CHAPTER 4 The Sale of Goods Act, 1930 4.1 INTRODUCTION History of the Law. Originally, the law relating to sale of goods was con- tained in Chapter VII of the Indian Contract Act, 1872. The same was repealed and re-enacted by the Sale of Goods Act, III of 1930. The Act came into force on Ist July, 1930. The Indian Sale of Goods Act closely follows the English Sale of Goods Act, 1893. It extends to the whole of India, except Jammu and Kashmir. It does not affect rights, interests, obligations and titles acquired or which accrued before the commencement of the Act. 4.2 FORMATION OF THE CONTRACT OF SALE Definition and Essentials of contract of sale (Sec. 4) Definition. Section 4 defines ‘sale’ as follows: “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 price”. Essentials of a contract of sale: From the above definition, the following essentials of a contract of sale may by noted: 1. There must be at least two parties. A sale has to be bilateral because the property in goods has to pass from one person to another . Its first essential, therefore, is that the seller and buyer must be different persons. A person can- not buy his own goods. Example Supposing X is the owner of certain goods, but he does not know. A pretends to be the owner of the goods and sells them to X. There is no sale, for X cannot buy goods which are already his own (Bell v. Lever Bros. Ltd. 1932 A.C. 161).The Sale of Goods Act, 1930 173 However, a part-owner may sell to another part-owner (Section 4). A partner may, therefore, sell to his firm or a firm may sell to a partner. Thus, in a case before the Gujarat High Court,” a partnership firm was dissolved and the surplus assets, including some goods, were divided among the partners in specie. Sale Tax Officer sought to tax this. Rejecting the contention of the State, Bhagwati J. said “They (partners) were themselves the joint owners of the goods and they could not be both sellers and buyers. Moreover, no money consideration was promised or paid by any partner to the firm as consideration for the goods allotted to him”. 2. Transfer or Agreement to transfer the ownership of goods. In a contract of sale, it is the ownership that is transferred (in sale) or agreed to be trans- ferred (in agreement to sell) as against mere possession or limited interest (as in Pledge). 3. The subject matter of the contract must necessarily be ‘goods’. Sale of immovable property i s not covered under the Sale of Goods Act. The expres- sion "goods’ is defined in section 2 (7). 4. The consideration is Price. Consideration in a contract of sale has neces- sarily to be ‘money’, ie., the legal tender. If, for instance, goods are offered as the consideration for goods, it will not amount to sale. It will be called a ‘barter.’ Similarly, in case there is no consideration, it amounts to gift and not sale. Where goods are sold for a definite sum and the price is paid partly in kind and partly in cash, that is sale. Example (i) In Aldridge v. Johnson,” fifty-two bullocks, valued at £6 a piece, were exchanged for 100 quarters of barley at £2 per quarter, the difference to be made up in cash, the contract was treated as one of sale. (ii) Similarly, where corn was delivered on terms that on demand either the price would be paid or an equal quantity of corn would be returned, that was held to be a sale." 5. A Contract of sale may be absolute or conditional [Sec. 4} 6. All other essentials of a valid contract must be present. Being a specic of contract, sale must conform to all other essentials of a valid contract. For example, parties to the transaction must be competent of contracting, consent of the parties must be free; the object must be legal and so on. * State of Gujarat v. Ramanial 8. & Co., AIR 1965 Guj. 60. ** 26 LIQB 296. 9S, Australian Ins. C. v. Randell (1869) 3 PC 101174 Business Law Sale and ‘agreement to Sell’ Distinguished Sale: Section 4 (3) defines ‘sale’ in following words, where under a contract of sale, the property (ownership) in the goods is transferred from seller to the buyer, it is called a sale. Thus, strictly speaking, sale takes place when there is a transfer of property in goods from the seller to the buyer. A sale is an executed contract. Example A sells his Yamaha Motor Bicycle to B for Rs. 10,000. It is a sale since the ownership of the motorcycle has been transferred from A to B. However, payment of price is immaterial to the transfer of property in goods. Thus, if payment of the price or delivery of the Motorcycle or both have been postponed, it will still be ‘sale’ and the transaction will not be clas- sified as an “agreement to sell.” Agreement to sell: According to section 4(3), it means where under a con- tract of sale, the transfer of property in goods is to take place at a future date or subject to some condition thereafter to be fulfilled, the contract is called an “agreement to sell’. Example A agrees to sell certain goods to B. The goods are on their way from Lon- don to Bombay in a ship. This is an agreement to sell because the property in goods will pass to the buyer when the goods Come and the agreement is subject to the condition that the ship arrives in-port with the goods. Sale and ‘Agreement to Sell’ distinguished. The distinction between the two is of prime importance as they have different legal repercussion. The rights and obligations of the parties vary with the fact whether the transaction is an actual sale or an agreement to sell. The vital point of distinction between the two is that whereas in a sale there is a transfer of property in the goods from seller to buyer, there is none in an agreement to sell. (It is only agreed to be transferred later). Thus, in Sales Tax Officer shit v. Budh Prakash, Jai Prakash (1954) S.C.J. 573, it was held that liability to sales tax can arise only when there is a completed sale and not when there is only an agreement to sell. Other points of distinction between a sale and an agreement to sell are: Sale Agreement to sell 1. A sale is an executed contract. 4, An Agreement to sell is an executory con- tract, 2. Ina sale, since the property has passed to 2. In an agreement to sell, in case of breach, the buyer, the seller can sue the buyer forthe the seller can only sue for damages, unless price of the goods. the price was payable at a stated date. (Contd)The Sale of Goods Act, 1930 175 Sale 3. A sale creates a right in rem 4. In case of loss of goods, the loss will fall ‘on the buyer, even though the goods are in the possession of the seller. It is because “Risk’ is associated with ownership. 5. In case buyer pays the price and the seller thereafter becomes an insolvent, the buyer can claim the goods from the Official Agreement to sell 3. An agreement to sell creates aright in per- sonam. 4, The loss in this case shall be borne by the seller, even though the goods ate in the pos- session of the buyer. 5. In these circumstances, the buyer cannot claim the goods but only a rateable dividend for the money paid. Receiver or Assignee. 6. Ifthe buyer becomes an insolvent without paying the price, the ownership having passed to the buyer, the seller shall have to deliver the goods to the Official Assignee or Receiver except where he has a lien over the goods. 6. In these circumstances, the seller can refuse to deliver the goods tothe Official As- signee or Receiver. Sale Distinguished from Other Similar Transactions Sale and Hire-purchase Agreement. A transaction of sale has to be distin- guished from another, apparently similar but different transaction, called “hire purchase agreement.’’ A hire purchase agreement is an agreement for hire, with an option to purchase. The hirer, under this agreement, is required to pay every month a particular sum of money, and if he pays in that way for a fixed number of months, the hirer will become the owner of the goods on the payment of the last instalment. But, if the hirer fails to pay any particular ‘instalment, the owner can terminate the contract and take away the goods, because the ownership continues to remain in the owner. A “Hire-purchase agreement” is distinct from ‘‘Sale”’ in which price is payable by instalments. In case of sale the property passes as soon as sale is made though price has not been fully paid. A ’Hire-purchase agreement,’ on the other hand, does not result in passing of the property unless the option to purchase is exercised, usually by payment of all the instalments. Till such time, it constitutes bailment. Thus, "hire purchase agreement’ is a bailment plus an agreement to sell. In determining as to whether a particular contract belongs to one type or the other, regard shall have to be paid to the fact whether the hirer has merely an option to purchase, or whether he has bought or agreed to buy the goods. “Sale of Goods” Distinguished from “Work and Labour.” A contract of sale is different from a contract for work and materials, in that the former contemplates the delivery of goods, but in the latter the substance of the con- tract is the exercise of skill or labour, and the delivery of goods is only sub- sidiary176 Business Law Thus, where gold is supplied to a goldsmith for preparing an ornament, it is a contract for work and labour. But, where a dentist agreed to make a set of artificial teeth to fit in the mouth of a customer, held, it was a contract for the sale of goods [Lee v. Griffin (1861) 30 L.J.Q.B. 252]. Again, a contract with an artist who agreed to paint a picture for an agreed sum, on the canvas and with the materials to be supplied by the other party, was held to be a contract for work and labour and not one for sale of goods. [Robinson v. Graves (1935) LK.B. 579.]. Sale and Barter Distinguished. A Sale has to be distinguished from a ‘Barter.’ A ‘sale’ is always for a ‘price’ but in the case of ‘barter,’ the transfer of ownership of one thing is in return for transfer of another thing. 4.3 GOODS AND THEIR CLASSIFICATION Meaning of Goods *Goods’ means every kind of moveable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. Thus, goods include every kind of moveable property other than actionable claim or money. Things like goodwill, copyright, trade mark, patents, water, gas, electricity” are all goods and may be the subject matter of a contract of | sale, Although, in general, it is only moveables i.e., things which can be car- ried from one place to another that form ‘goods’ ; all such things which are part of the land itself but are agreed to be severed trom the land under the contract, are considered as goods. Thus, where trees were sold, to be cut and then taken away by the buyer; it was held that there was a contract for sale of moveable property” Goods also include shares and stock. In this respect our definition is wider than the one given in the English Sale of Goods Act. 1893 which does not expressly include shares and stock. The term ‘goods’ excludes money and actionable claims. ‘Money’ means legal tender and not the old coins which can be sold and purchased as goods. Money (legal tender) is an essential aspect of every sale because the price of * Rash Behari v. Emperor \936 41 CWN 225; AIR 19%6 Cal. 753. Commr. of Sales Tax v. MP. Electricity Board, AIR. 1970 SC 732. ** Singh v. Saran 1948 L.A. 396.The Sale of Goods Act, 1930 177 goods has to be expressed in terms of money and, therefore, ‘money’ itself cannot be the subject of a sale. Foreign currency may, however, be bought or sold. Actionable claims are things which a person cannot make use of, but which can be claimed by him by means of a legal action, e.g., a debt Documents of Title to Goods A document of title to goods may be described as any document used as proof of the possession or control of goods, authorising or purporting to authorise, either by endorsement or by delivery, the possessor of the document to trans- fer or receive goods thereby represented. Section 2(4) recognises the following as documents of title to goods: ill of lading — dock warrant — warehousekeeper’s certificate — wharfinger's certificate — railway receipt — warrant or order for the delivery of goods — and any other document used in the ordinary course of business as a document of title (as described in the preceding paragraph). Classification of Goods Goods may be classified into: |. Existing goods, 2. Future Goods, and 3. Contingent Goods. 1. Existing Goods. Existing goods are those which are owned or possessed by the seller at the time of the contract. (Section 6). Instances of sale of goods possessed but not owned by the sellers are sales by agents and pledges. Existing goods may be either; (a) Specific and Ascertained, or (b) Generic and Unascertained. “Specific Goods” means goods identified and agreed upon at the time a contract of sale is made [Section 2 (14)]. Ascertained Goods, though normally used as synonym for specific goods may be intended to include goods which have become ascertained sub- sequently to the formation of the contract. In re Wait (1927) 1 Ch. 606, Lord Atkin observed that ascertained probably means ‘‘identified in accordance with the agreement after the time a contract of sale is made."” Generic or Unascertained Goods. Generic or Unascertained goods arc goods indicated by description and not specifically identified.178 Business Law Example A, who owns an Indica car showroom, has 50 cars and agrees to sell any one of them to B. The contract is for unascertained goods, since which particular car shall become the subject matter of sale is not individualised at the time of the contract of sale. Future Goods [Section 2 (6)]. ‘‘Future goods’? means goods to be manufactured or produced or acquired by the seller after making the contract of sale. Example An agreement to sell future crops of a particular field implies all agreement to sell future goods. Contingent Goods [Section 6(2)] Contingent goods are the goods the ac- quisition of which by the seller depends upon a contingency which may or may not happen. Contingent goods is a part of future goods. For example, where A agrees to sell to B a certain painting only if C, its present owner, sells it to him, A. This painting is classified as contingent goods. 14 PRICE ‘Price’ means the money consideration for sale of the goods. ‘Price’ is an integral part of a contract of sale. If it is not fixed or is not capable of being fixed, the whole contract is void ab-initio. As to how the price is to be fixed Sections 9 and 10 lay down certain rules. According to Section 9 the price may be: (1) either fixed by the contract or (2) may be agreed to be fixed in amanner provided by the contract, e.g., by a valuer, or (3) it may be determined by the course of dealings between the parties. Thus, in Browne v. Byrine (1854) 118 ER. 1304, a usage to deduct discount in determining the price was implied from the course of dealings (4). In case, price is not capable of being fixed in any of the above ways, the buyer is bound to pay reasonable price. What is reasonable price will vary from case to case. However, where there is a market price, that may be a reasonable price. Section 10 lays down that in case price is left to be fixed by the valuer and the valuer fails to fix the price, the agreement becomes void except as to part of goods delivered and accepted regarding which the buyer is bound to pay a reasonable price. If, however, one of the parties prevents the ‘valuer’ from making the valuation, he would be liable to pay damages to the other contract- ing party.The Sale of Goods Act, 1930 179 4.5 CONDITIONS AND WARRANTIES [Sections 11-17] In a contract of sale, parties make certain stipulations, i.e., agree to certain terms. All stipulations cannot be treated on the same footing. Some may be intended by the parties to be of a fundamental nature, e.g., quality of the goods to be supplied, the breach of which, therefore, will be regarded as a breach of the whole contract. Some may be intended by the parties to be binding, but of a subsidiary or inferior character, ¢.g., time of payment, so that a breach of these terms will not put an end to the contract but will make the party commit- ing the breach, liable in damages. The former are called ‘conditions’ and the latter ‘warranties’. Section 12 (2) defines a ‘condition’ as a ‘stipulation essential to the main purpose of the contract, the breach or which gives rise to a right to treat the contract as repudiated.” A ‘Warranty’, on the other hand, is defined by Sec- tion 12 (3) as a “stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated.” Thus, the effect of a breach of a condition is to give the aggrieved party a right to treat the contract as repudiated, i.e, if price has been paid, the buyer can claim the refund of price plus damages for breach. On the other hand, in case of breach of warranty only damages can be claimed, i.e., the buyer must accept the goods and claim damages for the breach of warranty. 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 a contract. [Section 12(4)]. Distinction between ‘Condition’ and ‘Warranty’ Distinction between a Condition and Warranty may be noted as follows: Condition Warranty 1. A condition is a stipulation (in a contract) 1. A warranty is a stipulation which is only col- which is essential to the main purpose of the lateral or subsidiary to the main purpose of the contract contract. 2. A breach of condition gives the aggrieved 2. A breach of warranty gives only the right to party a right to sue for damages as well as the sue for damages. The contract cannot be right (o repudiate the contract. repudiated 3. A breach of condition may be treated as a 3. A breach of warranty cannot be treated as a breach of warranty in certain circumstances. _ breach of condition, The distinction between the two may be illustrated as follows: A man buys a particular horse, which is warranted quiet to ride and drive. If the horse turns out to be vicious, the buyer's only remedy is to claim180 Business Law damages. But if instead of buying a particular horse, a man asks a dealer to supply him with a quiet horse and the horse turns out to be vicious, the stipula- tion is a condition and the buyer can reject the horse, or keep the horse and claim damages. When Condition to be Treated as Warranty (Section 13) Under the following circumstances a breach of condition is to be treated as a breach of warranty, i.e., the right to repudiate the contract is deemed to have been lost: 1. Waiver of Condition. Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may: (i) waive the condition; or (ii) elect to treat the breach of the condition as a breach of warranty. If the buyer has decided to waive the condition he cannot later on insist that the condition must be fulfilled. 2. Compulsory treatment of breach of condition as breach of Warranty. Where the contract of sale is not severable and the buyer has accepted the goods or part thereof, the breach of any condition to be fulfilled by the seller can only be treated as a breach or warranty. However, the agreement may provide otherwise, i.e., may permit repudiation of the contract in spite of the acceptance of the goods by the buyer. Express and Implied Conditions and Warranties Conditions and Warranties may be either express or implied . They are said to be “express” when the terms of the contract expressly provide for them. They are said to be ‘implied’ when the law deems their existence in the contract even without their actually having been put in the contract. An implied condi tion or a warranty may be negatived by an express term to the cont-ary Section 62 recognises the maxims; Expressum facit cessare tacitum. What is ex- pressed makes what is implied to cease); and Modus et conventio vincunt Jegem (Custom and agreement overrule law). Express Condition or Warranty These may be of any kind that the parties may choose to agree upon, ¢.g., it may be agreed that the buyer will not sell the goods below a certain price; that the delivery shall be made or taken on or before a certain date. Similarly, in a contract of sale of a car, express warranty as to its soundness may be incor- porated. Implied Conditions and Warranties (Section 14 to 17) Implied conditions and warranties are deemed to be incorporated in every contract of sale of goods unless the terms of the contract show a contrary intention. The following are the implied conditions.The Sale of Goods Act, 1930 ~ 181 (1) Condition as to Title. Section 14 (a) provides that in a contract of sale unless the circumstances of the contract are such as to show a different inten- tion there is an implied condition on the part of the seller that in the case of a sale, he has a right to sell the goods and that in the case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass. As a consequence of this, if the title turns out to be defective, the buyer is entitled to reject the goods and claim refund of the price (if paid) plus damages. This will be allowed even where the buyer has used the goods. Example In Rowland v. Divall, (1923) 2 K.B., A purchased a car from B who had no title to it. A used the car for several months. After that, the true owner spotted the car and demanded it from A. Held that A was bound to hand over the car to its true owner and that A could successfully sue B, the seller without title, for the recovery of the purchase price even though several months had passed. Where the goods are sold by infringing a trade mark, the buyer has the right to repudiate the transaction on the ground that there was a breach of condition as to title. [Niblett v. Confectioners Materials Co. Ltd., 1921. 3 K.B. 387]. However, this condition may be neglected by an express term, as in sales by custom authorities, or by Courts. (2) Sale by Description (Section 15). Where there is a contract for the sale of goods by description there is an implied condition that the goods shall cor- respond with the description. If the sale is by sample as well as description, the goods must not only correspond with the sample but also with the descrip- tion. Examples (i) A ship was sold by description, viz., ‘*Copper-fastened vessel”” but ac- tually it was only partly copper-fastened. Held, that the goods did not cor- respond to description and hence could be returned or else, if the buyer took the goods, he could claim damages for breach. This was so even though the ship was sold subject to all faults and defects. [Shepherd v. Kain (1821) 5B. and Ald. 240). (ii) A Car is sold as a “new Singer Car”. The buyer finds it to be a used one. The buyer may reject the car or retain the car and claim damages. [Andrews Lid. v. Singer and Co. Lid. 1934. 1 K.B. 17]. (iii) “Foreign refined rape oil” was sold warranted to be equal to sample. The sample was actually not “foreign rape oil” but a mixture of “hemp oil”. Held, the buyer could reject the oil though the bulk corresponded with the sample. [Nichol v. Godts, 1854. 10 Ex. 191].182 Business Law (iv) In Wallis v. Pratt (1911) A.C. 394, the agreement was for the sale of English Sainfoin seeds, exhibited by a sample. The bulk did corresponded to the sample but, the seeds supplied were giant sainfoin and not the English sainfoin. Held, there was a breach of condition as to descrip- tion. (3) Condition as to Quality or Fitness. As a general rule, a buyer is sup- posed to satisfy himself about the quality of goods he purchases and also he is charged with the responsibility of seeing for himself that the goods suit the purpose for which he buys them. Thus, later on, if the goods purchased turn out to be unsuitable for the purpose for which he bought them, the seller can- not be asked to compensate. There are, however, certain exceptions to this general rule. It is only in these exceptional circumstances that there is an im- plied condition as to quality or fitness. These circumstances are: (a) 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 the buyer relies on the seller's skill or judgment, and the goods are of a description which it is in the course of the seller’s business to supply (whether he is manufacturer or producer or not). There is an implied condition that the goods shall be reasonably fit for such purpose. For the exception to operate all the three conditions must be fulfilled, viz., (i) the purpose must have been disclosed (expressly or impliedly); (ii) the buyer must have relied on the seller's skill or judgment; and (iii) the seller's business must be to sell such goods. Examples (i) A person who was a draper and had no special knowledge of hot water bottles, purchased a hot water bottle from a chemist. The bottle burst and injured his wife. Held, breach of condition as to fitness was committed and thus chemist was liable for refund of price plus damages. [Priest v. Last (1903), 2 KB 148]. (ii) A sold a refrigerator to B. The refrigerator performed all other func- tions but failed to make ice. Held, it amounted to a breach of an implied condition. [Evens v. Stella Benjamin, A.1.R. (1950) Cal. 470.] (iii) In case of food articles, there is an implied condition that the article is fit for human consumption. Thus, in Frost v. Aylesbury Co. Ltd. (1905) 1 K.B. 608, A supplied F with milk. The milk contained typhoid germs. F’s wife who consumed the milk was infected and died. Held, there was a breach of condition as to fitness and A was liable to pay damages. The above exception does not apply where the specific goods are sold under their patent or trade name.The Sale of Goods Act, 1930 183 Example A buyer ordered a patent smoke consuming furnace by its patent name for his brewery. The furnace supplied was found to be unsuitable for the pur- pose. Held, the buyer had no cause of action against the seller. [Chanter v. Hopkins (1938) M. and W. 399.]. (b) Where goods are bought by description from a seller who deals in goods of that description (whether he is the manufacturer or producer or not), there is an implied condition that the goods shall be of merchantable quality, i.e. the goods shall be free from latent defects (defects which are not apparent or possible of detection by mere inspection). Thus this exception shall be available where: (i) goods are bought by description; and (ii) from seller who deals in such goods. Where, however, the buyer has examined the goods, there shall be no im- plied condition as regards defects which such examination ought to have revealed. (c) A condition as to fitness for a particular purpose or as to quality may also arise on account of a custom of trade. (4) Merchantable Quality. What is “Merchantable Quality”? The term has never been properly defined. The best definition which is probably the nearest description of the term was given in Gardner v. Grey." It said that the article “must be saleable in the market under the denomination mentioned.” In other words, the quality of the article should be such that reasonable men would accept the article as performance of a promise. Examples 1. A bought black yarn from D and found it to be damaged by white ants. Held, the condition as to merchantability was broken. 2. Similarly, in Jones v, Just’ there was a contract of sale of Manila hemp. The hemp that was supplied, though Manila hemp, was so damaged by sea water that no one in the market would accept it as Manila hemp. Held, the above condition was broken. As noted above, where the buyer examines the goods prior to sale, there is no implied condition as to merchantability as regards defects which such ex- amination ought to have revealed. Thus, where in a sale of vegetable glue packed in casks the buyer who came to examine them simply looked at the outside of the casks, and therefore, the defect which could have been dis- * (1814) 4Comp. 144, ** (1867) L.R. 3.Q.B. 192.184 Business Law covered by examination, was overlooked, it was held that there is no implied condition. [Thornett and Fehr v. Beers & Sons’). However, in spite of examination, if the goods have certain latent defects which no examination could reveal, the implied condition subsists. In Khoyee & Co. v. Gorden Woodroff & Co. (1937) Mad. 497, certain skins “of fair average quality” were sold. The inspection of the skin by specialists did not show any defects. But, when processed, certain defects were found which were not visible in their dry condition. Held, The defects being latent, the implied condition was broken. The condition as to merchantability must, however, be construed reasonab- ly and the seller will not be held liable if certain facts are concealed from him and the unsuitability arises because of those facts. Example A woman, who had an abnormally sensitive skin, bought a Harris tweed coat and got rashes through wearing the coat. Held, there was no breach of condition as she had failed to disclose the fact of her skin being extra sen- sitive. [Griffiths v. Peter Convey Ltd. (1939) | All. E.R. 685). SALE BY SAMPLE (Section 17) A contract of sale is a contract for sale by sample where there is a term in the contract, express or implied, to that effect. Thus, it cannot be assumed that in all cases, where sample is shown, the sale is a sale by sample. In cases where there is no term to the effect, it is assumed that the sample is net shown as a warranty, but only to enable the buyer to form a reasonable judgment of the commodity. Ina sale by sample, the following are the implied conditions: 1. The bulk shall correspond with the sample in quality, 2. That the buyer shall have a reasonable opportunity of comparing the bulk with the sample, and 3. That the goods shall be free from any defects rendering them unmer- chantable, which would not be apparent on reasonable examination of the sample. Examples 1. Certain shoes were sold by sample for the French Army. The shoes were found to contain paper not discoverable by ordinary inspection. Held, the buyer was entitled to the refund of price plus damages. 2. In a contract for the sale of brandy by sample, the brandy that was sup- plied had been coloured with a dye. Held, the buyer was not bound by the * (1919) 1 K.B. 436.The Sale of Goods Act, 1930 185 contract, though the bulk corresponded with sample, since the defect could not have been located on reasonable examination of the sample [Mody v. Gregson (1868) L.R. 4 Ex. 49]. IMPLIED WARRANTIES There are two implied warranties. These are: 1. Warranty of Quiet Possession (Section 14(b)]. In a contract of sale, un- less intention appears, there is an implied warranty that the buyer shall have and shall enjoy quiet possession of the goods. Thus, if the right of enjoyment or possession of the buyer is disturbed by the seller or any other person, the buyer is entitled to sue the seller for damages. 2. Warranty of Freedom from Encumbrances (Section 14(c).] The buyer is entitled to another warranty that the goods are free from any charge or en- cumbrance in favour of a third person, not declared to or known to buyer. Thus, this clause will not be applicable where the buyer has been informed of the encumbrances or has notice of the same. Further, it was held in Collinge v. Heywood (1839) 9 A. and E. 633, that the claim under this warranty shall be available only when the buyer discharges the amount of encumbrance. Implied Conditions and Warranties Implied Conditions Condition as to title. In case of sale by description, goods must correspond to description. | In certain cases, condition as to fitness or quality. | Goods to be of merchantable quality. In case of sale by sample: (a) Bulk to correspond with sample. (b) Buyer to have reasonable opportunity to compare the bulk with sample. (©) Goods to be of merchantable quality. Implied warranties 1, Warranty of quiet possession. 2.__ Warranty of freedom from encumbrances. DOCTRINE OF CAVEAT EMPTOR Caveat Emptor is a fundamental principle of the law of sale of goods. It means “Caution Buyer”, i.e. ‘Let the buyer beware’’. In other words, it is no part of the seller's duty to point out defects of his own goods. The buyer must inspect the goods to find out if they will suit his purpose. Example Thus, where pigs were sold “subject to all faults”, and these pigs, being infected, causéd typhoid to other healthy pigs of the buyer, it was held that186 Business Law the seller was not bound to disclose that the pigs were unhealthy. The rule of the law being ‘Caveat Emptor’. [Goddard v. iiobbs 1878, 4 App. Cas. 13). The doctrine of “Caveat Emptor” is however, subject to the following ex- ceptions: 1, Where the seller makes a false representation and buyer relies on that representation. The rule of “Caveat Emptor” will not apply and the buyer will be entitled to the goods according to that representation. 2. Where the seller actively conceals:a defect in the goods, so that.on/a reasonable examination the same could not be discovered. 3. Where the buyer makes known to the seller the purpose for which he is buying the goods, and the seller happens to be a person whose business is to sell goods of that description, then there is an implied condition that the goods shall be reasonably fit for such purpose. The rule of Caveat Emptor will not apply.” : 4. In case of sale by description, there is implied condition as to their being of merchantable quality. However, if the buyer has examined the goods, this condition of “merchantability” extends only to hidden or latent defects. The defects which such examination ought to have revealed are not covered, the rule of Caveat Emptor will be applicable. 4.6 PASSING (TRANSFER) OF PROPERTY (OWNERSHIP) IN GOODS The rules regarding passing of property in goods are contained in Sections 18 to 25. What does ‘property in goods’ mean? It means ownership of goods. It is worth noting that ‘property in goods’ is not the same thing as ‘posséssion of goods’. The ‘possession of goods’ refers to the custody of goods. Though normally a person who is in possession shall also be its owner but it need not be necessarily so. There may be situations where a person is the owner of certain goods but is not in possession of the same or vice-versa. One of the most important questions in a contract of sale of goods is: When does the property in the goods pass from the seller to the buyer? The deter- mination of the exact moment as to when the ownership pass from the seller to the buyer is important because: 1. If the goods are lost or damaged, who will bear the loss shall depend upon as to whether the ownership is with the seller or the buyer. The general tule is risk follows the ownership. * For cases see discussion on “Implied Condition as to Fitness."”The Sale of Goods Act, 1930 187 2. In'the case of damage to the goods by third parties, it is the owner who can take action; and 3. In the event of insolvency of either seller or buyer, whether the Official Assignee or Receiver can claim the goods shall depend upon whether the property has passed to the buyer or not. When does property pass from the seller to the buyer? Sections 18 to 25 lay down the rules which determine when property passes from the seller to the buyer. The rules may be summarised as follows: Specific or Ascertained Goods In a sale of specific or ascertained goods, the property in them is transferred to the buyer at such times as the parties to the contract intend to be transferred. The intention of the parties is ascertained from the terms of the contract, the ‘Conduct of the parties and the circumstances of the case. Unless a contrary intention appears, the following rules are applicable for ascertaining the inten- tion of the parties. Rules as Regards Ascertaining Intention (Sections 20 to 24) 1, Specific goods in Deliverable State. In the case of specific goods, in a deliverable state, property in them passes at the time when the contract (un- conditional is made (Section 20). The fact that the time of payment or the delivery of the goods, or both, is postponed does not affect the passing of the Property. What is Deliverable State. Section 2(3) states “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.” Examples 'V..X offers to sell to ¥ his car at Rs. 20,000. Y accepts the offer. Immedi- ately, the offer is accepted, i.e., the contract is made, the property in the car ‘passes to Y. It shall make no difference even if the price is to be paid later ofthe delivery is postponed to a stated day or even if the goods are sold on credit, because the contract is an unconditional one for the sale of specific goods in a deliverable state. 2.-X agreed to sell S a standing stock of hay for a fixed price payable on -s thFebruary next. The delivery was to be made on Ist of May following. Held, ¥ became the owner immediately the contract was made. [Tarling v. Barter, 1827, 6 B. & C. 360.] Does the Endorsement of a Railway Receipt amount to Transfer of Owner: ship? The question was raised in a Bombay case of Shamji v. N.W. Rly. 47188 Business Law Bom. L.R. 608. The High Court, in the case, ruled that endorsing a railway receipt in favour of another does not by itself, pass property in the goods to the endorsee. It merely constitutes the endorsee the agent of the consignor, to receive the goods. Such an endorsement by itself, does not constitute the en- dorsee either a bona fide pledgee or transferee for value of the goods repre- sented by the railway receipt. 2. Specific Goods not in a Deliverable State. In the case of specific goods to which something has to be done by the seller to put them in a deliverable state, property passes only when such thing is done, and the buyer has notice thereof (Section 21). Examples (1) The whole of the contents of a cistern of oil were sold, and the seller had to put the oil in casks to be then delivered to the buyer. Held, the property did not pass until the oil was actually put into casks ready for delivery and the buyer was notified accordingly. [Rugg v. Minett, 1809, 1] ¢ East 2.101 (2) A condensing engine fixed at a particular place was agreed to be sold F.O.R. (Free on Rail) for a fixed price and the engine was damaged while being taken to the Railway. Held, the property had not passed to the buyer, as the seller was required, under the contract, to place it on rail before it could be said to be in a deliverable state. [Underwood v. Burgh Castle Syndicate (1922) LK.B. 343.]. 3. Where there is a contract for the sale of specific goods in a deliverable ‘state but the seller is bound to weigh, measure, test or do some other thing with reference to them, for ascertaining the price, the property does not pass till such act or thing is done and the buyer has notice of it (Section 22). Example A stock of bark was sold at an agreed price per ton. The bark was to be weighed by the agents of the seller as also of the buyer for ascertainment of the price. A part of the bark was weighed and carried away by the buyer’s agent, and servant, but the remaining was swept away by the flood. Held, the loss of the remainder should be borne by the seller, since the property in the remainder had not passed because the required weighing was not done. [Zaguny v. Furnell (1809), 2 Camp. 240.]. However, it should he noted that the Section applies only where, by con- tract, the seller has to do something mentioned therein. Thus, if the weighing, etc., has to be done by the buyer for his own satisfaction, the Section does not apply. [Turley v. Bates (1863), H & C. 200}.The Sale of Goods Act, 1930 189 4, Unascertained or Future Goods ‘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. (Section 18). Example X agrees to sell ¥ 200 quintals of wheat out or a larger quantity lying in X's store. The agreed price is to be paid on the day appointed under the contract. Unless and until the required quantity of 200 quintals is separated from the larger quantity and the goods have thus been ascertained, property cannot pass from the seller to the buyer. In the case of sale of unascertained goods or future goods by description, property passes to the buyer when goods of that description in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller. (Section 23). On analysis of the above provisions of Section 23, it will be noted that, in such a case, for property to pass, the following conditions must be fulfilled: A. Goods of the contract description must be produced or obtained. B. They must be in a deliverable state, i.e., ‘‘the goods are in such state that the buyer would under the contract be bound to take delivery of them.””” Thus, if the oil is to be packed and labelled by the seller in a certain way, the seller must have done so before the Section can apply. C. They must be unconditionally appropriated to the contract. Thus, where the sellers did not separate the goods contracted for from the general stock with them.or put them in any receptacle sent by the buyers, it was held that an inspection of te general stock by the buyer and approval of the quality of goods, fixation of price and agreement regarding payment of freight and tax charges between the parties, was not sufficient to pass the property to buyers.” Unconditional Appropriation The unconditional appropriation may be made: A. By the Buyer with the Seller's Assent Normally goods shall be appropriated by the seller. But, where goods are in the possession of the buyer, say, he is a warehouseman for the seller in respect of 500 bags of sugar and agrees to buy 100 bags of them, the buyer, i.e., warehouseman may, with the seller’s assent select 100 out of 500 bags, and * Section 2(3). ** General Paper Lid. v. Pakkir Mohideen, A.1.R. (1958) Mad. 482. See page 185.190 Business Law when he has done so, the goods (100 bags) become appropriated and the ownership in them passes to the buyer. B. By the Seller with the Buyer's Assent ‘Where the seller appropriates the goods to the contract, the property shall pass to the buyer only when he (the buyer) has assented to the appropriation. The assent may, however, be given before or after appropriation. For example, if the 500 bags of sugar were lying with the seller and he selected 100 bags out of the lot with the buyer's assent, the ownership of those 100 bags would pass to the buyer as soon as this is done. Notice that whether the appropriation is made by the seller or buyer, the assent of the other party must be sought. Thus, where the contract was for the sale of machines made by the seller, who packed the machines and before sending them asked the buyer to name the conveyance by which they should be sent. There was no reply from the buyer. It was held that there was no valid appropriation as the buyer had not assented. [Atkinson v. Bell (1828) 108 E. 1046.) ’ Appropriation by the seller may be done: (i) by putting the quantity contracted for in suitable receptacles, for ex- ample, by putting the goods into boxes, or gunny bags, or putting the oil into bottles or other suitable receptacles, with the assent of the buyer. (ii) by delivery to the carrier or other baile for transmission to the buyer, without reserving the right of disposal. Thus, if goods are tendered by the seller to the buyer with a stipulation. that delivery is only against payment in cash, no property shall pass till cash payment is made. Whether or not the seller has retained the right of disposal over the goods even after delivering them to a common carrier, is a question of fact depend- ing on all the surrounding circumstances. But, when the railway receipt (R/R) or Bill of Lading (B/L) is taken in the name of the buyer or his agent, it is presumed (though it can be rebutted) that the seller did not retain the right of disposal, and if it is made out in the seller or his agent’s name, the presumption is that the right of disposal is reserved by him. Where the seller of goods draws on the buyer for the price and transmits the bill of exchange and bill of lading to the buyer together, to secure accep- tance or payment of the bill of exchange, the buyer is bound to return the bill of lading if he does not honour the bill of exchange, and if he wrongfully retains the bill of lading the property in the goods does not pass to him. [Sec- tion 25 (3). 5. Sale “On Approval” or “Sale or Return” basis Where goods are delivered to the buyer ‘on approval’ or on ‘Sale or return’ or similar terms, the property passes to the buyer:The Sale of Goods Act, 1930 191 When he (A) signifies his approval or acceptance to the seller, (B). The seller (B) does any act adopting the transaction, ¢.g., pledges the goods with a third party; or (B) retains the goods, without giving notice of rejection, beyond the time fixed for the return of goods, or if no time is fixed, beyond a reasonable time. “Sale or return’”’ must be distinguished from “‘Sale for cash only or return’’. In the latter case, the property does not pass to the buyer until paid for. In such a case, if the buyer creates a pledge, it will be invalid and the seller will have a right to recover the goods from the pledgee. 4.7 TRANSRER OF TITLE BY NON-OWNERS (Sections 27-30) General Rule as to Transfer of Title (Section 27). The general rule is that only the owner of goods can transfer a good title. No one can give a better title than he himself has. This rule is expressed by the maxim “Nemo dat quod non habet,” which means “that no one can give what he himself has not.” If the seller, therefore, has no title, or a defective title, the buyer’s title will be equal- ly wanting or defective as the case may be, though he may be a purchaser — bona fide and for value. Section 27 in this regard says that “Subject to the provisions of the Act and of any other law at the time in force, where goods are sold by a person, who is not the owner thereof and who does not sell under the authority or with the consent of the owner, the buyer acquires no better title to the goods than what the seller had, unless the owner is precluded by his conduct from denying the seller’s authority to sell.” Examples 1. A, the hirer of goods under a hire purchase agreement, sells them to B. B, though a bonafide purchaser, does not acquire the property in the goods. At the most he acquires such an interest as the hirer had. 2. A finds a ring of B and sells it toa third person who purchases it for value and in good faith. The true owner, i.e., B can recover from that person, for A having no title could pass none the better. [Faruquaharson v. King (1902) A.C. 325}. Exceptions to the Rule. To the above rule, there are several exceptions. They are laid down by Sections 27 to 30 and are as follows: 1. Sale by Mercantile Agent. In case of sale by a mercantile agent who is in possession of either the goods or documents of title to the goods with the consent of the owner and sells the goods in the ordinary course of business as a mercantile agent, the buyer gets a good title to the goods provided he buys192 Business Law them in good faith and for value. Who is a mercantile agent? Section 2(9) defines a “mercantile agent” as an agent having in the customary course of business as such agent authority either to sell goods, or to consign goods for the purpose of sale, or to buy goods, or to raise money on the security of goods.” ‘Thus, person who in good faith buys goods of a factor or auctioneer will get good title to them, even though the seller has exceeded his authority, or authority has been revoked by the true owner before sale. Examples (1) A ‘mercantile agent’ obtained some diamonds from the true owner fal- sely pretending that he had a customer who wanted to purchase them and he afterwards fraudulently pledged the goods to secure an advance for him- self. Held, the owner was bound by the transaction of pledge. [Oppen- heimer v, Attenborough (1908) I.K.B. 221.] (2) A motor car agent for sale sold the car at a price below that authorised by the owner and misappropriated the proceeds. Held, the innocent pur- chaser obtained a good title. [Folkes v. King (1923) K.L.B. 282.] 2. Sale by a Joint-owner. Where one of several joint owners of goods has the sole possession thereof, with the consent of the others, any purchaser from such person, for value without notice at the time, of the seller's want of authority to sell, acquires a good title thereto against the other joint-owners. (Section 28) In case of sale by co-owner, good title can pass to the purchaser only if the co-owner was in possession with the consent of the other co-owners. Example A and B are co-owners of a ‘radiogram’. While the ‘radiogram’ is in pos- session of B, A secretly takes it away, and sells it to C, a bona fide pur- chaser for value. C cannot get a good title to the ‘radiogram’, because though A was a co-owner, he was not in possession of the instrument with the consent of the other co-owner B. 3. Sale by a Person in Possession under a Voidable Contract. A person who has obtained possession of goods under a contract which is voidable on the ground of fraud, misrepresentation, coercion, or undue influence, can con- vey a good title, provided the sale takes place before the voidable contract is avoided (Section 29). * Weiner v. Gill (1906) 2 K.B. 574.The Sale of Goods Act, 1930 193 Example X by way of undue influence buys a car from Y at a very low price and sells it to Z, an innocent purchaser. Z has a good title and Y cannot recover the car from him even if the contract is subsequently set aside. Notice that the rule presupposes a contract and, therefore, does not extend to an agreement void-ab-initio. Thus, where fraud induced an error regarding the identity of the person to whom, or the property in respect of which posses- sion is given, the transaction is void, and there is no consent in the sense of an agreement of two persons in the same sense, and such a buyer cannot convey a better title than his own. [Central National Bank Ltd. y. The United In- dustrial Bank Ltd. (1954) S.C.J. 54}. 4, Sale by the Seller in Possession of Goods after Sale. Where a seller having sold goods, continues in possession thereof or of documents or title to the goods, the delivery or transfer by such person or by a mercantile agent acting for such person, of the same, by way of sale, pledge or other disposi- tion, will pass a good title to the transferee, if such latter person has acted in good faith and without notice of the previous sale (Section 30). For the Sec- tion to apply two conditions must be satisfied, namely: A. The seller must be in possession of the goods as seller and not in any other capacity. Thus, where the buyer asks the seller to keep the goods as his bailee, the Section will not apply. B. The purchaser must be a bona fide purchaser and for value. Example A soid 100 bags of sugar to B. B delayed in taking the bags away. In the meantime A sold those bags again to another innocent purchaser C who took it without notice of prior sale and for value. C gets a good title. 5. Sale by buyer in Possession of Goods. Where a person having bought or agreed to buy obtains, with the consent of the seller, possession of the goods or of the documents of title to the goods, The delivery or transfer by such person or by a mercantile agent acting for such person, of the goods or documents, by way of sale, pledge or other disposition thereof will be valid and effective, if the person receiving the same, acted bona fide and without notice of the seller’s lien, if any [Section 30 (2)]. Example A sold to B some copper and delivered to him a bill of lading for the cop- per, with a bill of exchange for the price of the copper. The buyer having obtained the bill of lading endorsed it to another who took it without notice of any objection to the buyer’s title. Held, on the buyer subsequently be- coming insolvent without payment of price, that transfer by the buyer of194 Business Law the bill of lading to the sub-purchaser was effective against the true owner and the latter, therefore, could not stop the goods in transit. [Cohn v. Pockett's Bristol Channer Steam Packer Co. (1899) 1.Q.B. 643 }. However, a person in possession of goods under a ‘hire-purchase’ agree- ment which gives him only an option to buy is not covered within the Section unless it amounts to a sale. 6. Sale by an unpaid seller. According to Section 54 (3), an unpaid seller of goods who has exercised his right of lien or stoppage in transit dar eveit’’ though the ownership in them has passed to the buyer, resell the goods and. convey a valid title io another buyer, though no notice of re-sale has been given to the original buyer. 7. Exceptions under Other Acts (a) Sale by a finder of lost goods under certain circumstances shall be valid: even against the true owner (Section 169 of the Indian Contract Act). A finder of goods may sell the goods found— i) if the owner cannot with reasonable diligence be found, or if found, he refuses to pay lawful charges of the finder, or e if the goods are in the danger of perishing or of losing the greater part of their value, or (iv) if the lawful charges of the finder, in respect of the goods found, amount to 2/3rd of their value. (b) Sale by a pawnee or pledgee under Section 176 of the Indian Contract Act. (c) Sale by an Official Receiver or Official Assignee or Liquidator of Com- panies. Sale by Non-Owners, When Valid? 1. Where effected by a mercantile agent in the ordinary course of the business. 2. Where made by a joint owner in possession with the consent of other joint owners. 3. Wher adc aportcn in ponecation wndora voldabe coma before ti opted we set aside. 4. Incase of sale by a seller in possession of goods after sale, However he should not be in possession as buyer’s baile. 5. Incase of sale by a buyer in possession of goods after agreement to sell but before actual sale, By an unpaid seller in possession in exercise of his right of lien or stoppage in transit: Sale by a finder of lost goods under section 169 of the Indian Contract Act. Sale by pledge under section 176 of the Indian Contract Act.The Sale of Goods Act, 1930 195 4.8 PERFORMANCE OF THE CONTRACT OF SALE Performance of the Contract of sale of goods (Sections 31 to 44]. The contract of sale of goods is to be performed. In this context, it is necessary to discuss the duties of the seller and buyer and the rules regarding delivery of goods. Duties of the seller and Buyer It is the duty of the seller to deliver the goods and the buyer to accept and pay for them, in accordance with the terms of thé contract of sale (Section 31). Unless otherwise agreed, delivery and payment of price are concurrent conditions (Section 32). In other words, no delivery need be given, if the buyer is not willing to pay the price, nor need the buyer pay the price, unless the seller is ready and willing to give delivery. ‘The seller of goods has the duty of giving delivery according to the terms of the contract and according to the rules contained in the Sale of Goods Act. The buyer of the goods has the duty to— 1. pay for the goods; 2. accept delivery; and 3. pay compensation to the seller in case he wrongfully refuses to accept delivery. DELIVERY. Delivery is defined in the Act as ‘a voluntary transfer of possession from one person to another.’ [Section 2(2)]. Delivery of goods sold may be made by doing anything which the parties agree shall be treated as delivery or which has the effect of putting the goods in the possession of the buyer or of any person authorised to hold them on his behalf. (Section 33). Therefore, it is clear that in addition to transfer of physical possession, any other act which the parties agree to treat as equivalent thereto has the effect of delivery. Delivery of the goods may, therefore, be: 1. Physical or Actual Delivery. In this case the physical possession of the goods is handed over by the seller to the buyer. 2. Symbolic Delivery. In this case, delivery is made by delivering some symbol that carries with it the real possession or control over the goods, e.g. delivery of a railway receipt properly endorsed, or delivery of the key of a warehouse. 3. Constructive Delivery or Attornment. In this kind of delivery there is neither change of physical possession of goods, nor delivery of a symbol, but there is only an acknowledgement by the person in possession that he holds196 Business Law them on behalf of another. This type of delivery may be effected in three ways: A. Where the buyer, who is already in possession of goods as bailee of the seller, holds them as his own, after the sale; B. Where the seller, who is in possession of goods, holds them as bailee of the buyer after the sale; and C. Where a third person, like a carrier or a warehouseman, who holds the goods as bailee for the seller agrees and acknowledges to hold them for the buyer. Rules Regarding Delivery |. Delivery of part of goods sold may amount to delivery of the whole if itis so intended and agreed. But, where the part is intended to be severed from the whole, part delivery does not amount to be delivery of the whole (Section 34). Example Certain goods lying at wharf were sold in a lot. The seller instructed the wharfinger to deliver them to the buyer who had paid for them and the buyer, thereafter, accepted them and took away part. Held, there was delivery of the whole.” 2. Unless agreed otherwise, the seller is not bound to deliver goods till the buyer applies for delivery (Section 35). Even where the goods are to be ac- quired by the seller, the duty of the seller ends with notifying the buyer that they have been acquired. It is still the duty of the buyer to apply for delivery. 3. Place of Delivery. Whether it is for the buyer to take possession of the goods or for the seller to send them to the buyer is a question depending in cach case on the contract, express or implied, between the parties. Apart from any such contract, goods sold are to be delivered at the place at which they are at the time of the sale, and goods agreed to be sold are to be delivered at the place at which they are at the time of the agreement to sell, or, if not in exist- ence, at the place at which they are manufactured or produced. [Section 36 (D). 4. Time of Delivery. Where under the contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is fixed, the seller is bound to.send them within a reasonable time. [Section 36 (2)]. 5. Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state shall be borne by the seller. 6. Demand and tender must be at a reasonable hour. What is a reasonable hour is a question of fact. * Hammond v. Andersone (1803) | B. and P.N.S. 69.The Sale of Goods Act, 1930 197 7. Delivery of Wrong Quantity. Where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may reject them . But, if the buyer accepts the goods so delivered he shall be required to pay for them at the contracted rate. [Section 37 (1)]. Where a larger quantity is delivered, the buyer may accept the goods in- cluded in the contract and reject the rest or he may reject the whole. If the buyer aceepts the whole of the goods so delivered, he shall pay for them at the contract rate. [Section 37 (2). ‘Where the goods of the contract description are mixed up with other goods, the buyer may accept the goods which are in accordance with the contract and reject the rest, or may reject the whole. Thus, in Nicolson v. Bredford Union,” coal that was supplied was partly according to contract and partly not. Held the buyer was entitled to reject the whole. [Section 37 (3)]. The above provisions are subject to any usage of trade, special agreement or course of dealings between the parties. [Section 37(4)]. 8. Instalment Deliveries. The buyer is not bound to accept delivery by instalment, unless otherwise agreed. Example In a contract of sale of 25 tons of pepper “October-November shipment,” the seller shipped 20 tons in November and 5 tons in December. Held, buyer could refuse the whole. [Reuter v. Sala (1879), 4 C.P.D. 239]. Where there is a contract for the sale of goods to be delivered by stated instalments which are to be separately paid for; and either buyer or seller com- mits a breach of contract, it is a question depending on the terms of the con- tract and circumstances of the case whether the breach is a repudiation of the whole contract or a severable breach merely giving a right to claim for damages. (Section 38). Generally, failure to deliver or pay for one instalment, does not amount to repudiation or breach of the whole contract. But where the breach is such as to lead to a reasonable inference that similar breaches will be committed with reference to the subsequent instalments also, the other party is entitled to treat the whole contract as repudiated. le X sold to ¥ 1,500 tons of bone meat of a specified quality to be sk 125 tons monthly in equal weekly instalments. After about half the n had been delivered and paid for Y discovered that it was not of the contract quality and, therefore, refused to take further deliveries. Held, he could do * (1866) LR. 1 Q.B. 620.198 Business Law so as he was not bound to take the risk of having put upon him further deliveries of goods which did not conform to the contract. [Robert A. Munso & Co. v. Meyer (1930) 2 K.B. 312). 9. Delivery to the Carrier or Wharfinger. Delivery of goods by, the seller to a carrier for transmission to buyer or to wharfinger for safe custody is prima facie deemed to be a delivery of the goods to the buyer unless the jus dis- ponendi (the right of disposal) has been reserved by the seller. The seller is bound to make with the carrier or wharfinger such a contract of carriage as properly protects the interest of the buyer, except where. the contract provides otherwise. If he fails to do so, he is liable in damages to,the buyer or the buyer may refuse to treat delivery to the carrier as delivery to himself. As regards insurance, the seller’s duty is only to give sufficient notice to the buyer to enable him to insure the goods, unless the goods are sent c.i.f. or ex-ship. 10. Where goods are delivered to a buyer, which he has not previously examined, he is not deemed to have accepted them, unless he has reasonable opportunity of examining them and ascertaining whether they conform to the contract. The provision will, however, be not relevant where the parties, agree otherwise. (Section 41). Example vit A seller gave notice to the buyer that the contract goods were lying at certain store-house and were ready for delivery against payment of price. The buyer, when he went to the store-house, was only shown two closed casks which were said to contain the goods. Held, no sufficient opportunity had been given to the buyer to inspect the goods and hence there was no valid offer of delivery by the seller. [Isherwood v. Whatmore, 1,M & W. 347). 11. Buyer not bound to return rejected goods. Unless otherwise agreed, when the goods are delivered to a buyer on sale or return basis arid the buyer refuses to accept them, he is not bound to return them to the seller, but it is his duty to inform the seller that he has refused them; otherwise after lapse of a, reasonable time, he will be deemed to have accepted them. (Section 43). 12. Liability of the Buyer. When the seller is ready and willing to deliver the goods and requests the buyer to take delivery and the buyer does not within a reasonable time after such request take delivery of the goods, he is liable to the seller for any loss occasioned by his neglect or refusal to take delivery, and also for a reasonable charge for the care and custody of the goods. The above rule does not affect the seller's right to treat the buyer's refusal or neglect as a repudiation of the contract. (Section 44). *The Sale of Goods Act, 1930 199 4.9 UNPAID SELLER AND HIS RIGHTS A contract is comprised of reciprocal promises. In a contract of sale, if seller is under an obligation to deliver goods, buyer has to pay for it. In case buyer {ails of refuses to pay, the seller, as an unpaid seller, shall have certain rights. Now we shall discuss (i) who is an unpaid seller? and (ii) what are the rights of an unpaid seller? Who is an unpaid seller? ‘An tinpaid seller of goods is a person who has not been paid the whole of the “price or to whom the whole of the price has not been tendered. Section 45(1) provides that— ‘The seller of goods is deemed to be an “unpaid seller” if: (a) the whole of the price has not been paid or tendered; (b) when a bill of exchange or other negotiable instrument has been #eé¢ived ts conditional payment, and the condition on which it was received ‘Has fHOt'been fulfilled by reason of the dishonour of the instrument or other- 29 UPhe'térm “seller” includes any person who is in the position of a seller, ¢.g.. an agent of the seller. Rights of an unpaid seller Rights of an unpaid seller may broadly be classified under two heads namely: 1. Rights against goods. 2. Rights against the buyer personally. Rights against goods An unpaid seller has the following rights against the goods: (i) Lien on the goods. Gi), a right of stoppage in transit. (iii) a right of re-sale. Lien on goods [Section 47 to 49] The ‘word lien’ means ‘to retain possession of.’ Under Section 47 an unpaid seller who is in possession of goods, is entitled to retain them in his possession until payment or tender of the price in the following cases, namely: (4) here the goods have been sold without any stipulation as to credit; (b) where the goods have been sold on credit, but the term of credit has expired; (c) where the buyer becomes insolvent.200 Business Law Lien can be exercised only for non-payment of the price, and not for any other charges due against the buyer. For instance, the seller cannot claim lien for godown charges for storing the goods in exercise of his lien for the price. The lien of an unpaid seller is a particular lien, it is a personal right which can be exercised only by him and not by his assignees or his creditors. The unpaid seller may exercise his lien notwithstanding that he is in pos- session of the goods as agent or bailee for the buyer. Example A buys certain goods from S and agrees to pay for them later. A leaves the goods with S to be sent to him later. S shall have a right of lien if in the meantime he learns of A's insolvency. Further, this right of lien is available even after part delivery of the goods has been made, unless such part delivery is made under such circumstances as to show an agreement to waive the lien. (Section 48). Unpaid Seller’s Lien How Lost. An unpaid seller loses his lien in the following cases: (i) when the seller delivets the goods to a carrier or other bailee for the purpose of transmission to the buyer, without reserving a right of disposal of the goods to himself; e.g., takes R/R or Transport Receipt in the name of buyer or his agent; where the buyer or his agent lawfully obtains possession of the goods; by waiving the right of lien; where he assents to a sub-sale by the buyer; where he takes a security from the buyer for the payment of the . in place of his lien. It should however, be noted that an unpaid seller does not lose his lien by reason only that he has obtained a decree for the price of the goods. [Section 49(2)] AS noted above, lien of an unpaid seller is a possessory lien, that is, once the possession is lost, lien is lost. In a Bombay case on a sale of certain shares the relevant share certificates and transfer forms duly signed were handed over by the seller to the buyer against payment of price by cheque. On the buyer becoming subsequently insolvent, it was held that the seller had no lien on the share certificate or transfer forms, for his lien ceased when he parted with their possession [Bharneha v. Wadilal, 28 Bom. L.R. 777 P C.}. Right of Stoppage-in-Transit This right consists in preventing the goods from being delivered to the buyer, and resuming or regaining their possession while in transit, retaining them till the price is paid. The right of stoppage is transit is earned only when the rightThe Sale of Goods Act, 1930 201 of lien is lost and is available only where the buyer has become insolvent. Section 50 provides—subject to the provisions of the Sale of Goods Act, when the buyer of goods becomes insolvent, the unpaid seller who has parted with the possession of the goods has the right of stopping them in transit, that is to say, he may resume possession of the goods as long as they are in the course of transit, and may retain them until payment or tender of the price. Lien and Stoppage-in-Transit Distinguished | Lien ‘Stoppage-in-Transit 1. Available only when the goods are in the 1. Available only after the seller has parted possession of the unpaid seller. with the possession of the goods. 2. Available, even when the buyer is not an in- 2. Available only when the buyer becomes an solvent. insolvent. Duration of Transit (Section 51) Since, the right of stoppage in transit can be exercised only during transit, the question of duration of transit is of great importance. Goods are deemed to be in 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. When does the Transit End? i) Once the goods reach the hands of the buyer or his agent or servant the (ii) Also, if the buyer or his agent obtains delivery of the goods before they reach their destination. (iii) The transit will end if after the arrival of the goods at the appointed destination, the carrier or the other bailee acknowledges to the buyer or his agent that he holds the goods on behalf of the buyer or the buyer’s agent. It is. immaterial that a further destination of the goods was indicated by the con- tract. (iv) Where the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent in that behalf, the transit is deemed to be at an end. (v) Rejection by the Buyer. If the goods are rejected by the buyer and the carrier or the other bailee continues to hold them, the transit is not deemed to be at an end. even if the seller has refused to receive them back. Example B, at Delhi, orders goods of A, at Calcutta. A consigns and forwards the goods to B. On arrival at Delhi, they are taken to B’s warehouse and left202 Business Law there. B refuses to take these goods and stops payment. The goods are in transit and the unpaid seller can take them back. [James v. Griffin 1837, 2 M&W. 6231. (vi) Delivery to ship: When the goods are delivered to ship, it becomes a question depending on the circumstances of the particular case whether they are in the possession of the master as carrier or as an agent of the buyer. If the ship is chartered by the buyer or is one belonging to the buyer, the transit comes to an end as soon as the goods are loaded on the ship, unless the seller had reserved the right of disposal of the goods. In Schetmans v. Landshire and Yorkshire Rly. Co. 1867 L.R. 2 CH. App. 332, the goods were delivered on board the ship belonging to the buyer. Under the ‘Bill of Lading’ the goods were deliverable to the buyer or his agents. Held, such bills of lading were a delivery to the buyer, and, therefore, there could be no right of stoppage. Change of destination Where goods are agreed to be delivered at a par- ticular place but the buyer then asks the seller to deliver them at a different place, the transit continues till the goods are taken by the buyer or his agent at that place. Effect of Part Delivery Where part delivery of the goods has been made to the buyer or his agent in that behalf; the remainder of the goods may be stopped in transit, unless such part delivery has been given in such cir- cumstances as to show an agreement to give up possession of the whole of the goods. The unpaid seller’s right of lien or stoppage in transit is not affected by any sale or other disposition of the goods by the buyer, unless the seller has agreed to the same. Right of Stoppage-in-Transit How Effected (Section 52) The unpaid seller may exercise his right of stoppage in transit: (a) either 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. The notice of stoppage may be given either to the person in actual posses- sion of the goods or to his principal. In the latter case (i.e., to the principal) the notice, to be effectual, must 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. On receipt of the notice from the seller, the carrier or other bailee in pos- session must re-deliver the goods to, or according to the directions of the seller. The expenses of such re-delivery shall be borne by the seller.The Sale of Goods Act, 1930 203 Effect of Sub-Sale or Pledge by Buyer (Section 53) The general rule is that the unpaid seller's right of lien or stoppage in transit, is not affected by any sale or other disposition of the goods which the buyer may have made, unless the seller has assented thereto. Example In Knights v. Wiffen’ A sold to B 80 maunds of grain out of a granary. B then sold (out of these 80 maunds) 60 maunds to C. C after receiving from B the delivery order presented it to A. A told C that the grain would be delivered in due course. B then became insolvent. A's right against the 60 maunds is lost since A recognised the title of C—the sub-buyer. The above principle is, however, subject to certain exceptions: 1. Where a document of title to the goods has been issued, or lawfully transferred to any person as buyer or owner of the goods, and that person transfers the document to a purchaser in good faith and for valuable con- sideration, the unpaid seller's right of lien or stoppage in transit is destroyed. [Dreyfus Co.’s Case”). 2. Where the document of title to the goods issued, or lawfully transferred to the buyer has been transferred by him, to a bonafide purchaser for con- sideration, by way of pledge, the right of lien or stoppage in transit can only be exercised subject to the right of the pawnee. Right of Re-sale (Section 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: (i) If the goods are of a perishable nature, without any notice to the buyer; and (ii) In other cases, after notice to buyer calling upon him to pay or tender the price within reasonable time, and upon failure of the buyer to do so. The seller is entitled to recover from the original buyer damages caused to him by the resale. But if any profit accrues from the resale, such profit shall go to the unpaid seller and not to the buyer. The seller does not act as the agent of the buyer [Gobdindram v. Shamiji & Co, A.1.R. 1961 LS.C. 12851. However, it should be noted that notice to the buyer is necessary except when goods are of a perishable nature. In case, the seller resells the goods without giving notice to the buyer, he shall not be entitled to recover damages from the buyer for any loss on resale, nor shall he be entitled to pocket any * 1870 L.R., 5Q.B. 660. 1943, K.B.40204 Business Law profit that may accrue on the resale. The profits in such a case shall go to the buyer. However, the buyer (who buys in case of resale) acquires a good title to the goods as against the original buyer, notwithstanding that no notice of re-sale has been given to the original buyer. No notice is necessary in case of perishable goods. The word “perishable” is not confined to physical deterioration, it also includes commercially perish- able goods, and goods liable to deterioration so as to make them unmerchant- able [Asfar v. Blundel’|. Right of re-sale is also available where, by the contract, seller has expressly reserved a right of resale in case the buyer makes a default (Section 54 Clause 4). In case the seller exercises his right of resale under this clause, the original contract is rescinded but, without prejudice to the seller's right to recover damages for its breach. Measure of Damages. The measure of damages in case of resale is the difference in the contract price and the price realised on such resale plus the expenses of resale. The seller must exercise his right of resale within a reasonable time. What is a reasonable time will be determined by the facts of the case. However, a period of eight months was held to be unreasonable. [Partha Sarithi v. Gopinath’). Rights Against the Buyer Personally (Sections 55 to 56) ‘An unpaid seller, besides his rights against goods, has the following rights against the buyer personally: (i) Right to sue for the price, and (ii) the right to sue the buyer for damages for non-acceptance. Suit for the Price (Section 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 the price, the seller can sue the buyer for the price of the goods. Where under a contract of sale the price is payable on a day fixed irrespec- tive of delivery, and the buyer wrongfully neglects or refuses to pay the price, the seller may sue the buyer for the price although the property in the goods has not passed and the goods have not been appropriated to the contract. * (1896) 1 Q.B. 123, ** 48 Mad 787.The Sale of Goods Act, 1930 205 Suit for Damages (Section 56) Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for damages for non-acceptance. Where the property in the goods has not passed to the buyer, and the price was not payable without passing af property, the seller can only sue for damages and not for the price. 4.11 SALE BY AUCTION (Section 64) In the case of sale by auction the following rules apply: 1. When the goods are put up for sale in lots, each lot is deemed, prima facie, to be the subject matter of a separate contract of sale. 2. At an auction, the sale is complete when the auctioneer announces its completion by the fall of the hammer or in other customary manner; until such completion any bidder may withdraw his bid. It is also the practice to say “three times.”” 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 person on his behalf may 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 for 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. Any sale contravening this rule shall be treated as fraudulent. 5. The sale may be notified to be subject to a reserved or upset price. 6. If the seller makes use of pretended bidding to raise the price, sale is voidable at the option of the buyer. [Thornett v. Haines, 1846, 15 M. & W. 367).