 2(15)). The Act has no retrospective effect, (Section 66(1)) and is applicable to the whole of India, except the State of Jammu and Kashmir (Section 1(2)).

The following important changes have been introduced in the law relating to sale of goods by Sale of Goods Act III of 1930.

(a) The Act embodies the principle that the question whether a contract for the sale of goods does or does not pass the property in the goods from the buyer to the seller, must in all cases be determined by the intention of the parties to the contract. The provisions of the old law contained in Chapter VII of the Contract Act were vague and conflicting on this point. The Act lays down rules by which intention of the parties to the contract may be ascertained in cases in which the parties have either formed no intention or failed to express it.

(b) The distinction between the sale and an agreement to sell, which was not clear before, has been clearly brought out.

(c) The law relating to warranties and conditions was in a very confused state and the present Act has removed this confusion.

(d) The law relating to sales by ostensible owners has been simplified.

(e) The rule relating to delivery to carriers, stoppage in transit and auction sales have been elaborated.

Q. 2 Writ short note on following :-

(a) Contract of Sales of Goods

(b) Goods

(c) Price

Ans. 2 (a) Contract of Sale of Goods - Section 4(1) of Sales of Goods Act says :-

"A contract of sale of goods is a contract whereby seller transfers or agree to transfer the property in goods to buyer for a price."

Essentials of contract of sale. - 1. The first essential of a contract of sale is that either there is actual transfer of property i.e., ownership or there is an agreement, to transfer property on some future date on the fulfilment of some condition, e.g., payment of price on delivery of goods, etc. Where property, i.e., ownership passes immediately from the seller to the buyer, it is a sale but where property is to pass on some future date, it is an agreement to sell. But both sale and an "agreement to sale" are included in a contract of sale. This essential feature distinguishes sale from bailment, in which there is neither actual transfer nor agreement to transfer property in goods but where goods are delivered to transferee property in goods and for some specific purpose on the condition that they shall be returned after the purpose is over.

2. The second essential of a contract of sale is that the transfer of property is from the seller to the buyer. In other words, in every contract of sale, there must be at least two parties the seller and the buyer, and no one can be a seller to himself.

3. The third essential is that there is transfer or agreement to transfer property i.e., ownership and not merely delivery of possession.

4. The fourth essential is that goods are to be transferred or agreed to be transferred for a price. In other words in a contract of sale the consideration is always money. Where there is no consideration, the transaction amounts to gift and not a contract of sale. Similarly where the consideration is delivery of some other goods, the transaction is not a contract of sale but is a contract of exchange or barter.

A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of such an 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 instalments, or that the delivery or payment or both shall be postponed.

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. But this is a subject to the provisions of any law for the time being in force (Section 5)

(b) Goods - Section 2(2) of Sales of Goods Act says -

"Goods means every kind of moveable property other than actionable claims and money and includes stock and stores, 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."

So Goods means and includes -

(i) Every moveable property other than actionable claims or money.

(ii) Goods includes growing crops, grass, things attached to land or forming part of land provided they are agreed to be severed before sale or under the contract of sale.

Goods are primarily of two kinds :-

(i) Specific Goods - Section 2(14) of Sales of Goods Act says specific goods are those goods which have been identified or agreed upon at the time of contract of sale. Specific goods are distinct from generic or unascertained goods. In order that goods may be specific, they must be identified and not merely identifiable. Under a contract for specific goods, the seller does not fulfil his contract by delivering any goods other than those agreed upon, e.g., if A agrees to sell his white cow to B which is pointed out at the time of the contract, the contract is for `specific goods' and A can fulfil it only by delivering that very white cow. When the contract is for "unascertained goods", the seller can fulfil his contract by delivering goods which answer to the description in the contract, e.g., if A agrees to sell 20 maunds of wheat from his wheat stock, the contract is for unascertained goods and it will become one for "specific goods" only when A separates 20 maunds of wheat from his stock and B assents to it.

(ii) Future Goods - "Future goods" means goods to be manufactured or produced or acquired by the seller after the making of the contract of sale. They are not the same thing as unascertained goods. Where an oil merchant agrees to sell oil to be processed from seeds in his possession, the contract is for sale of future goods.

A contract of sale of goods to be delivered at a future date is valid even though the seller has no goods nor any other means of getting them except to go into the market and buy them.

Section 6 of the Sale of Goods Act lay down that -

(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 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.

It is, therefore, clear that for a contract of sale it is not necessary that the goods should be existing goods, owned or possessed by the seller at the time of the contract but they can be future goods also which are to be manufactured, or produced or acquired by the seller, in future. But in case of future goods there cannot be any present sale, i.e., immediate transfer of property from seller to buyer but the contract can operate only as an agreement to sell.

(c) Price :- Section 2(10) of Sales of Goods Acts says :-

"Price means money consideration for sale of goods." In a contract of sales of goods consideration must be money which is called price of goods. As in case of any other contract, in contract of sale also, "Price" is essential. If the goods are transferred without price, then it will not be a sale. So for contract of sale, price is one of the important essentials. Price may be paid or promised to be paid in future but it should always be in form of money.

In a contract of sale of goods price of goods can be ascertained in the following ways :-

(1) The contract may expressly state the price of goods and in such a case there is no difficulty.

(2) The contract may provide a manner, in which the price is to be fixed.

(3) The price may be determined by the course of dealing between the parties.

(4) Where neither the contract expressly states the price of goods nor the contract provides the manner in which the price is to be fixed, the buyer is to pay to the seller reasonable price.

(5) The contract may provide that the price is to be fixed by the valuation of a third party. If such third party fails or refuses to make the valuation, the sale is avoided. If, however, the goods or any part thereof have been delivered to the buyer and he has appropriated them, but the valuer fails to value the goods, the buyer is to pay reasonable price of the goods. [Section 10].

Q. 3 Distinguish `Sale' from (a) bailment, (b) barter, and (c) gift.

Ans. A hire-purchase agreement is a contract of hire and it may eventually ripen into a sale. According to Section 2(c) of the Hire-Purchaser Act, 1972, "hire-purchase" agreement means an agreement under which goods are let on hire and under which the hirer has an option to purchase them in accordance with the terms of agreement, and includes an agreement under which -

(i) the possession of goods is delivered by the owner to a person on condition that such person pays the agreed amount (i.e. rent) in periodical instalments,

(ii) the property in the goods is to pass to such person on the payment of the last of such instalments,

(iii) such person (i.e. hirer) has a right to terminate agreement at any time before the property so passes.

CONTRACT OF SALE	HIRE-PURCHASER
1. In it, the seller transfer or agrees to transfer the property in the goods to buyer for a price, whether paid at once or later in instalments	In it, there is no such agreement. It is a contract of hire and it may eventually ripen into a sale.
2. Buyer become owner of goods and has all rights of owner.	A hirer is only a bailee of goods (i.e. in possession of goods for some time).
3. Ownership transfers immediately from seller to buyer.	Ownership transfers only when certain number of instalments paid, and at the option of hirer.
4. Buyer cannot terminate a contract and is bound to pay price. An agreement to buy imports a legal obligation to buy. If there was no such obligation, there cannot properly be said to have been an agreement.	Hirer cannot be compelled to buy. Hirer may terminate bailment by returning the article to its owner, without any liability to pay remaining instalments. If hirer defaults in payment, owner has a right to immediately resume possession of goods, without any liability to refund amount received till then.
5. If the seller or buyer sold goods to a third party, then such a person gets a good title, if he was acting in good faith and unaware of previous sale or any lien or right of original seller.	If a hirer assigns his right to a third party (or make a sale/pledge of goods to him), then such person won't get a good title, as a hirer is not the buyer.

Q. 4 Distinguish hire purchase agreements from contract of sale of goods on instalments basis.

Ans. The difference between a contract of sale at a price payable by instalments and a contract of hire-purchase is that in the former, the purchaser has no option to terminate the contract and return the chattel, whereas in the latter the hirer has. In the former, there is an agreement to purchase, whereas in the latter there is none. In each case, the substance of the transaction or the agreement must be looked at and not mere words.

Example. - In a case, the agreement related to coir matting valued at Rs. 928 and the defendant had bound himself to pay to the plaintiff the sum of Rs. 94 as monthly hire of the articles month by month in advance. It was further agreed that if he paid 10 months hire regularly on the due date, he would become the purchaser of the coir matting without further payment. If, on the other hand, he failed to pay regularly, the plaintiff had the option to cancel the transaction and terminate the agreement. The hirer himself had no such option. The agreement was interpreted as one for sale of coir matting, price to be paid in instalments of Rs. 94 per month and not a hire purchase of the matting. Mahabali Prasad v. H.N. Palmer, 1932 A.L.J. 1932 All. 607.

This distinguishing mark of a true hire-purchase agreement as distinguished from a sale is that the hirer should have a right to terminate the agreement at his pleasure and he need not continue the hiring a day longer than he desired, and he need not allow the transaction to become one of purchase unless he desired to do so. But the distinguishing mark of an agreement which is a sale and not a hire purchase agreement is that the 'hirer' should be bound to pay the full value of the goods by way of instalments without any option to cancel the agreement if he so wished before the full value of the goods is paid. Mahabali Prasad v. H.N. Palmer, 1932 A.L.J. 761.

Q. 5 Distinguish between `sale' and an `agreement to sell'. When does an `agreement to sell' becomes as `sale' ?

Ans. (1) In a sale, the property is the goods is transferred immediately from the seller to the buyer, but in an agreement to sell, the transfer of the property in goods is to take place at a future time or subject to some condition thereafter to be fulfilled.

(2) An agreement to sell, or an executory contract of sale, as it is called in English law, is a contract pure and simple and no property passes. Therefore, the goods remain liable to attachment and sale in execution of any decree passed against the seller. In the case of a sale, property in the goods passes immediately from the seller to the buyer and therefore goods cannot be attached and sold in execution of any decree passed against the seller when once they have been sold by him.

(3) A sale creates a right in rem while an agreement to sell creates only a right in personam. In case of the sale, property in goods passes from the seller to the buyer and the buyer becomes the owner of goods and this right of ownership of the buyer is recognized by the whole world. In case of an agreement to sell, the buyer and the seller gets remedy against the person and general estate of each other in case of breach of an agreement. The agreement creates a right with which only the contracting parties are concerned and not the world.

(4) In a sale, as property in goods passes immediately to the buyer, so if the goods are stolen or destroyed, the loss falls upon the buyer unless otherwise agreed upon between the parties. But in an agreement to sell, the loss falls upon the seller unless otherwise agreed upon. (Section 26).

(5) In a sale the seller may sue for the price in case of default by the buyer, but in an agreement to sell the seller can sue only for damages. According to Section 55 where under a contract of sale the property in the goods has passed to the buyer, i.e., transaction amounts to sale 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. But, according to Section 56, in the case of an agreement to sell, if the buyer wrongfully neglects or refuses to accept and pay for the goods the seller may sue him for damages for non-acceptance.

Q. 6 The Central India Machinery Manufacturing Co. Ltd. agreed to manufacture and supply wagons to Union Government. The agreement was made between the company and Railway Board which acted on behalf of Union Government. Is it a contract of sales of goods or contract for work and labour ?

Ans. Before distinguishing between contract of sale of goods and contract for work and labour it is necessary to understand the meaning of Contract of Sale of Goods. Section 4(1) of Sales of Goods Act says "Contract of sale of goods is a contract whereby seller transfers or agrees to transfer the property in goods to the buyer for a price."

Whether the contract is one of sale of goods or of work or labour depends on the circumstances of each case. The decision does not necessarily depend on the amount of skill and labour used or the value of materials used in a particular case. If the object of the contract is to transfer the property in some chattel and the delivery of the same to the buyer, it is a contract of sale, irrespective of the fact that the cost of materials used bear a very small proportion to the price charged. On the other hand if the object of Contract is not to transfer property in chattel but only to render skill and labour, the contract is one for work and labour.

In Commr. of Sales Tax M.P. v. Purshottam Premji, 1970(2) STC 287, it was observed :

"The primary difference between a contract for work or service and the contract for sales of goods is that in the former there is in the person performing work or rendering service, no property in the thing produced as a whole notwithstanding that a part or even the whole of the materials used by him may have been his property. In case of contract of sale, the thing produced as a whole has individual existence as the sole property of the party who produced it, at some time before delivery and the property therein passes only under the contract relating thereto in goods used in the performance of the contract is not sufficient to constitute sale, there must be an agreement express or implied relating to sale of goods and completion of the agreement by passing of title in the very goods contracted to be sold."

So even in a contract purely of works or service, it is possible that articles may have to be used by person executing the work and property in such article or material may pass to other party. That would not necessarily convert the contract into one of sale of those materials. In every case, court will have to find out what was the primary object of the transaction and the intention of parties while entering into it.

In the case in hand bulk of materials used in manufacturing the wagons belongs to manufacturer, who has agreed to sell the product for a price. This fact is a strong pointer to the conclusion that the contract is in substance, one for sales of goods and not for work and labour. See Union of India v. C.I.M. Mfg. Co., AIR 1975 SC 1537.

Q. 7 A contracts to sell to B all the grain that may be produced on his farm. The entire crop is lost due to failure of rains. Who shall suffer the loss ?

Ans. Sections 7 and 8 of Sales of Goods Act deal with Effect of goods being perished in case of contract of sale or in case of agreement to sell. Section 7 lays down :

"Where there is a contract for sale of specified goods the 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 in the contract."

Section 8 of Sales of Goods Act lays down that "Where there is an agreement to sell specific goods and subsequently the goods without any fault on the part of the seller or buyer perishes or becomes so damaged as no longer to answer to their description in the agreement before the risk passes to the buyer the agreement is thereby avoided."

So this Section 8 of Act is applicable when the goods to be sold are `specific' and there is merely an agreement to sell. Question involved in the case in hand is whether agreement to sell the grain that may be produced on his farm, is specific or unascertained.

In Howell v. Coupland, (1876) 1 Q.B.D. 258 C.A, it was observed "specific goods has a wider meaning than that given in definition and may be extended so as to include unascertained goods which form a part of specific subject matter, whether existing at the time that contract is made or to come into existence thereafter."

In that case Department in the month of March agreed to sell to plaintiff 200 tons of legent potatoes, grown in land belonging to Defendant at particular price and to be delivered in the month of October. Defendant had 68 acres of land which was sown, but without fault on the part of the defendant, in August, the crop was attacked by the potato disease and defendant could not deliver the whole quantity of product. It was observed "This is not like the case of contract to deliver so many goods of particular kind, where no specific goods are sold. Here there was an agreement to sell and buy particular crop to be grown on specific land; so it is an agreement to sell specific things and therefore neither party is liable, if the performance becomes impossible."

So in view of above discussion, Agreement is void in view of Section 8 of Act and A has to suffer the Loss.

Q. 8 `A' was shopping in the super market, he picked up a bottle of soft drink from a shelf with the intention to buy it. While he has examining it, the bottle exploded in his hand and injured him. A sued both the management of super market and the company which had bottled the drink to recover damages for breach of condition arising from the sale of good. Will he succeed.

Ans. Section 4 of the Sale of Goods Act enacts that "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." As in the case of an advertisement, catalogue or price list of goods, a shopkeeper is not bound to sell the goods displayed in the shop to the customer who makes an offer to buy. Even in the Super Market or self service shop, the invitation to treat will not bind the seller into effecting the sale of the goods chosen by the buyer.

Therefore, a customer who picks up goods in a self service shop is merely offering to buy them and the sale is not complete until they are paid for. Therefore, in the case in hand there is no sale of the bottle of soft drink picked up from a shelf of the super market by A. Hence, the question of implied warranty of "merchantable quality" does not arise as the same is attracted only when the sale is concluded.

Q. 9 A agrees to sell to B 100 bags of flour which are in his store room. Before the date of delivery the store room of A got flooded with water. Consequently the 100 bags of flour get destroyed. Does B have any right against A ?

Ans. Section 8 of the Sale of Goods Act provides: "Where there is an agreement to sell specific goods, and 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 the agreement before the risk passes to the buyer, the agreement is thereby avoided.

In the case in the hand, there is an agreement of sale only. The subject matter of the agreement, i.e. bags of flour has been damaged with flooded water without any fault of either of the parties. Therefore, B has no right against A.

Q. 10 Is time an essence of a contract for the sale or goods ? Discuss the rule about stipulations as to time in such contracts.

Ans. Section 11 of the Sale of Goods Act provides that 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 essence of the contract or not depends on the terms of the contract. Thus we find that this section divides stipulations as to time into stipulations as to time of payment and other stipulations as to time, e.g., time for delivery of goods or time for performance of other terms of the contract. As regards the first, viz., stipulations as to time of payment of price they are never treated as essential terms of the contract, breach of which may give rise to a right to treat the entire contract as repudiated unless a different intention appears from the terms of this contract. Therefore if in a contract of sale of goods the price is not paid on the due date and there is nothing in the contract to show that parties wanted the date and time of payment to be essence of contract, he can only claim damages for breach.

Q. 11 Distinguish between condition and warranty and give two illustration of each.

Ans. In a contract of sales of goods, there may be various terms or stipulations. Such stipulations may be either conditions or warranties Sub-Section (1) to Section 12 of Sales of Goods Act also provide "A stipulation in a contract of sale with reference to goods which are the subject thereof may be a condition or a warranty."

Section 12(2) of Act then lay down "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 contracts as repudiated." Section 12(3) of Act says "A warranty is a stipulation collateral to the main purpose of contract the breach of which gives rise to the claim for damages but not the right to reject the goods and treat the contract as repudiated.

So CONDITION is stipulation essential to the main purpose of the contract, its breach by one party entitles the other to treat the contract as repudiated.

For example : If a lady orders a Red Saree asking the seller to deliver it by 15th January so that she can wear it on 16th on the occasion of her wedding, but the seller supplies a black saree instead of a red one or supplies the saree on the 18th January there is breach of condition and lady buyer can treat the contract as repudiated.

Warranty on the other hand is a stipulation collateral to main purpose of contract and its breach is not considered to be serious. Breach of warranty by one party entitles the other party only to claim damages rather than avoiding the contract. For example Buyer agrees to pay the price in advance by 15th Dec. and the goods are to be delivered on 15th January but the buyer makes payment late, say on 25th December, the seller's remedy in such a case is to claim compensation because according to Section 11 of Act "Unless a different intention appears from the terms of the contract, stipulations as to time of payment are not deemed to be essence of contract of sale...."

There is no hard and fast rule as to which stipulation is a condition and which one is a warranty. Section 12(4) of Act also lays down "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."

Q. 12 What conditions and warranties are implied in a contract of sale of goods ?

Ans. In a contract of sale of goods there may be various terms or stipulations. Such stipulations may be either conditions or warranties. If a stipulation form the very basis of the contract or as stated in Section 12(2) of Act is essential to main purpose of contract it is called condition and if it is collateral to the main purpose of contract it is called warranty (Section 12(3).

If there is breach of condition in contract of sales of goods by one party then other party can:

(a) Repudiate the contract (Section 12(2), or

(b) Waive the condition (Section 13(1),

Breach of warranty is not considered serious in contract of sale of goods and only entitles the other party to claim damages but can not avoid the contract on ground of breach of warranty.

IMPLIED CONDITIONS AND WARRANTIES

Parties to contract of sales of goods may expressly provide any conditions or warranties. Apart from what may be provided by the parties in the contract, certain conditions and warranties as provided in Sections 14 to 17 are impliedly there in every contract of sale of goods

IMPLIED CONDITIONS (1) IMPLIED CONDITION AS TO TITLE : Section 14(a) of Act says "In every contract of sale, unless the circumstances are such as to show a different intention, there is an implied condition on the part of seller that, in case of sale, he has right to sell the goods and that in case of agreement to sell, he will have right to sell the goods at the time when the property in them is to pass.

(2) IMPLIED CONDITION OF SALE BY DESCRIPTION : Section 15 of Act says "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 and if the sale is by sample as well as by description, it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description."

(3) IMPLIED CONDITION AS TO QUALITY AND FITNESS : As a general rule there is no implied condition or warranty in contract of sale of goods as regards the quality or fitness of the goods for any particular purpose. However Section 16 (1) of Act says : (i) Where the buyer expressly or by implication makes known to the seller the particular purpose for which the goods are required so as to show that buyer relies on the seller's skill or judgement and (ii) Goods are of description which it is in the course of the seller's business to supply. Then there is implied condition that goods shall be reasonably fit for such purpose.

So Section 16 (1) of Act embodies the first of the exceptions to the rule of "Caveat emptor". However proviso to Sub-Section (1) to Section 16 says in case of contract of 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.

(4) IMPLIED CONDITION AS TO MERCHANTABLE QUALITY : Section 16 (2) says "Where goods are bought by description from a seller who deals in goods of that description, there is an implied condition that good shall be of merchantable quality."

The term `Merchantable quality' has not been defined in the Act. In Bristol Tramways v. Fiat Motors Ltd., (1910) 2 K.B. 831 "Merchantable quality means the article is of such quality and in such condition that a reasonable man acting reasonably, would after a full examination accept it under the circumstances of the case in performance of his offer to buy that article, whether he buys for his own use or to sell again."

So joint reading of Section 16 (1) and (2) of Act makes it clear that even when the goods are purchased by their trade name there may not be implied condition as to quality and fitness of goods bought for particular purpose, in view of proviso to sub-Section (1) But implied condition as to merchantable quality, could still be invoked. Proviso to Section 16 (2) however says if the buyer has examined the goods, there shall be no implied condition as regards the defects which such examination ought to have revealed or in respect of patent defects (5) IMPLIED CONDITION IN SALE BY SAMPLE : Section 17(2) of Act says: "In case of contract of sale by sample there is an implied condition:

(a) that the bulk shall correspond with the sample in quality.

(b) that the buyer shall have reasonable opportunity of comparing the bulk with the sample.

(c) that the goods shall be free from any defect rendering them unmerchantable, which would not be apparent on reasonable examination of the sample.

IMPLIED WARRANTIES (1) Section 14(b) of Act says "In contract of sale unless the circumstances of the case show different intention, there is an implied warranty that buyer shall have and enjoy possession of goods (2) Section 14(c) of Act says that in case of contract of sale there is an implied warranty that 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 when the contract is made.

Q. 13 Explain with the help of appropriate examples the doctrine of "Caveat Emptor".

Ans. Doctrine of "Caveat Emptor" as contained in Section 16 of Sales of Goods Act literally means that `buyer beware' that means it is for the buyer to satisfy himself that the goods which he is purchasing are of the quality which he requires or if he is buying them for a specific purpose, that they are fit for that purpose. If the goods are subsequently found to be unsuitable for purpose, he cannot blame the seller for the same, as there is no implied undertaking by the seller that he shall supply such goods as to suit buyer's purpose.

In Re Andrew Yule and Co. AIR 1932 Cal. 928 sale by sample by a woollen manufacturer of indigo cloth to buyer who did not specify the purpose for which he wanted the same, it was in fact needed for packing, owing to a latent defect in the cloth it was unfit for that purpose. It was held that buyer had no right to reject the same, even if it did not suit his purpose.

Rule of "Caveat Emptor" is contain in Section 16 of Act as "Subject to provisions of this Act and of any other law for the time being in force, there is no implied condition as to quality or fitness for any particular purpose of goods supplied under a contract of sale..."

Exceptions To Rule of Caveat Emptor Sub-sections (1) and (2) of Section 16 of the Act lay down two exception to the rule of "Caveat Emptor" and which are implied conditions in a contract of sale:

1. IMPLIED CONDITION AS TO QUALITY AND FITNESS : Section 16(1) says where buyer has expressly or impliedly made it known to seller, the purpose for which goods are required so as to show that buyer is relying on seller's judgement and skill and goods are of description which it is in course of seller's business to supply, then there is an implied condition that goods shall be reasonably fit for such purpose.

In a well known case Priest v. Last, (1903) 2 K.B. 148 Plaintiff went to the defendant a chemist, and asked for a "Hot water bottle". Defendant sold him an American rubber bottle, plaintiff had purchased the bottle for his wife and while she was using, it burst and injured her. Since the bottle was not fit for being used as `hot water bottle', the particular purpose, for which the buyer had purchased it, Defendant was held liable to pay compensation for the breach of implied condition.

However proviso to Section 16 (1) of Act provides that in case of a contract for the sale of a specified article under its patent or trade name, there is no implied condition as to its fitness for any particular purpose.

(2) IMPLIED CONDITION OF MERCHANTABLE QUALITY : Section 16 (2) contains second exception to the rule of "Caveat Emptor" and provides that "Where goods are bought by description from seller who deals in goods of that description, there is an implied condition that the goods shall be of merchantable quality.

Provided that if the buyer has examined the goods, there shall be no implied condition as regards defects which such examination ought to have revealed."

Q. 14 A purchased rice from B being the content of a godown. A had paid earnest money and had taken delivery of a part of rice. Before the rest could be taken away, it was destroyed by fire. Who will bear the loss ?

Ans. Section 20 of the Act says: "where there is an unconditional contract for the sale of specific goods in 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."

The term "specific goods" is defined by Section 2(14) of the Act as `goods identified and agreed upon at the time a contract of sale is made'. And according to Section 2(3) of the Act, goods are said to be in a `deliverable state' when they are in such state that the buyer would under the contract be bound to take delivery of them.

It is well settled law that when the subject matter of the sale is ascertained at the time the bargain is struck, and the price is likewise agreed upon, the sale is a complete sale from the time of the making of bargain, and the right of property in the things sold and the risk of loss are transferred to the purchaser, although the right of possession may continue in the vendor until the purchase money has been paid or tendered.

Therefore, in the case in hand the buyer will bear the Loss

Q. 15 A manufacturer of woollen cloths sold woollen cloth to a tailor on the basis of particular sample. The tailor had purchased the cloth for particular purpose but he had not told the seller about the same. Owing to latent defect in cloth as well as in sample, the cloth turned out to be unfit for purpose for which tailor had purchased though the same was fit for other purpose. Tailor filed suit for damage. Decide.

Ans. In a contract of sale of goods, terms or stipulations in the contract are either `condition' or `warranty'. Stipulations of contract of sale which are essential and form basis of contract are condition and those stipulations which are not essential or are collateral to main contract are warranty.

In case of breach of condition, buyer has right to repudiate the contract and in case of breach of warranty, contract can not be avoided only damages can be claimed by aggrieved party. Section 16 of Sales of Goods Act gives general rule of "Caveat Emptor" which says that in case of contract of sale of goods there is no implied condition as to quality and fitness of product to the purpose in mind of buyer.

However in case of sale of goods of sample there are following implied conditions as provided u/s 17 of Act.

(i) Bulk of Goods supplied by seller shall correspond with sample in quality.

(ii) Buyer shall have opportunity to compare the bulk of goods with sample so as to satisfy that bulk of goods correspond with sample.

(iii) Bulk of goods shall be free from any defect rendering it unmerchantable as regard those defect which are latent or are not apparent by reasonable examination of sample.

In present case, the sale of goods is by sample though in case in hand there was no implied condition of quality and fitness of goods to particular purpose because buyer did not specifically disclose the purpose for which goods were required to be. However, in case of sale by sample seller owe a implied condition that bulk of goods and sample shall be free from any latent defect rendering goods unmerchantable in view of legal position, tailor is entitled to damages.

Q. 16 (a) What is meant by `Sale by Sample' ? What are the conditions implied in sale by sample ?
(b) Vulcanized rubber material was agreed to be sold in rolls 40 ft. long under the description of Linatex and with small soft piece as sample. Following a request from buyer, the seller sent ten rolls directly to customer of buyer to whom it had been resold by description and same sample. Customer rejected the goods on the ground that goods were crinky, hard and folded. Seller sues the buyer for price. Court found that simple process of heating and pressing would correct the defect. Was the customer justified in rejecting the goods ? Can the buyer avoid payment altogether or must they be content with reduction in price ?

Ans. (a) Section 17(1) of Sales of Goods Act says a contract of sale is contract for sale by sample where there is term in contract express or implied to that effect.

Sometime, seller shows to buyer a sample of goods to be sold, upon seeing sample buyer places order to seller for sale of goods, sample of which was shown by seller. It becomes sale by sample only when the understanding between parties is that sample constitute true representative of kinds of goods to be supplied by seller to buyer under contract.

According to Section 17(2) in case of contract of sale by sample following are 3 implied conditions:

(i) First implied condition is that bulk of goods shall correspond with sample in quality.

(ii) Second implied condition in sale of sample is that buyer shall have reasonable opportunity of comparing the bulk of goods with sample to satisfy that bulk are in accordance with sample.

(iii) Third implied condition in sale by sample is that bulk of goods should be free from any defect which render them unmerchantable which would be latent (not apparent) by reasonable examination of sample.

(b) Section 15 of Sales of Goods Act says where there is contract of sale of goods by description there is an implied condition that goods shall correspond with description and where there is contract of sale by description as well as by sample, it is not sufficient that bulk of the goods corresponds the sample if goods do not also corresponds with the description.

Section 17(2) of Act says in case of contract of sale of goods by sample there are following implied conditions (a) Bulk of goods shall correspond with sample in quality (b) Buyer will have opportunity to compare the bulk of goods with sample so as to satisfy that bulk of goods are in accordance with sample (c) Bulk of goods shall be free from any defect rending them unmerchantable which are latent.

In case in hands it is evident that goods supplied did not correspond with sample in quality as rolls of goods (i.e. rubber material) were crinkly, hard and folded. Fact that these defects can be corrected by process of heating and pressing would not make correct and proper compliance of contractual obligation and goods are thus not corresponding with sample in quality.

Question which is now for consideration that whether buyer can reject the goods. Section 42 of Act enacts that buyer is deemed to have accepted the goods when he intimates to seller that he has accepted them when goods have been delivered to him or when he does any act in relation to goods which is inconsistent with ownership of seller or when after lapse of reasonable time, buyer has not sent any notice of rejection of goods.

In case in hand buyer had accepted the goods when following the request from buyer, seller sent 10 rolls directly to customer of buyer to whom it was resold by same description and sample. Therefore in view of provisions of Section 42 of Act, buyer is deemed to have accepted the goods or in other words has waived his option to repudiate the contract and thus buyer can at the most be entitled to claim damages even in breach of implied condition.

Q. 17 What are the Rules regarding transfer of property in goods as per Sales of Goods Act ?

Ans. Transfer of property in the goods from seller to buyer is the essence of contract of sale. The point of time when the ownership passed from the seller to the buyer becomes important because "Risk prima facie follows with the property." That means under the contract of sale if goods are damaged or destroyed, who ever whether buyer or seller is owner at the time of damage will obviously have to bear the loss

For the purpose of Transfer of property, goods may be divided into:

1. Specific goods and 2. Unascertained goods

1. Specific Goods : Section 2(14) of Act says specific goods are those goods which have been identified and agreed upon at the time of contract of sale. Sections 19, 20, 21, 22 and 24 of Act provide different situations when property in specific goods transfer from seller to buyer.

2. Unascertained Goods : Unascertained goods are those which are not identified or fixed or ascertained.

TRANSFER OF PROPERTY IN SPECIFIC GOODS 1. Property Transferred as intended : Section 19(1) of Act says `where there is a contract for the sale of specific goods, the property in them is transferred to the buyer at such time as the parties to contract intend it to be transferred. Section 19(2) further provides that for ascertaining the intention of parties, regard shall be had to the terms of the contract, the conduct of parties and circumstances of case.

In M/s Rane (Madras) Ltd., N Kozhikode v. State of Kerala, AIR 1968 Ker. 74 It was observed "The governing principle which should determine as to the passing of the property in goods must be to find out what is intention of parties. It is open to parties to make express provision as to when property in goods will pass "

However in the absence of any express or implied intention of parties, property in specific goods passes to buyer as per provisions of Sections 20, 21, 22 and 24 of Act. 2. Specific Goods in Deliverable State : Section 20 of Act says "Where there is an unconditional contract for sale of specific goods in deliverable state the property in 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 goods or both is postponed.

3. Specific Goods not in Deliverable State : Section 21 of Act says "Where there is a contract for sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into deliverable state, the property does not pass until such thing is done and the buyer has notice thereof.

4. Specific Goods to be Weighed etc. : Section 22 of Act then lays down that where there is a contract of sale of specific goods in 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.

In Shoshi Mohan Pal v. Nobo Krishto, I.L.R. (1979) 4 Cal. 801 there was a contract for the sale of whole amount of rice in golab which according to seller amounted to 975 mounds. The buyer was to remove the rice after weighing. Delivery of only 130 mounds were taken and the rest was destroyed by fire. Seller sued for recovery of price for whole amount of rice. It was held that property in whole goods had passed because nothing remained to be done by seller to ascertain the price and buyer had to get the rice weighed for his own satisfaction, since the ownership in the rice had passed to buyer therefore buyer will be liable to pay price.

5. Specific Goods Delivered on Approval Basis : Section 24 of Act says "When goods are delivered to 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 (b) if he does not signify his approval or acceptance to seller but retains the goods without giving notice of rejection then if a time has fixed for the return of goods, on the expiration of such time and if no time has been fixed, on the expiration of a reasonable time."

Transfer of Property in Unascertained Goods : Section 18 says where there is contract of sale of unascertained goods, the property therein does not pass at the time of making of contract, property in unascertained goods cannot pass until the goods are ascertained.

Section 23 of Act then says

"(1) Where there is contract for sale of unascertained goods or future goods by description and goods of that discription and in deliverable state are unconditionally appropriate to the contract either by the seller with the assent of the buyer or by buyer with the assent of the seller, the property in goods thereupon passes to buyer. Such assent may be either expressed or implied and may be given either before or after the appropriation is made."

Section 23(2) says where in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or bailee for the purpose of transmission to buyer and does not reserve any right of disposal. He is deemed to have unconditionally appropriated the goods to contract."

Q. 18 A purchased rice from B being the content of a godown. A had paid earnest money and had taken delivery of a part of rice. Before the rest could be taken away, it was destroyed by fire. Who will bear the loss ?

Therefore, in the case in hand the buyer will bear the Loss

Q. 19 `A' delivers a jewellery to `B' on approval, specifying that in case of non-acceptance it should be returned within 15 day. `B' begins to use the jewellery without communicating his acceptance, after 10 days the jewellery is stolen from B's house. Can `A' recover the price of jewellery from B ?

Ans. Section 24 of Sales of Goods Act says "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.

(b) If he does not signify his approval or acceptance to 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."

So when the goods are sold on approval basis or sale or return basis, property in goods does not pass to buyer, on delivery of goods it passes (1) when buyer signify his acceptance or (2) when buyer adopts the transaction or (3) when buyer does not return the goods after stipulated time or reasonable time.

Section 42 of Act is important here which says "The buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted them or when the goods have been delivered to him and does any act in relation to them which is inconsistent with the ownership of seller..."

In case in hand also `B' after having taken the delivery of jewellery from seller on approval basis started using the jewellery which implies the `B' has adopted the transaction, therefore property in goods passes to B, therefore if jewellery is stolen, then B has to sustain the loss and A can recover the price of jewellery.

Q. 20 `A' sells to `B' on the 5th March, all the hay standing on my land in a particular enclosure; the hay to be cut and carried by B after two weeks and the price of Rs. 500 to be paid on 15th April. The hay destroyed by fire before it was cut. A sues B for price after the due date. Decide.

Ans. Section 20 of Sales of Goods Act provides : "Where there is an unconditional contract for sale of specific goods in 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 price or time of delivery of the goods or both, is postponed."

So property in goods shall pass at the time of making of contract if : (i) goods are specific (ii) if goods are in deliverable state and (iii) If the contract of sale is unconditional.

Section 2(14) has defined "Specific goods" means good identified and agreed upon at the time of contract of sale is made." In case in hand it was clear between A (seller) and B (purchaser) hay standing on the land of A is to be sold so it was specific goods It was also in deliverable state within the meaning of Section 2(3) of Act which says "goods are said to be in a `deliverable state' when they are in such state that the buyer would under the contract be bound to take delivery of them."

In Tarling v. Baxtor, (1827) 6 B&C 360 facts were similar and it was held that in view of provisions contained in Section 20 of Act the property in the goods had passed to the buyer even though the payment of price and the delivery of the goods were postponed and therefore the buyer should bear the Loss.

So in case in hand A is entitled to recover the price from B, because property in goods had passed from A to B at the time of making of contract in view of Section 20 .

Q. 21 What do you understand by `reservation of right of disposal' ?

Ans. Where there is a contract for the sale of specified goods or where there is a contract for the sale of unascertained goods which are subsequently appropriated to the contract, the seller may by the items of the contract or appropriation, reserve the right of disposal of the goods until certain conditions are fulfilled. In other words, the seller may make the sale or appropriation conditional. In such a case, the delivery of the goods to a buyer or a carrier or other delivery of the goods to a buyer or a carrier or other bailee for the purpose of transmission to the buyer does not pass property to the buyer until the conditions imposed by the seller are fulfilled. [Section 25 (1)].

Where goods are shipped or delivered to a railway administration for carriage by railway and by bill of lading or railway receipt, as the case may be, 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 and therefore the property does not, on shipment or despatch by railway, pass to the purchaser. [Section 25 (2)].

Where the seller of goods draws a bill of exchange on the buyer for the price and transmits the same to the buyer together with the bill of lading or the railway receipt, as the case may be, on the understanding that the buyer may accept for payment or pay the bill of exchange, the buyer must return the bill of lading or the railway receipt if he does not honour the bill of exchange. If the buyer wrongfully retains the bill of lading or the railway receipt, the property in the goods does not pass to him. [Section 25 (3)].

Prior to the Amendment Act No. 33 of 1963, subsections (2) and (3) applied to carriage by sea only. But now both the sub-sections have been made applicable to carriage by sea as well as to carriage by rail.

Q. 22 `Risk prima facie passes with property'. Explain what are the exceptions to this principle.

Ans. (a) Risk prima facie passes with property is the general rule of contract of sale as incorporated u/s 26 of Sales of Goods Act which provide that:

"Unless otherwise agreed the goods remain at the seller's risk until the property therein is transferred to buyer but when the property therein is transferred to buyer, the goods are at the risk of buyer whether delivery has been made or not.

Provided that where delivery has been delayed through the fault of either buyer or seller the goods are at the risk of party in default as regard any loss which might not have occurred but for such fault.

Provided also that nothing in this Section shall affect duties or liabilities of either seller or buyer as bailee of goods of other party." Thus in case of either contract of sale or an agreement to sell after the parties have entered into contract, whoever is the owner of goods, goods shall be at his risk notwithstanding he may not be in possession of or delivery of goods may not be made to him."

Rule `Risk prima facie follows with property' has following 3 exception:

(1) If Parties Have Decided Contrary.

(2) If Delivery of Goods Is Delayed Through fault of either Party.

(3) If Goods Are In Possession of Either Party As Bailee.

Q. 23 "No person can pass a better title to another than what he possess" - Explain ! What are the exceptions of this rule ?
Or
A finds a gold ring. He makes all reasonable efforts but fails to discover the owner. He sells the ring to B who does not know that A is only a finder of ring. True owner C claims the ring. Decide.

Ans. Maxim "Nemo dat quod non Habet" i.e. no one can pass the better title than he has lays the general rule which relevant for case in hand. This general rule has been incorporated in Section 27 of Act which provide as:

"Subject to the provisions of this Act and of any other law for the time being in force, where goods are sold by person who is not owner thereof and who does not sell the goods under the authority or with the consent of owner, the buyer acquire no better title to goods than the seller had...." Meaning thereby a sale of goods by person who is not lawful owner or who has no authority of lawful owner of goods will not be able transfer better title of goods to the buyer. Though Section 27 incorporate certain exceptional circumstances wherein the person who is not lawful owner yet he will transfer a better title in goods which are:

1. Sale under Implied Authority of Owner or Transfer of title by Estoppel (Section 27) : Sometimes law of estoppel may apply against owner of goods and he may not be allowed to deny seller's authority to sell. The closing words of rule contained in Section 27 say:

"Unless the owner of goods is by his conduct precluded from denying the seller's authority to sell."

In other words when lawful owner of goods by his word or conduct make it believe to buyer that seller has authority to sell, then owner of goods will be estopped from denying that seller has no authority.

2. Sale by Merchantile Agent (Proviso to Section 27) : Proviso to Section 27 says where a Merchantile agent is with the consent of owner in possession of goods or document of title to goods and sale made by him in ordinary course of his business, the buyer gets the proper title. It is also necessary that buyer acted in good faith without having any notice that Merchantile agent did not have any authority to sell.

3. Sale by Joint Owner (Section 28) : Sale by one of joint owners constitute another exception to the rule of "Nomo dat Quod non habet." According to Section 28 joint owner who is in sole possession of goods with the permission of other co-owner a sale by him will convey good title to buyer. Provided buyer acted in good paith and without notice that seller had no authority.

4. Sale By Person In Possession Under Voidable Contract : Section 29 provides that if a person has obtained the possession of some goods under a contract which is voidable u/s 19 or 19A of Contract Act and he sells those goods before the contract has been avoided by party entitled to do so the buyer of such goods acquires good title to them. Provided buyer acted in good faith without notice of seller's defect of title.

5. Sale By Seller In Possession : If seller having already sold the goods and property in goods has passed to buyer, the seller can not deal with such goods. If he deals with them, buyer can sue him for tort of conversion. Section 30(1) however provides that if a seller having sold the goods is still in possession thereof or of document of title to them, delivery or transfer of goods or documents of title under any sale, pledge or other disposition thereof by seller, will convey a good title to the buyer provided buyer has been acting in good faith and he has no notice of previous sale.

6. Sale by Buyer in Possession : (Section 30(2)) deals with case where buyer is in possession of goods but the property in them has not yet passed to him. It says that if buyer has obtained possession of goods or document of title to goods with the consent of seller any sale, pledge or other disposition thereof to any person will convey a good title to transferee provide he is receiving goods in good faith without notice as regard any lien or other right of original seller.

In view of law discussed above `C' is entitled to recover his golden ring from B. Plea of B that he has purchased for valuable consideration, bonafide in good faith and without notice of any such defect in title or authority of A is no defence against the claim of C (true owner).

Q. 24 A sells a scooter to B. When B goes out with the scooter, he is arrested by the police on the charge of keeping stolen property as the scooter belongs to C. Can B sue A and for what remedy, if any ?

Ans. Section 27 of Sales of Goods Act, contain very important principle of contract of sale, which is described by maxim "Nemo dat quod non habet" which means that nobody can give what he himself has not got. Section 27 of Act provides:

"Subject to the provisions of this Act and of any other law for the time being in force, where goods are sold by a person who is not the owner thereof and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods then the seller had..."

Therefore in the case in hand, when A sells the scooter to B, A had no title or authority to sell the scooter, therefore B had not got the good title of scooter. So B is certainly entitled to recover the price, which B paid to A.

Q. 25 Discuss the provisions of Sales of Goods Act regarding delivery of goods from seller to buyer.

Ans. Delivery of Goods :- According to Section 2(2) of Sales of Goods Act "Delivery means Voluntary transfer of possession from one person to another". Under the contract of sale of goods, sale is complete when seller give the delivery of goods to buyer and buyer takes the possession of goods

Section 31 of Act also provides that it is the duty of the seller to deliver the goods and of buyer to accept and pay for them in accordance with terms of contract of sale.

Then Section 32 of Act says that the seller shall be ready and willing to give possession of the goods to the buyer in exchange of price and buyer shall be ready and willing to pay the price in exchange of possession of goods. But the parties can agree otherwise.

So Delivery of Goods under the contract of sale is the performance of his part of duty of seller, which can be made in any of following ways :-

(a) By doing any thing which the parties agree, shall be treated as delivery

(b) By doing anything which has the effect of putting the goods in the possession of the buyer or any person authorized to hold them on his behalf (Section 33)

Section 33 of Act also says seller of goods is not bound to give delivery of goods unless the buyer applies for delivery. But parties may enter into express contract by which the seller may be required to deliver the goods without being asked to do so by the buyer.

Section 36 lays down the general rules regarding the delivery of goods by the seller to the buyer. But these rules can be varied by a specific agreement between the parties.

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 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. If the goods are not in existence at the time of agreement to sell, i.e., goods are future goods, they are to be delivered at the place at which they are manufactured or produced.

2. Where under the contract of sale, the seller is bound to send the goods to the buyer without any demand from the buyer, and no time has been fixed for sending them, the seller is bound to send them within a reasonable time. As to what is a reasonable time depends upon the circumstances of each case.

3. Where the goods at the time of sale are in possession of a third person, there is no delivery by the seller to the buyer unless and until such third person acknowledges to the buyer that he hold the goods on his behalf. All the three parties to the contract must agree, viz., the seller, the buyer and the third person in whose possession the goods actually are. It has been specifically mentioned that nothing in this section shall effect the operation of the issue or transfer of any document of title to goods. Therefore, if the goods are dispatched by rail and the railway receipt is transferred to the buyer, it operates as a delivery of the goods and it is not necessary that the railway company should acknowledge to the buyer that in future it will hold those goods on his behalf.

4. Demand for delivery of goods must be made at reasonable hour. As to what it is a reasonable hour is a question of fact.

5. The expenses of and incidental to putting the goods into a deliverable state (i.e., a state which the buyer is bound to take delivery) shall be borne by the seller. This is subject to a contract between the parties.

Q. 26 What is the effect of delivery of goods of wrong Quantity ?

Ans. The general rule is that where there is a contract for a certain quantity of goods the delivery of more or less than the specified quantity does not constitute a sufficient delivery and the seller who tenders less or more of the stipulated quantity cannot call upon the buyer to accept the goods because by delivering a wrong quantity he does not fulfil his contract. Similarly a buyer cannot call upon the seller to deliver anything short of the quantity unless he is prepared to accept the whole. Section 37, Sale of Goods Act, lays down that where the seller delivers to the buyer a quantity of goods less than that he contracted to sell, the buyer may reject them but if the buyer accepts the goods delivered he shall pay for them at the contract rate which is deemed to be an index of reasonable rate. [Clause 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. The buyer cannot claim to accept a part of the contracted quantity or of the excess. [Clause 2].

Where the seller makes a mixed delivery, i.e., deliver 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 the rest or may reject the whole. [Clause 3].

The above provisions are subject to any usage of trade, special agreement or course of dealing between the parties. For example parties may qualify the specific quantity of goods to be supplied under the contract by use of such words as "about" or "more or less" etc.

Q. 27 A gives an order for certain specified goods from B at Bombay. B sends the goods not ordered for along with them. A refuses to take delivery or accept them. What steps should be taken against whom ?

Ans. Sub-section (3) of Section 37 lays down that where the seller delivers to the buyer 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 the rest or may reject the whole. Therefore, in the given problem, A has two courses open to him. He may accept the goods which are according to his order and reject the rest or he may reject the entire supply. In both cases, A is justified and no action can be taken against him. Action can be taken against B for breach of contract.

Q. 28 A a dealer at Chandigarh places an order with B a trader at Delhi for supply of certain goods on terms `FOR Delhi payment against document'. B delivers the specified goods to Railway at Delhi for transmission to A the consignee and sends the railway receipt to his Bank at Chandigarh for handing over the same to A against payment. Intimation is also sent separately to A. The goods are destroyed by fire before these are loaded in Wagon at Delhi. A dishonours the document B sues A for price. Will B succeed ? Decide.

Ans. In present case Section 39(1) of Sales of Goods Act is relevant to see whether goods were delivered or not. Section 39 provide that wherein pursuance of contract of sale, seller is authorised or required to send the goods to buyer delivery of goods to carrier whether named by buyer or not for the transmission to buyer or delivery to wharfinger for safe custody is prima facie deemed to be delivery of goods to buyer.

In present case B deliver the goods in question to Railway at Delhi for transmission of goods to A at Chandigarh and took Railway Receipt also which B handed over to its Bank at Chandigarh for taking payment. The moment railway issued the receipt, Railway become the agent of A, and loading in Railway wagons is not indispensable conditions of F.O.R. contracts therefore in view of Section 39 of Act, B is deemed to have made delivery of goods to A by delivering it to Railway by taking Railway receipt. If while putting or loading into wagon, goods are destroyed, B is not liable for it. B has already done what he is bound by law to do. Moreover B has sent intimation of goods having delivered to Railway to A.

So in view of above discussion it becomes clear that property in goods along with risk passed to A immediately when B had delivered the goods to railway at Delhi for transmission to A. A must bear the loss and B is entitled to recover price for goods

Q. 29 When is a buyer deemed to have accepted the goods ?Whether retention of goods for four days constitutes acceptance ?

Ans. A buyer is deemed to have accepted the goods in the following cases:

(1) When he intimates to the seller that he has accepted them.

(2) When the goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller e.g., re-sale.

(3) When after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them. What is a reasonable time is a question of fact in each case. (Section 42).

It is manifest from Section 42 that the mere act of retention of goods is not enough to constitute acceptance unless such retention is continued for a reasonable time without the fact of rejection being communicated to the seller. Hence, where only 4 days had elapsed between the receipt of the goods and the filing of the suit for the amount paid to the seller and damages. it that there has been an acceptance of the Bhagwat Saran v. Baijnath Prasad, I.L.R., 1950, All. 12

Q. 30 Discuss the rights and liabilities of - (a) the seller, and (b) a buyer, of goods under a contract of sale for its breach.

Ans. Rights of seller or liabilities of buyer.Section 55 lays down that (1) 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. (2) Where under a contract of sale, the price is payable on a certain day irrespective of the 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.

Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for damages for non-acceptance. The quantum of damages is decided in accordance with the rules laid down in Section 73 of the Contract Act. In general, the measure of damages on breach by the buyer of goods agreed to be purchased by him is the difference between the contract price and the market price at the date of the breach. A rise or fall in the market price after the breach cannot affect the buyer.

Some of the other rights available to the seller in case of a breach of contract are - (1) right of lien, (2) right or stoppage in transit, and (3) right of resale. But these rights do not compensate the seller for the breach of the contract but simply protect him from further loss; the breach of contract no doubt remains and the seller is entitled to be compensated for the same.

Rights of the buyer or liabilities of the seller. - (1) Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer way sue the seller for damages for non-delivery. (Section 57). The damages which the buyer may recover in such a case are in general the difference between the contract price and the market value of the goods at the time when the contract is broken. When the contract is for sale of specific or ascertained goods and the seller does not supply them, the buyer can apply to the Court for the specific performance of the contract. When such an application is made, the Court may direct the seller to perform the contract specifically without giving him the option of retaining the goods on payment of damages. It should, however, be remembered that specific performance is an extraordinary case. e.g.. where the goods are rare and are not easily available in the market.

(2) Where the seller does supply the goods but there is a breach of condition on the part of the seller, the buyer may reject the goods and claim damages, or may, at his option, accept the goods and treat the breach of condition as to breach of warranty and claim only damages.

(3) Where the seller supplies the goods but there is breach of warranty on the part of the seller or there is breach of condition but the buyer is compelled to treat the breach of condition as a breach of warranty, the buyer can claim damages for the loss caused to him by the breach of warranty.

Q. 31 State the rights of either party to the contract of the sale of goods on the repudiation of the contract before the due date.

Ans. Section 60 of the Sale of Goods Act deals with the case of breach of contract before the due date i.e., anticipatory breach of contract. It lays down that where either party to a contract of sale repudiates the contract before the date of delivery, the other party 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. In other words, when a contract is to be performed on a future date, either party may inform the other that he will not perform his part of the contract on the due date. In such a case, two courses are open to other party, i.e., non-guilty party - (l) he may wait till the date of performance and take no notice of the fact that the contract will not be performed on the due date, or (2) he may immediately treat the contract as broken and bring a suit for damages. In the former case, he keeps the contract open for both the parties and therefore, if the guilty party changes his mind and decides to perform the contract on the due date, the non-guilty party cannot refuse to accept the performance and claim damages on the ground that having once informed of his intention not to perform the contract, he (the guilty party) cannot be allowed to change his mind. If the non-guilty party wants to avoid such a risk, he should immediately treat the contract as broken and claim damages on that footing.

Q. 32 Discuss the rights of an unpaid seller
Or
Explain the provisions relating to unpaid seller's lien and stoppage in transit ?

Ans. Section 45 of Sales of Goods Act says that An Unpaid Seller is a person to whom the whole of the price has not been paid or tendered or 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 the reason of the dishonour of the instrument or otherwise.

Right of An Unpaid Seller : Notwithstanding that property in goods may have passed to buyer, an unpaid seller has following rights:

(i) a Lien on the goods, for the price while he is in possession of them. (Section 47 to 49).

(ii) Right of stopping the goods in transit (Section 50 to 52).

(iii) Right of Resale (Section 54).

(1) RIGHT OF LIEN : An unpaid seller has right of lien over the goods for price. Lien means retaining the goods or refusing to deliver them until the price in respect of them has been paid by buyer. By way of exercise of this right seller can refuse to deliver the goods to buyer until the payment of price, even though the ownership of goods may have been transferred from seller to buyer, where:

(A) Goods have been sold without any stipulation as to credit.

(B) Where goods have been sold on credit but the term of credit has expired.

Section 48 of Act says if part of goods has been delivered, seller can exercise right of lien over remaining goods unless such part delivery was made in such circumstances as to show an agreement to waive the lien.

Section 49 of Act then provide that an unpaid seller loses his lien thereon:

(a) When he delivers the goods to 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

(2) Stoppage in Transit : Unpaid seller can exercise this right when goods have been already delivered to carrier for being transmitted to buyer and goods are still in transit the carrier at seller's request is to deliver goods back to seller and not to deliver to buyer, even though buyer might have got possession of document of title to goods This right can be exercised when buyer has become insolvent. An unpaid seller can exercise this right only during the period when it is transmitted to buyer till it is received by buyer. If buyer has received its possession, then seller has no right to stoppage in transit.

Section 51 says goods are deemed to be transit from the time when they are delivered to carrier or other bailee for the purpose of transmission to buyer and transit continues until buyer or his agent in this behalf takes delivery of them from such carrier or bailee.

It is only when buyer or his agent obtains possession of goods at the place of destination or at some other place before destination or when carrier or other bailee acknowledges to buyer, the transit is said to be at end.

3. Right of Resale : Section 52 of Act provide that where goods are of perishable nature or where an unpaid seller who has exercise his right of lien or stoppage in transit, give notice to buyer of his intention to resell, the unpaid seller may if the buyer does not within reasonable time pay or tender the prices, resell the goods and can recover from original buyer damages for any loss occasioned by his breach of contract.

Q. 33 In what cases has an unpaid seller a lien over the goods ? Would his lien he destroyed if he makes part delivery of the goods ? When does the lien come to an end.

Ans. An unpaid seller has lien over the goods sold in the following cases :

(a) Where the goods have been sold without any stipulation as to credit;

(b) Where the goods have been sold on credit, but the time of credit has expired;

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. [Section 58]. Such an agreement would be implied in cases where part delivery is made under such circumstances as to operate as a delivery of the whole. (Section 34).

It should be clear that a part-delivery or even of the bulk of a cargo, is not prima facie a delivery of the whole and those who rely upon the part-delivery as a constructive delivery of the whole are bound to show that the part- delivery took place under such circumstances as to make it a constructive delivery of the whole.

The unpaid seller or 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.

An unpaid seller's lien is not lost by reason of his obtaining a decree for the price of the goods. [Section 49]. But the seller loses his lien if he causes the goods to be taken in execution at his own suit, for the Amin acquires possession. [Jacobs v. Latour, (1828) 5 Bing 130].

Q. 34 Can a seller who parted with possession of goods to a carrier resume their possession ? If so when ?

Ans. 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, i.e., the may resume possession of the goods as long as they are in the course of transit, and may retain them until payment or tender of the price. The right is available only where both the property and the right to possession has passed to the buyer, but not actual possession. The right is available only against the goods themselves.

The conditions for the exercise of the right are :-

(1) The seller must be unpaid.

(2) The buyer must be insolvent.

(3) The seller must have parted with the possession of the goods.

(4) The property in the goods must have passed to the buyer.

(5) The buyer must not have acquired possession of the goods, that is the goods must be in the course of transit.

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. The goods are thus deemed to be in course of transit so long as they are in the hands of the carrier or other bailee for transmission, in his capacity as such, and it is immaterial whether the goods are actually in motion on their journey, or are lodged in any place in the course of transmission.

If the buyer or his agent, in that behalf obtains delivery of goods before their arrival at the appointed destination the transit is at an end the right of stoppage in transit is lost. The transit also comes to an end when after 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 and continues in possession of them as bailee for buyer or his agent. [Section 51].

The following are the limitations to the exercise of this right.-

Where a document of title to goods have been issued or lawfully transferred to any person as buyer or owner of the goods and that person transfers the document to a person who takes the documents in good faith and for consideration, then, if such last mentioned transfer was by way of sale, the unpaid seller's right of stoppage in transit is defeated, and, if such last mentioned transfer was by way of pledge or other disposition for value, the unpaid seller's right of stoppage in transit can only be exercised subject to the right of the transferee.

When the transfer is by way of pledge, the unpaid seller may require the pledge to have the amount secured by the pledge satisfied in the first instance, as far as possible out of any other goods or securities of the buyer in the hands of pledge as available against the buyer. In other words, an unpaid seller has a right to insist on the pledge marshaling the securities.

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 of 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. When the notice is given to the principal it, 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. [Section 52(1)].

Q. 35 A sold to B a scooter for sum of Rs. 7000/-. B pays the whole price except Rs. 1000/- which he promised to pay within 5 day. A holds the possession over the scooter until the rest of money is paid. But before the expiry of the stipulated time B becomes insolvent. A resold the scooter to C for Rs. 7500/- without giving notice to B. B claims from A Rs. 500/- i.e. profit on resale. Is A liable ?

Ans. Section 47 of the Indian Sale of Goods Act describes the circumstances in which the unpaid seller may exercise his right of lien. Subject to the provisions of the Act, 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: (i) where the goods have been sold without any stipulation as to credit; (ii) where the goods have been sold on credit but the term of credit has expired; and (iii) where the buyer becomes insolvent. Where the buyer becomes insolvent, the unpaid seller becomes entitled to his right of lien, whether credit has been given or not, and whether or not the insolvency occurs during the period of credit. In the case in hand, there was a concluded contract of sale. A remained in possession of the scooter by way of his lien for the unpaid price thereof. The obvious reason is that B has become insolvent, although during the period of credit.

Section 54(2) of the Act provides that where the goods are of a perishable nature, or where the unpaid seller who has exercised his right of lien or stoppage in transit gives notice to the buyer of his intention to resell, the unpaid seller may, if the buyer does not within a reasonable time pay of tender the price, resell the goods within a reasonable time and recover from the original buyer damages for any loss occasioned by his breach of contract, but the buyer shall not be entitled to any profit which may occur on resale. If such notice is not given, the unpaid seller shall not be entitled to recover such damages and buyer shall be entitled to the profit, if any, on the resale.

In the present case, the unpaid seller has not given any notice to the buyer before resale of the scooter. Therefore, in view of the provisions of Section 54(2) of the Act, the buyer is entitled to recover the amount of profit. In other words, A is liable to pay the amount of profit to B.

Q. 36 When does the suit for damages lie in the case of breach of contract for the sale of goods ?

Ans. The seller may sue the buyer of goods for the price where under the contract of sale, 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 also sue the buyer for the price 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, even though the property in the goods has not passed and the goods have been appropriated to the contract. [Section 55].

The seller may sue the buyer for damages for non-acceptance of goods where the buyer wrongfully neglects or refuses to accept and pay for the goods. [Section 56].

Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the payee may sue the seller for damages for non-delivery. [Section 57].

Q. 37 What are the rights of either party to contract of the sale of goods on the repudiation of contract before the due date?

Ans. Section 60 of the Sale of Goods Act deals with the case of breach of contract before the due date i.e. anticipatory breach of contract. It lays down that where either party to a contract of sale repudiates the contract before the date of delivery, the other party 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. In other words, when a contract is to be performed on a future date, either party may inform the other that he will not perform his part of the contract on the due date. In such a case, two courses are open to other party, i.e., non-guilty party - (1) he may wait till the date of performance and take no notice of the fact that the contract will not be performed on the due date, or (2) he may immediately treat the contract as broken and bring a suit for damages. In the former case, he keeps the contract open for both the parties and therefore, if the guilty party changes his mind and decides to perform the contract on the due date, the non-guilty party cannot refuse to accept the performance and claim damages on the ground that having once informed of his intention not to perform the contract, he (the guilty party) cannot be allowed to change his mind. If the non-guilty party wants to avoid such a risk, he should immediately treat the contract as broken and claim damages on that footing.

Q. 38 State fully the rules as to sales by auction. Explain the term, `reserved price'. Does it differ from 'upset price' ?

Ans. The following are the rules as to sales by auction -

(1) Where goods are put up for sale in lots, each lot is prima facie deemed to be the subject of a separate contract.

(2) The advertisement to sell goods by auction is a mere invitation and not an offer, offer in such cases is made by bidding. The sale is complete when the auctioneer announces its completion by the fall of the hammer or in other customary manner; and until such announcement is made, any bidder may retract his bid.

(3) A right to bid may be reserved expressly by or on behalf of the seller and, where such right is expressly so reserved but not otherwise, the seller or any one person on his behalf may, subject to the provisions hereinafter contained, bid at the auction.

(4) 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.

(5) The sale may be notified to be subject to reserved or upset price.

(6) If the seller makes use of pretended bidding to raise the price, the sale is voidable at the option of the buyer. [Section 64].

'Reserved price' is the lowest price fixed by the owner on which the property is to be sold in auction. Where the offer in the auction does not reach the 'reserved price', the seller has the right to withdraw the goods. In other words, in cases of a sale subject to reserved price, every bid and the acceptance by the auctioneer are, subject to the reserved price having been reached. The price is generally reserved by the seller to protect himself.

'Upset price' is the Scottish equivalent of 'reserved price' and there seems to be no difference between the two terms.