FOR INDIA'S BEST CA CS CMA VIDEO CLASSES CALL 9980100288 OR VISIT HERE
Take This Quiz & Predict Your Score in the coming CA CS or CMA Exam!
  • How important it is for you to pass the exam in this attempt?
  • What percentage of course you have finished well so far roughly?
  • How many hours you study in a day?
  • How many times you have revised the topics you have finished
  • Have you taken online or pen drive or live class from a renowned faculty?
  • What percentage of the classes you have watched?
  • Have you attempted mock tests or practice tests yet?
  • Are you planning to attempt mock tests conducted by external bodies- ICAI, ICSI, ICMAI or other institute?
  • How many tests you have taken?
  • Did you manage to finish the test papers on time?
  • Are you strictly following study material provided by the exam conducting authority such as ICAI/ICSI/ICMAI/Other Body?
  • How is your health in general?
  • How is your food habit?
  • Any interest in yoga or exercise or play sports regularly?
  • Planning to sleep well nights before the exams?
  • Planning to have light food and water before exams?

Sale of Goods Act 1930 LAWS-CA Foundation Notes

The Sale of Goods Act 1930-BUSINESS LAWS – CA Foundation, CPT notes, PDF

This article is about The Sale of Goods Act 1930-BUSINESS LAWS for CA foundation CPT students. we also provide PDF file at the end.

Sale of Goods Act 1930

The Sale of Goods Act 1930

What we will study in this chapter:

CHAPTERThe Sale of Goods Act, 1930
1
Unit: 1 – Formation of the contract of sale

 

Section 1Short Title
Section 2 :Interpretation Clause
Section 3 :Communication, acceptance and revocation of proposals
Section 4A proposal is accepted from the date its acceptance is sent by the post
Section 5 :A proposal can be revoke at any time before the communication of its acceptance
Section 6 :Revocation how made
Section 7 :Acceptance must be absolute
Section 8 :Acceptance by performing conditions, or receiving consideration
Section 9 :Promises, express or implied
Section 10 :Defines the essential elements of a contract, Defines “Consideration”
Section 11 :Defines requirements for competency for competency of parties to the contract
Section 12 :What is a sound mind for the purposes of contracting.
Section 13 :“Consent” defined
Section 14 :“Free Consent” defined
Section 15 :“Coercion” defined
Section 16 :Undue influence” defined
Section 17 :“Fraud” defined
Section 18 :Misrepresentation” defined
Section 19 :“Void ability of agreements without free consent”
Section 19 A:Power to set aside contract induced by undue influence
Section 20 :Agreement void where both parties are under mistake of fact
Section 21 :Effect of mistakes as to law
Section 22 :Contract caused by mistake of one party as to matter of fact
Section 23 :What consideration and objects are lawful, and what not
Section 24 :Agreements void, if consideration and objects unlawful in part

 

 

CHAPTERThe Sale of Goods Act, 1930
2
Unit: 1 Formation of the contract of sale
SALE OF GOODS ACT, 1930
Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 Section 7 Section 8 Section 9 Section 10 Section 11 Section 12 Section 13 Section 14 Section 15 Section 16 Section 17 Section 18 Section 19 Section 20 Section 21 Section 22

Section 23 Section 24 Section 25 Section 26 Section 27 Section 28 Section   29

: Short title, extent and commencement.

: Definitions.

: Application of provisions of Act 9 of 1872.

: Sale and agreement to sell.

: Contract of Sale.

: Existing or future goods.

: Goods perishing before making of contract.

: Goods perishing before sale but after agreement to sell.

: Ascertainment of price.

: Agreement to sell at valuation.

: Stipulations as to time.

: Condition and warranty.

: When condition to be treated as warranty.

: Implied undertaking as to title, etc.

: Sale by description.

: Implied condition as to quality.

: Sale by Sample.

: Goods must be ascertained.

: Property passes when intended to pass.

: Specific goods in a deliverable state.

: Specific goods to be put into a deliverable state.

: Specific goods in a deliverable state, when the seller has to do anything.

: Sale of unascertained goods and appropriation.

: Goods sent on approval.

: Reservation of right of disposal.

: Risk prima facie passes with property.

: Sale by person not the owner.

: Sale by joint owners.

: Sale by person in possession under voidable contract.

 

Solved Scanner CA Foundation Paper – 2A (New Syllabus)

Section 30Seller or buyer in possession after sale.
Section 31Duties of Seller and Buyer.
Section 32Payment and Delivery.
Section 33Delivery.’
Section 34Effect of part delivery.
Section 35Buyer to apply for delivery.
Section 36Rules as to delivery.
Section 37Delivery of wrong quantity.
Section 38Instalments deliveries.
Section 39Delivery to carrier.
Section 40Risk where goods are delivered at distant place.
Section 41Buyer’s right of examining the goods.
Section 42Acceptance.
Section 43Buyer not bound to return rejected goods.
Section 44Liability of buyer for neglection or reflexing delivery of goods
Section 45Unpaid seller.
Section 46Unpaid seller’s rights.
Section 47Seller’s lien.
Section 48Part delivery.
Section 49Termination of lien.
Section 50Right of stoppage in transit.
Section 51Duration of transit.
Section 52How stoppage in transit is effected.
Section 53Effect of subsale.
Section 54Sale not generally rescinded.
Section 55Suit for price.
Section 56Damages for non acceptance.
Section 57Damages for non delivery.
Section 58Specific performance.
Section 59Remedy for breach of warrant.
Section 60Repudiation of contract.
Section 61Interest by way of damages.

Self Study Questions

Section 62: Exchange of implied terms.
Section 63: Reasonable time.
Section 64: Auction sale.
Section 65: Repeal.
Section 66: Savings.

Q.1: Describe the Introduction of Sales of Goods.

Answer:

  • It is one of the special types of contract.
  • Initially, it was the part of Indian Contract Act, 1872.
  • Later it was deleted and a separate Sale of Goods Act was passed in 1930.
  • Basic provisions and requirements of contract equally apply to Sales of Goods Act.
  • It contains and deals with law relating to sale of goods and not with mortgage or pledge.
  • It received its assent on 15th March, 1930 and came force into 1st July, 1930.
  • It extends to whole of India except the state of Jammu and Kashmir.

Q.2: What is the Definitions?

Answer:

  • Buyer: parson who buys or agrees to buy the goods
  • Seller: person who sells or agrees to sell the goods

[1] Goods: As per section 2(7), it means every kind of movable property other than actionable claims and money and includes stock and shares, growing crops, grass and things attached to or forming part of the land Which are agreed to be severed before sale or under the contract of sale.

Money means current money and it includes rate and old coins.

Actionable claims means what a person cannot make a present use of or

enjoy, but can recover it by means of a suit or an action.

  • Existing Goods: It means such goods which are in existence at the time of the contract of sale i.e. owned or possessed by the seller.
  • Specific Goods: It means goods identified and agreed upon at the time the contract of sale has been made.
  • Ascertained Goods: It means that the goods are identified in accordance with agreement after the contract of sale has been made.
  • Generic/ Unascertained Goods: It means the goods which are not specifically identified but are indicated by description.
  • Future Goods: As per section 2(6), it means goods to be manufactured or produced or acquired by the seller after making the contract of sale.
  • Contingent Goods: It means the goods the acquisition of which by the seller depends upon a contingency which may or may not happen.
  • Agreement to sell can only be there in respect of future or contingent goods.
  • Actual sale can take place only in respect of specific goods.
  • Goods are said to be in a deliverable state when they are in such a condition that the buyer would, under contract, be bound to take delivery of them.
  • Delivery: It means voluntary transfer of possession by one person to another.
Types of Delivery 1
ActualI

Constructive

1

Syntdic

  • Document of title of Goods: It includes bill of lading, dock- warrant, warehouse keeper’s certain, wharfinger’s certificate or any other document used in the ordinary course of business as proof of the possession or control of the goods or authoring or purporting to authorise either by endorsement or delivery, the possessor of the document to transfer or receive goods thereby represented.
  • Property: It means the general property and not merely a special property.
  • Insolvent: person is said to be insolvent when he ceases to pay his debts in the ordinary course of business.
  • Mercantile Agent: Is the agent having in the customary course of business as such agent authority either to sell or consign goods, etc.
  • Price: Is the money consideration received for sale fo goods.
  • Quality of Goods: It includes their state or condition.

Q.3: Describe the Sale and Agreement to Sell.

Answer:

  • As per section 4(3) of the Act, “ where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale.”
  • As per section 4(3) of the Act “where under a contract of sale the transfer of the property in the goods in to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell.”

j

Q.4: Distinction between Sale and an Agreement to Sell.

Answer:

SaleAgreement to sell
1. It is an executed contract.It is an executory contract.
2. property in goods are transferred from seller to buyer when the contract is made.Transfer of property in goods takes place at some future data.

 

3. Seller cannot resell the goods as the property is with the buyer.Seller can further resell the goods as the property in goods remains with him.
4. Risk passes to the buyer, as he becomes the owner.Risk is with the seller as he remains the owner.
5. Performance in absolute without any condition.Performance in conditional and is made in future.
6. Breach on part of buyer, seller can sue for the price and damages both.Breach on part of seller, seller can sue for damages only and not for the price.
7. Breach on part of seller, buyer can compel him to deliver the goods or pay the damages.Breach on part of seller, buyer can sue for damages only and cannot compel him to deliver the goods.
8. Gives the buyer ‘Just-in-Rem’ i.e. right against the whole world.Gives the buyer, ‘Just-in-Personam’ i.e. right against a particular person.
9. Sale is contract plus conveyance.It is pure and simple agreement.
10. In this, if goods are destroyed then Joss will be of buyer.In this, if goods are destroyed by accident, loss will fall on seller.

 

Q.5: Define the distinguished from other similar contracts:

Answer:

(i) Sale and Hire Purchase Agreement:

SaleHire Purchase Agreement
1. Property in goods is transferred to the buyer immediately at the time of contract.The goods passes to the hirer upon payment of the last installment.
2. Position of buyer is that of owner of goods.Position of hirer is that of bailee till he pays the last installment.

 

3. Buyer cannot terminate the contract and is bound to pay the price of the goods.Hirer may terminate the contract by returning the goods to owner without any liability to pay the remaining installments.
4. Seller takes the risk of any loss resulting from the buyer’s insolvency.Owner takes no such risk for, if hirer fails to pay the installment, he has the right to take back the goods.
5. Buyer can pass the goods title to a bonafide purchaser from him.Hirer cannot pass any title even to a bonafide purchaser.
6. Tax is levied at the time of contract.Tax in not leviable until it eventually turns into sale.

 

(ii) Sale and Bailment:

SaleBailment
1. Property in goods is transferred from seller to buyer.There in only transfer of possession of goods from bailor to bailee.
2. Return of Goods is not possible.Bailee must return the goods to bailor on accomplishment of the purpose of bailment.
3. Consideration is the price interns of money.Consideration may be gratuitous or non-gratuitous.
4. Buyer may use the goods in anyway he likes.Bailee can use the goods only according to bailor’s direction.
5. Any profit accrued in goods sold is the buyer’s property.Any profit accrued on goods bailed is the bailor’s property. This applies only if goods are Existing goods.

 

(iii) Sale and contract for work and labour:

SaleContract for work and labour
1. Property in the goods is transferred from the seller to the buyer.It is a contract for performing some work and not for transferring the property in_goods.
2. It involves the delivery of goods.It involves exercise of skill and labou’ in rendering some work. It involves, “the uses by means of money consideration”.

Q.6: What are Contract of sale how made?

Answer:

  • There may be immediate delivery of goods.
  • There may be immediate payment of price, but it may be agreed that the delivery is to be made at some future date.
  • There may be immediate delivery of the goods and an immediate payment of price.
  • It may be agreed that the delivery or payment or both are to be made in installments.
  • It may be agreed that the delivery or payment or both are to be made at some future date.

Q.7: Define the Subject matter of Contract of sale.

Answer:

As per section 6:

  • Subject matter must always be goods which may be existing or future goods.
  • Contract can also be made with regard to the goods, the acquisition of which by seller depends upon a contingency, which may or may not happen. Such contracts are contingent contracts.
  • When the seller purports by his contract to effect a sale of future goods, the contract will operate only as an agreement to sell the goods and not as sale.

Goods perishing before making a contract (section 7):

  • The contract is void ab initio.
  • If seller enters into the contract even on being aware of the destruction, he is estoppel from disputing the contract.
  • It also includes the goods that have lost their commercial value.
  • Mutual mistake of fact essential to the contract renders the contract void. Goods Perishing after Agreement to sell (Section 8) without any of the party’s default:
  • Agreement becomes void.
  • Provided the risk has not passed to the buyer.
  • It applies only to sale of specific goods.
  • For uncertain goods sale, the perishing of the whole quantity of such goods in the possession of seller won’t relieve him of his obligation to

* deliver.

Q.8: Describe the Ascertainment of price.

Answer:

  • Price: It means a monetary consideration for the sale fo goods.
  • It may be money actually paid or promised to be paid.
  • No sale can take place without a price
  • Only money transactions are valid, no dealing in kind.

As per Section 9:

  • Price may be

(i) Fixed by a contract

(ii) Agreed to be fixed is a manner provided by the contract, or

(iii) Determined by the course of dealings between the parties.

  • When it cannot be fixed in any of above ways, the buyer is bound to pay a reasonable price to the seller.
  • Generally market price would be reasonable price As per Section 10:
  • Price is to be determined by third party
  • Where there is an agreement to sell goods on the terms that the price is to be fixed by third party, and he either does not or cannot make such valuation, the agreement will be void.
  • If the third party is prevented by the default of either party from fixing the price, the party at fault will be liable to the damages to the other party who in not at fault.

Short Practice Questions

  1. What are contingent goods?
  2. Explain document of title.
  3. Differentiate between

(a) Sale and Agreement of sale.

(b) Sale and Bailment.

  1. How is price ascertained is a contract of sale?

Objective Questions

Past Year Questions and Answers

1995 – Nov [1] State with reasons whether the following statements are

Correct or Incorrect:

(ix) The rights and liabilities arising in a contract of sale may be varied or

avoided by binding usage.                                                                                         (2 marks)

(x) Actionable claim is a subject-matter of contract of sale.                                      (2 marks)

Answer:

(ix) Correct: Section 62 of the Sale of Goods Act 1930, provides that right, duty, or liability arising under a contract of sale by implication of law may be negatived or avoided or varied by usage if it binds both the parties.

(x) Incorrect: Section 2(7) of the Sale of Goods Act, 1930 providing definition of ‘goods’ clearly excludes ‘actionable claim’. Hence, actionable claim is not a subject matter of the contract of sale.

1999 – May [1 ] State with reasons whether the following statement is Correct or Incorrect:

(ix) Exchange of goods for goods between the two parties amounts to sale under the Sale of Goods Act, 1930.                                                                                                                                    (2 marks)

Answer:

Incorrect: When goods are exchanged for goods, it is not a sale but a barter (Shelon (v) Cox). In sale there must be consideration in the form of money, called the price.

1999 – Nov [1] State with reasons whether the following statements are Correct or Incorrect:

(v) A bailment is the delivery of goods by one person to another for some purpose. (2 marks)

(viii) ‘Goods’ means every kind of movable property other than actionable claim and money. (2 marks)

Answer:

(v) Correct: The first important characteristic of bailment is that the goods must be handed over to the bailee for whatever is the purpose of bailment. Once this is done, bailment arises, irrespective of the manner in which this happens. Delivery of possession differs from a mere custody. However, there is another important requirement for bailment is that the goods must be returned or otherwise disposed of according to the direction of the person delivering them.

(viii) Correct: Goods means every kind of movable property i.e. property of every description [except immovable property, other than actionable claims and money. Section 2(7) of the Sale of Goods Act, 1930]. According to this definition, money and actionable claims are not goods and cannot be bought or sold.

2001 – May [1] State with reasons whether the following statement is Correct or Incorrect:

(vi) Contract of Sale can also take place by the conduct of the parties to the contract. (2 marks)

Answer:

Correct: Subject to the provisions, of any law for the time being in force, a contract of sale irjay be expressed or may be implied from the conduct of the parties (Section 5(2) of the Indian Contract Act, 1872).

2002 – May [1 ] State with reasons whether the following statement is Correct or Incorrect:

(viii) ‘Goods’ means every kind of property other than actionable claims and money. (2 marks)

Answer:

Incorrect: Sub-section (7) of Section 2 of the Sale of Goods Act, 1930 defines the term ‘goods’ as “every kind of movable property” other than actionable claims and money. The term property includes both movable and immovable properties. Thus, the subject matter of sale under the said Act is “movable property” only excluding actionable claims and money.

2002 – Nov [1 ] State with reasons in brief whether the following is Correct or Incorrect.

(vii) In an agreement to sell, the property in the goods passes to the buyer immediately. (2 marks)

Answer:

Incorrect: According to Section 4(3) of the Sale of Goods Act 1930, in an agreement to sell, property in the goods is to be transferred to the buyer at some future date, or subject to the fulfillment of some conditions.

Short Notes

1996 – May [7] Write short note on:

(d) Contract of sale.                                                                                                    (5 marks)

Answer:

Contract of Sale: It is a contract whereby the seller transfer or agrees to transfer the property in goods to the buyer for a price [Section 4(1). (Sales of Goods Act, 1930).

The following elements must co-exist to constitute a contract of sale:

  1. There must be atleast two parties.
  2. The subject matter must necessarily be ‘goods’.
  3. A price in money (not in kind) should be paid or promised.
  4. A transfer of property must take place.
  5. The sale may be absolute or conditional.
  6. Other essential elements of a valid contract must be present.

Also, the contract of sale includes both ‘Sale’ as well as ‘agreement to sell’.

1998 – May [7] Write short note on:

(d) Formalities of a contract of sale.                                                                           (5 marks)

Answer:

Formalities of contract of Sale: Except where specifically required by any law, no particular form is necessary to constitute a valid contract. The agreement may be express or may be implied from the conduct of the parties. Section 5 of the Sale of Goods Act, 1930 lays down the rule as to how a contract of sale may be made and has nothing to do with the transfer or passing of the property in the goods.

A contract of sale may be made in any of the following modes:

  1. There may be immediate delivery of the goods; or
  2. There may be immediate payment of price, but it may be agreed that the delivery is to be made at same future.date; or

3 There may be immediate delivery of the goods and an immediate payment of price; or

  1. It may be agreed that the delivery or payment or both are to be made in instalments; or
  2. It may be agreed that the delivery or payment or both are to be made at same future date.

1998 – Nov [7] Write short note on:

(e) Essentials of appropriation of goods.                                                                    (5 marks)

Answer:

Essentials of Appropriation of goods: Appropriation of goods involves selection of goods with the intention of using them in performance of the contract and with the mutual consent of the seller and the buyer.

The essentials are:

(a) The goods should conform to the description and quality stated in the contract.

(b) The goods must be in a deliverable state.

(c) The goods must be unconditionally (as distinguished from an intention to appropriate) appropriated to the contract either by delivery to the buyer or his agent or the carrier.

(d) The appropriation must be made by:

(i) the seller with the assent of the buyer, or

(ii) the buyer with the assent of the seller.

(e) The assents may be express or implied.

(f) The assent may be given either before or after appropriation.

2001 – May [7] Write short note on:

(e) ‘Goods’ in a Contract of Sale.                                                                               (5 marks)

Answer:

“Goods” in a Contract of Sale: In the Sales of Goods Act, 1930, ‘Goods’, means every kind of movable property, i.e. property of every description (except immovable property), actionable claims and money and includes stocks, shares, growing crepes, grass and things attached to or forming part of the land e.g. growing trees, machinery fixed or embedded in earth), which were agreed to be severed before sale or under the contract of sale. [Section 2(7)].

Goods can be of the following types:

  1. Existing i.e. which are in existence at the time of sale.
  2. Future goods i.e. which are in the process of manufacturing or production or acquisition by the seller after the contract of sale.
  3. Specific i.e. which have been identified at the time of sale.

2002 – Nov [2] Write short note on:

(e) Classification of goods in a contract of sale.                                                        (5 marks)

Answer:

Goods forming subject matter of the contract of sale may be classified as under:

(i) Existing Goods

(a) specific goods

(b) unascertained goods

(c) ascertained goods.

(ii) Future Goods

(iii) Contingent Goods

Existing Goods are those which are in actual existence at the time of contract of sale. The seller is the owner of goods or he has the possession of such goods.

Existing goods may be of the following three types:

(i) Specific Goods: Goods which have either been identified and agreed by the parties at the time of contract of sale.

(ii) Ascertained Goods are those identified only after the formation of a contract of sale. When unascertained goods are identified and agreed upon by the parties, the goods are called Ascertained goods.

(iii) Unascertained Goods are those not specifically identified at the time of contract of sale. They are described by the description or sample only.

(iv) Future Goods are those which are not in existence at the time of contract. These goods are to be acquired or produced by the seller after the contract of sale is made. It is an agreement to sell and not sale.

(v) Contingent goods are like future goods. The acquisition of the goods by the seller depends upon the uncertain contingencies which may or may not happen e.g. goods will be supplied if ship arrives.

Distinguish Between

1995 – May [4] (b) (i) Distinguish between A ‘Sale’ and a contract of ‘Bailment’.     (5 marks)

Answer:

Sale and Bailment: A ‘bailment’ is the delivery of goods for some specific purpose under a contract on the condition that the same goods are to be returned to the bailer or are to be disposed of according to the directions of the bailor whereas, 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.

The difference between bailment and sale may be clearly understood by studying the following:

(a) In a sale the property in goods is transferred from the seller to the buyer. But in bailment, there is only transfer of possession of goods from the bailor to the bailee for any of the reasons like safe custody, carriage etc.

(b) In bailment, the bailee must return the goods to the bailor on the accomplishment of the purpose for which the bailment was made. But there is no question of return of goods in a contract of sale.

(c) In a sale the, consideration is the price in terms of money where as the bailment may be gratuitous or non-gratuitous.

1995 – Nov [6] (b) (ii) Distinguish between Sale and Hire-purchase Agreements.   (5 marks)

Answer:

Sale and Hire Purchase Agreements:

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. There may be a contract of sale between one part-owner and another. [Section 4(1) Sale of Goods Act], A contract of sale may be absolute or conditional. [Section 4(2)].

A hire purchase agreement is a contract whereby the owner of the goods lets them on hire to another person called hirer on payment of rent to be paid in instalments and upon an agreement that when a certain number of such installments is paid, the ownership in goods will pass on to the hirer. The hirer may return the goods at any time without any obligation to pay the balance rent. It is not a contract of sale but only a bailment and the property in the goods remains in the owner during the continuance of the bailment.

1997 – May [4] (b) (i) Distinguish between Existing goods and Contingents goods. (5 marks)

Answer:

Existing Goods and Contingent Goods:

The two terms can be distinguished on the following basis:

  1. Meaning: Goods which are physically in existence and which are in seller’s ownership or possession at the time of entering of contract of sale are called existing goods. While goods, the acquisition of which by seller depends upon an uncertain contingency are called contingent goods. They are a type of future goods. Future goods are the goods to be manufactured, produced or acquired after the making of contract.
  2. Type: A contract for the sale of contingent goods is always an agreement to sell while existing goods can be subject matter of sale as well as agreement of sell.
  3. Classification: Existing goods may be classified as specific, ascertained

or unascertained goods while there cannot be any such classification of contingent goods. ~ • ^

1997 – Nov [4] (b) (ii) Difference between Sale and Hire-purchase.

(5 marks)

Answer:

Please refer 1995 – Nov [6] (b) (ii) on page no. 192

1999 – May [4] (b) (i) Briefly explain the distinguish between Future goods and Contingent goods.

Answer:

Future Goods and Contingent Goods: Those goods which are yet to be

manufactured or produced or acquired by the seller after the making of the contract of sale, are called, “future goods”. Thus, future goods are not in existence at the time of the contract of sale or if they are in existence they have not yet been acquired by the seller by that time. When a present sale is made for some future goods, it is in fact not sale but an agreement to sell. (Section 2(6) and 6(3) of the Sale of Goods Act, 1930).

According to Section 6(2) of the Sale of Goods Act, contingent goods are goods the acquisition of which by the seller depends upon a contingency which may or may not happen. They are also a type of future goods and therefore, a contract for sale of contingent goods operate as an agreement to sell.

Contingent goods are different from future goods in the same that the procurement of contingent goods is dependent upon an uncertain event, whereas the obtaining of future goods does not depend upon any such uncertainty.

1999 – Nov [2] (v) Point out any four major differences between a sale and an agreement to sell.  (5 marks)

Answer:

Difference between a sale and an agreement to sell: According to Section 4 of the Sale of Goods Act, 1930, a contact of goods is a contract whereby the seller transfers or agrees to transfer the property in the goods to the buyer for a price, whereas under an agreement to sell, the transfer of the property in the goods is to take place at a future date.

  • In a sale, the seller can sue the buyer for the price of the goods, but in an agreement to sell, the aggrieved party can sue for damages only and not for price.
  • In a sale, a subsequent loss or destruction of the goods is the liability of the buyer, but the liability remains with the seller if it is agreement to sell.
  • In sale, seller’s breach gives the buyer to sue for damages and also remedy of recovery the goods from third parties who bought them. But in an agreement to sell, buyer’s remedy is for a suit of damages.

1999 – Nov [4] (i) Briefly explain the difference between Sale and Hire- purchase Agreement.       (5 marks)

Answer:

Please refer 1995 – Nov [6] (b) (ii) on page no. 192

2000 – May [3] (ii) Distinguish between sale and agreement to sell under the

Sale of Goods Act. (10 marks)

Answer:

Sale and Agreement to sell distinguished:

(a) A sale implies an agreement plus a conveyance of property. In an agreement to sell, there is no conveyance, the conveyance takes place at a future date.

(b) In a sale, the property in the goods passes to the buyer and risk also passes to the buyer. In agreement to sell, since property does not pass to the buyer, risk also does not pass to the buyer.

(c) A sale is an executed contract. An agreement to sell is an executory contract.

(d) In a sale, the seller can sue the buyer for the price of the goods. In an agreement to sell, the aggrieved party can sue for damages only and not for the price unless the price was payable at a stated date.

(e) In a sale, a subsequent loss or destruction of the goods is the liability of the buyer, but the liability remains with the seller, where the transaction only amounts to an agreement to sell.

(f) In an agreement to sell, the seller, being still the owner, may dispose of the good as the likes and the buyer’s remedy would be to file a suit for damages. In a sale however, the seller’s breach gives the buyer the double Femedy, a suit for damages against the seller, and the remedy of recovering of goods from third parties who bought them.

(g) In a sale, in case of default by buyer, seller can sue the buyer for price even if goods are in his possession and can resell the goods. In an agreement to sell, the seller’s remedy in case of default, is to sue for damages for breach and not the price even though the goods are in the possession of the buyer.

(h) In case of sale, if the seller becomes insolvent, while the goods are still in his possession, the buyer shall have a right to claim the goods from the official receiver or assignee. In case of agreement to sell, when the seller becomes insolvent, the buyer’s remedy is to claim rateable dividend from the estate of the insolvent seller for the price paid and not for the goods, since property in them still rests with the seller. If the buyer becomes insolvent, the seller can refuse to deliver the goods to the official receiver or assignee unless the price is paid to him, in the case of agreement to sell. In the case of sale, in the absence of right of lien over the goods, the seller must deliver the goods to the official receiver/assignee of the buyer and is entitled to rateable dividend only from the estate of the insolvent buyer.

2018 – Nov [1] {C} (c) Differentiate between Ascertained and Unascertained Goods with example.           (4 marks)

Answer:

The basic point of distinction between ascertained and un-ascertained goods with example can be discussed as under:

Ascertained goods are those goods which are identified in accordance with the agreement after the contract of sale is made. This term is not defined in the act but has been judicially interpreted. In actual practice the term ‘ascertained’ goods is used in the same sense as ‘specific’ goods’ when from a lot or out of large quantity of unascertained goods, the number.or quantity contracted for is identified, such identified goods are called ascertained goods.

Example:- A wholesaler of cotton has 100 bales in his godown. He agrees to sell 50 bales and these bales were selected and set aside. On selection the goods, becomes ascertained. In this case, the contract is for the sale of ascertained goods, as the cotton bales to be sold are identified and agreed after the formation of the contract.

Un-ascertained goods are the goods which are not specifically identified or ascertained at the time of making of the contract.

They are indicated or defined only by description or sample.

Example : If A agrees to sell to B one packet of salt out of the lot of one hundred packets lying in his shop, it is a sale of un-ascertained goods because it is not known which packet is to be delivered. As soon as a particular packet is separated from the lot, it becomes ascertained or specific goods.

Descriptive Questions

1995 – May [5] (e) What are the essentials of a contract of ‘Sale’?

(5 marks)

Answer:

Essential of a Contract of Sale: Section 4(1), of the Sale of Goods Act, 1930, defines a contract of sale, as a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price.

From the above definition, the following essentials can be deduced:

  1. There must be at least two parties one seller, two the buyer.
  2. There must be an agreement between the two parties for sale or an agreement to sell.
  3. The subject matter of the contract must necessarily by goods, may be existing goods or future goods, ascertained goods or unascertained goods.
  4. There should a price, which is to be paid in money.
  5. A transfer of property in goods from seller to buyer must take place.
  6. The contract may be absolute or even conditional.
  7. All the essential characteristics of a valid contract must exist.

1996 – May [2] (d) A contract of sale is not avoided even on account of breach of condition. (5 marks)

Answer:

Contract of sale not avoided on breach of condition: Section 13 of the Sales of Goods Act, 1930 provides certain circumstances where under a condition is treated as a warranty and hence the contract of sale is not avoided even on account of breach of a condition. In the following cases this rule is applicable:

  1. Where the buyer altogether waives the performance of the condition. A party may for his own benefit waive a stipulation.
  2. Where the buyer elects to treat the breach of the condition as one of a warranty. In such a case he may only claim damages instead of repudiating the contract.
  3. Where the contract is non-severable and the buyer has accepted either the whole goods or any part thereof.
  4. Where the fulfillment of any condition or warranty is excused by law by reason of impossibility or otherwise.

1996 – Nov [4] (a) The rule in sale of goods is “none can give or transfer what he does not himself possess”. Are there any exceptions to this rule? Discuss.                                                         (5 marks)

Answer:

Exceptions to the Rule ‘none can give or transfer what he does not himself has’:

Section 27 of the Sale of Goods Act, states the above rule, i.e. ‘None can give or transfer what he does not himself has’. However, the rule subject to the following exceptions stated under Sections 28-30 of the Act.

These are:

  1. By estoppel: Where the owner is estoppel by the conduct from denying the seller’s authority to sell, the transferee will get a good title as against the true the owner and the above rule shall not apply.
  2. Sale by a mercantile agent: Sale by a mercantile agent to goods or document of title to goods under the following conditions.

(a) the agent has the possession of goods with the consent of the owner,

(b) he sells them in the ordinary course of business,

(c) the buyer buys is good faith.

  1. Sale by one of the joint owners: When one of the several owners having the possession of the goods sells them out and the buyer buys in good faith.
  2. Sale by a person in possession under voidable contract: When the seller who has obtained the possession of the goods under a voidable contract and has no rescinded the contract till the time of such sale, sell such goods.
  3. Sale by one who has already sold the goods but continues in possession thereof: Under these circumstances, if the seller sells the goods and the buyer buys in good faith without notice of the previous sale. Similarly, a pledge or other disposition of the goods or documents of title by the seller in possession are equally valid.
  4. Sale by buyer obtaining possession before the property in the goods has vested in him, if sells, pledges or otherwise disposes such goods to a person who in good faith and without notice of the lien or other right of the original seller in respect of the goods, devolves a good title to such person.
  5. Sale by an unpaid seller: An unpaid seller who had exercised his right of stoppage in transit, sells such goods again, the buyer of such goods acquires a good title to the goods as against the original buyer.
  6. Safe under the provisions of the other Acts:

(a) Sale by, an official receiver or liquidator of the company.

(b) Purchase of goods from a finder of goods.

(c) Sale by a pawnee under default of pawnor.

1997- May [3] (b) Describe the conditions implied in a contract for sale of goods by—

(i) Description, and

(ii) Sample. (10 marks)

Answer:

(i) Sale by description: Where there is a contract for sale of goods by description, there is an implied condition that the goods shall correspond with the description. If the description of the article is different in any respect, the other party is not bound to take it.

The sale of goods by description may include:

  1. Where the buyer has not seen the goods and relied on their description given by the seller.
  2. Where the buyer has seen the goods but he relies not on what he has seen but what was stated to him and the deviation of the goods from the description is not apparent.
  3. The packing of the goods may some times be a part of the description.

(ii) Sale by Sample: In the case of contract for sale by sample, there is an implied condition that—

  1. The bulk shall correspond with the same in quality.
  2. The buyer shall have a reasonable opportunity of comparing the bulk with the sample.
  3. The goods shall be free from any defect rendering them unmerchantable which would not be apparent on a reasonable examination of the sample. This implied condition applies only to latent defects, i.e., defects which are not discoverable on a reasonable examination of the sample. The seller is not responsible for the defects which are patent i.e. visible by , examination of the goods. In such a case, there is no breach of

condition as to merchantability.

Section 15 of the Sale of Goods Act also provides that if the sale is by sample as well as by description, the goods must correspond both with the sample and with the description.

1997 – Nov [5] (d) How the price of the goods may be ascertained in case of sale of goods? (5 marks)

Answer:

Ascertainment of Price: The meaning of the price and the rule regarding ascertainment of the price of the goods is contained in Sections 2(10), 9 and 10 of the Sale of Goods Act respectively, as follows:

‘Price means’ the monetary consideration for sale of goods. The price may be fixed by the contract or agreed to be fixed in a manner provided by the contract, e.g., by a valuer or determined by the cause of dealings between the parties. When it can not be fixed in any of the above ways, the buyer is bound to pay to the seller a reasonable price. What is a reasonable price is a question of fact in each case (Section 9).

Section 10 provides for the determination of price by a third party. Where there is an agreement of sell goods on the terms that price has to be fixed by the third partyand he either does not or cannot make such valuation, the agreement will be void. In case the third party is prevented by the default of either party from fixing the price, the party at fault will be liable to the damages to the others to the other party who is not at fault. However, a buyer who has received and appropriated the goods must pay a reasonable price for them in any eventuality.

1998 – May [2] (d) “Agreement to sell, differs from sale.”                                           (5 marks)

Answer:

Sale and Agreement to sell differ to each other: According to Section 4(3) of the Sale of Goods Act, when the property in the goods in transferred to the buyer immediately on making of a contract, it is called a ‘sale’. On the other hand, when the property in the goods is to be transferred on some future date or on the fulfilment of certain conditions, it is called an ‘agreement to sell’. Section 4(4) further provides that an agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.

The main points of distinction between the two are as under:

SaleAgreement to sell
1.It implies an agreement plus a conveyance of property.1.Here there is no conveyance It takes place at a future date.
2.The property in the goods passes to the buyer and along therewith the risk.2.Since property in the goods does not pass to the buyer, the risk also does not pass to him.
3.It is an executed contract.3.It is an executory contract.
4.The seller can sue the buyer for the price of the goods because of the passage of the property therein to the buyer.4.The aggrieved party can sue for damages only and not for the price, unless the price was payable at a stated date.
5.A subsequent loss or destruction of the goods is the liability of the buyer.5.Such loss or destruction is the liability of the seller.
6.Breach on the part of the seller gives the buyer double remedy; a suit for damages against the seller and a proprietary remedy of recovering the goods from third parties who bought them.6.The seller, being still the owner of the goods, may dispose of them as he likes, an the buyer’s remedy would be to file a suit for damages only.

1998 – Nov [2] (e) In a sale of goods ‘goods’ sold must be of merchantable quality. (5 marks)

Answer: ‘

Goods Must be of merchantable Quality: It is one of the implied conditions that the goods sold to a customer must be of merchantable quality. Section 16(2) of the Sale of Goods Act provides: 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 are of merchantable quality. The expression “merchantable quality” though not defined in the Act, nevertheless connotes goods of such a quality and in such condition that a man of ordinary prudence would accept them as goods of that description. Goods should also be such as are commercially saleable under the description by which they are known in the market at their full value. 1f goods are of such a quality and in such a condition that a reasonable person acting reasonably would accept them after having examined them thoroughly, they are of merchantable quality Sub-section (2) of Section 16 further provides that where the buyer has examined the goods, there is an implied condition as regards defects, which such examination ought to have revealed. [Proviso to Section 16(2)].

2000 – Nov [5] (d) What are the essentials of a Contract of Sale?

(5 marks)

Answer:

Please refer 1995 – [5] (e) on page no. 197

2018 – May [1] (c) What is meant by delivery of goods under the Sale of Goods Act, 1930? State various modes of delivery.                                                                                                                  (4 marks)

Answer:

Delivery means voluntary transfer of possession from one person to another. It may be made by doing anything, which has the effect of putting the goods, in the possession of the buyer, or any person authorized on his behalf.

Various modes of delivery are as follows:

(i) Actual delivery: Physical delivery of goods to buyer.

(ii) Constructive delivery: When it is effected without change in the custody or actual possession.

(iii) Symbolic delivery: Where there is a delivery of a thing in token of a transfer of something else.

 

CHAPTER
2The Sale of Goods Act, 1930 Conditions and Warranties

Self Study Questions

Q.1: Describe the Stipulation as to time in Contract of Sales.

Answer:

  • Before concluding a contract of sale, certain statement are made by the contracting parties.
  • Statement may be stipulation – one by seller on the reliance of which the buyer makes the contract.
  • Statement may not be a stipulation if it is a mere recommendation by the seller thus, does not give rise to any action.
  • “A stipulation or a representation is a contract of sale with reference to goods which are subject thereof, may be a condition or a warranty.”

Q.2: Define the Terms – Conditions and Warranties.

Answer:

  • “A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated and claim damages.”
  • “A warranty is a stipulation collateral to the main purpose of the contract, i.e. a subsidiary promise the breach of which give rise to a claim for damages but not a right to reject the goods and treat the contract as repudiated.”
  • As per section 11: Stipulation as to time of payment are not the condition unless such an intention appears from the contract.

Q.3: When a condition a Contract of Sale may be Treated as a warranty.

Answer:

  • Where the buyer waives the performance of the condition altogether, the party may for his own benefit waive a stipulation.
  • Where the buyer himself opts to treat the breach of condition as a warranty.
  • Where the contract in indivisible and the buyer has a accepted either the whole goods or any part thereof.
  • Where the fulfillment of any condition or warranty in excused by law by reason of impossibility or otherwise.

Q.4: How many types of Conditions are there?

Answer:

Types of Conditions
rr
Express Irrplied

Q.5: Define the “Express Conditions” in a Contract of Sale.

Answer:

  • Condition in expressed when the terms of contract expressly states them.
  • They are agreed upon between the parties at the time of contract and are expressly provided in the contract.
  • It does not negative an implied condition.

Q.6: What are the Implied conditions in a Contract of Sale?

Answer:

  • Conditions is implied, when the terms are not expressly.provided for.
  • They are presumed by law to be present in the contract.
  • They may be neglected or waived by an express agreement.
  • It includes:

(i) Condition as to title

(ii) Condition as to sale by description

(iii) Condition as to sale by sample as well as description.

(iv) Condition as to quality and fitness.

(v) Condition as to merchantability.

(vi) Condition as to sale by sample.

(vii) Condition as to wholesomeness.

Q.7: What are the Conditions as to title in a Contract Sale?

Answer:

  • It presumes that the seller has a valid title to the goods.
  • Seller has right to sell the goods in case of sale.
  • In case of agreement to sell, he will have the right to sell the goods at the time when the property is to pass, unless there is a contract to the contrary.
  • If seller’s title turns out to be defected, the buyer may return the goods to the true owner and recover the price from the seller.

Q.8: What are the Condition as to Sale by Sample as well as Description in a Contract of Sale ?

Answer:

  • Here, the implied condition is that the bulk of goods supplied must correspond both with the samples as well as with the description.

Q.9: What are the Condition as to Quality and fitness in a Contract of Sale?

Answer:

  • Here the implied condition operates on the fulfilment of the following conditions:

(i) The buyer requires the goods for a particular purpose which he has made known to the seller.

(ii) The buyer relies on the skill and judgement of the seller.

(iii) The seller sells such type of goods.

  • If the goods are bought under a patent or trade name, there in no such condition,

Q.10: What are the Condition as to Merchantability ?

Answer:

  • It means that when the goods are bought by description from a seller who deals in such goods, it is implied that goods will be of merchantable quality.
  • It is immaterial whether the seller is manufacturer or producer or not.
  • It does not operates where the buyer examines the goods prior to the sale and examination ought to have revealed the defects.

Q.11: What are the Conditions as to Wholesomeness ?

Answer: ‘•

  • In Case of eatables and other provisions, there is an implied condition of wholesomeness i.e. fit for consumption, other than merchantability.

Q.12: What are the Conditions in Cash of Sale by sample?

Answer:

There is an implied condition that:

(i) The bulk shall correspond with the sample in quality.

(ii) The buyer shall have a reasonable opportunity of comparing the bulk with the sample.

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

Q.13: What are the Types of Warranty ?

Answer:

Types of &rranty 1
 

Express

 

In-pfed

Q.14: What is the Express Warranty in a Contract of Sale ?

Answer:

  • It is a warranty which has been expressly agreed on by the parties at the time of contract of sale.

Q.15: What are the kinds of Implied Warranty, under the Provision of Sale of Goods Act,1930? Describe the all types of Warranty ?

Answer:

  • It is a warranty which the law presumes that the parties have incorporated is into their contract.
  • It may be excluded by the course of dealing between the parties.
  • It includes.

(i) Warranty as to undisturbed possession , (ii) Warranty as to non- existence of encumbrances.

(iii) Warranty as to dangerous nature of goods

(iv) warranty as to quality of fitness by usage of trade.

Warranty as to undisturbed possession (Section 14 (b))

  • An implied warranty in that the buyer shall have and enjoy the quiet possession of the goods.
  • If buyer is later on disturbed in his possession, he is entitled to sue the seller.

Warranty as to Non- Existence of Encumbrances [Section 14(c)]

  • As implied warranty is that the goods shall be free from any charge or encumbrance in favour of any third party not declared or known to the buyer before or at the time of entering into contract.
  • If defects’ are known to the buyer at the time of entering in to contract, he is not entitled to ask for any compensation from the seller for discharging the encumbrance.

Warranty Implied by the custom or usage of trade [Section 16(3)]

  • An implied warranty or condition as to quality of fitness for a particular purpose may to be annexed by the usage of trade.

Warranty as to dangerous Nature of goods:

  • If goods are dangerous, any the buyer is not aware of such danger, it is implied warranty that the seller should warn the buyer about it else he will be liable for damages caused to the buyer.

Short Practice Questions

  1. When is condition be treated as warranty?
  2. What are the type of warranty ?
  3. Define Doctrine of caveat Emptor.
  4. Distinguish between conditions and warranty.

Objective Questions

Past Year Questions and Answers

1998 – Nov [1] State with reason whether the following statement is Correct or Incorrect:

(x) If a seller does not disclose the dangerous nature of the goods to be sold to the buyer he breaches the contract.                                                                                                                      (2 marks)

Answer:

Incorrect: If a seller does not discloses the dangerous nature of the goods to be sold to the buyer and the buyer is ignorant of the danger, it is a breach of implied warranty. In case of implied warranty it is the duty of the seller to warn to the buyer of the probable danger of the dangerous nature of the goods. It is not breach of condition but it is merely a breach of implied warranty and the seller will be liable for damages.

1999 – May [1] State with reason whether the following statement is Correct or Incorrect:

(x) Where the buyer elects to treat the breach of condition as one of warranty, he may repudiate the contract.                                                                                                                                    (2 marks)

Answer:

Incorrect: Section 13 of the Sale of Goods Act, 1930 lays down that where the buyer elects to treat the breach of condition as one of a warranty, he may only claim damages instead of repudiating the contract.

Short Notes

1996 – Nov [7] Write short notes on the following:

(d) Rule of ‘caveat emptor’.                                                                                        (5 marks)

Answer:

Rule of Caveat Emptor: In olden days, goods were sold on the foot paths and therefore, the buyer had the opportunity to see the goods himself and decide whether they suit to his purpose or the qualtty of goods is satisfactory to his requirements. Therefore, the rule of “caveat Emptor” prevailed. The rule meant, ‘let the buyer beware’, he should see and satisfy himself about the condition and the purpose for which he requires the goods, the seller shall not be duty bound to tell the buyer about the suitability of the goods as regards quality or fitness for the use by the buyer. If therefore, while making purchases of goods the buyer depend upon his own skill and makes a bad choice, he must curse himself only and not the seller, of course in the absence of any misrepresentation or fraud or guarantee by the seller. The rule of caveat emptor is laid down in the opening lines of Section 16, which states that “subject to the provisions of this Act or of any other law for the time being in force, there is as implied warranty on condition as to one quality or fitness for any particular purpose of goods supplied under a contract of sale.

Things have changed now. The buyers depend upon the sellers for their purchases in majority of the cases so far as the quality and fitness and suitability for the purpose are concerned. Therefore, this rule is now subject to certain exceptions.

1999 – May [7] Write short notes on the following:

(e) Implied warranties in a contract of sale.                                                               (5 marks)

Answer:

Implied Warranties in a contract of sale:

(i) Warranty of quiet possession [Section 14(b)] Sale of Goods Act:

In a contract of sale, unless there is a contrary intention, there is an implied warranty that the buyer shall have and enjoy quiet possession of the goods. If the buyer is in any way disturbed in the enjoyment of the goods in consequences of the seller’s defective title to sell, he can claim damages from the seller.

(ii) Warranty of freedom from encumbrances [Section 14(c)]: The

buyer is entitled to a warranty that the goods are not subject to any change or right in favour are not subject to any change or right in any way disturbed by reason of the existence of any charge or encumbrances on the goods in favour of any third party, he shall have a right to claim damages for breach of this warranty.

(iii) Warranty as to quality or fitness by usage of trade [Section 16(4)]:

An implied warranty as to quality or fitness for a particular purpose may be annexed by the usage of trade.

Distinguish Between

(iv) Warranty to disclose dangerous nature of goods: Where a person sells goods, knowing that the goods are inherently dangerous or they are likely to be dangerous to the buyer and that the buyer is ignorant of the danger, he must warn the buyer of the probable danger, otherwise he will be liable for damages.

1998 – May [4] (b) Distinguish between the following:

(ii) Condition and Warranty,                                                                                       (5 marks)

Answer:

Condition and Warranty:

ConditionWarranty
(1) A condition is essential to the main purpose of the contract.(1) It is only collateral to the main purpose of the Contract.
(2) The aggrieved party can repudiate the contract or claim damages or both in the case of breach of condition.(2) The aggrieved party can claim only damages in case of breach of warranty.
(3) A breach of condition may be treated as a breach of warranty(3) A breach of warranty cannot be treated as a breach of condition.

Descriptive Questions

1994 – Nov [5] Answer the following:

(d) When the doctrine of ‘Caveat Emptor’ does not apply to the sale of goods?      (5 marks)

Answer:

The term Caveat Emptor means let the buyer beware; i.e. it is the duty of the buyer to select the goods of his requirement. The seller is in no way responsible for the bad selection of the buyer and not bound to disclose the defects in the goods which is selling. If the goods turn out to be defective, the buyer cannot hold the seller responsible. This is known as the doctrine of ‘Caveat Emptor’. This doctrine is however, subject to the following exceptions

  1. Where the buyer makes it known to the seller the particular purpose for which the goods are required, so as to show that he relies on the seller’s skill or judgement and the goods are of a description which is in the course of seller’s business to supply, it is the duty of the seller to supply such goods as are reasonably fit for that purpose.
  2. Where the goods are sold by description there is an implied condition that the goods shall correspond with the description. (Section 15).
  3. Where the goods are bought by description from a seller who deals in goods of that description there is an implied condition that the goods shall be of merchantable quality. But where the buyer has examined the goods this rule shall apply if the defects were such which ought to have been revealed by an ordinary examination (Section 16(2)).
  4. Where the goods are bought by sample, this rule of Caveat Emptor does not apply if the bulk does not correspond with the sample (Section 17).
  5. Where the goods are bought by sample as well as description, the rule of Caveat Emptor is not applicable in case the goods do not correspond with both the sample and description (Section 15).
  6. An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade and if the seller deviates from that, this rule of Caveat Emptor is not applicable.
  7. Where the seller sells the goods by making some misrepresentation or fraud and the buyer relies on it or when the seller actively conceals some defect in the goods so that the same could not be discovered by the buyer on a reasonable examination, then the rule of Caveat Emptor will not apply. In such a case the buyer has a right to avoid the contract and claim damages.

1995 – May [4] (a) When can a ‘Condition’ be treated as a ‘Warranty’ under the Sale of Goods Act? (10 marks)

Answer:

A stipulation in a contract of sale may be either a condition or a warranty. A condition is a stipulation essential to the main purpose of the contract, the breach of which gives right to the aggrieved party to terminate the contract while a warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives the aggrieved party a right to claim for damages. But in some cases, a condition may be treated as warranty as given in Section 13 of the Sale of Goods Act. The effect is that the buyer cannot repudiate the contract but has to be satisfied with damages only. Such cases are discussed hereunder:

  1. Waiver by Buyer: Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may (a) waive the condition, or (b) elect to treat the breach of the condition as a breach of warranty. The buyer has the option to accept the goods and claim damages from the seller. If he once decides to waive the condition, he cannot afterwards insist on its fulfillment.

Example: A agrees to buy from B, ten bags of wheat as per sample. B delivers the wheat, but it was not according to the sample. A has a right to reject the goods, but he may decide to accept the goods and treat this breach of condition as a breach of warranty.

  1. Acceptance of goods by buyer: Where a contract of sale is not severable, i.e., it is indivisible and the buyer has accepted the goods or

part thereof, the breach of any condition is to be treated as a breach of a warranty. In such a case it is not left at the option of the buyer. But if the contract is divisible then even though the buyer has accepted a part of the goods, he can still reject the remaining goods.

Now the question arises as to when the buyer can be said to have accepted the goods. In this connection Section 42 provides that the buyer is deemed to have accepted the goods:

(a) when he intimates to the seller that he has accepted them or;

(b) when he does any act in relation to the goods which is inconsistent with the ownership of seller or;

(c) when, after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them.

Example: A purchased 10 bags of rice from B according to the sample. When the goods were delivered, A resold the rice to P. P rejected the goods on the ground that it was not according to sample. Now A also wants to avoid the contract. Here A will not succeed because by reselling the goods to P, A has accepted the goods. Now he is to treat this breach of condition as a breach of warranty and be content with damages only.

1995 – Nov [2] Comment on the following:

(e) A warranty is a stipulation collateral to the main purpose of the contract.

(5 marks)

Answer:

Stipulation in Warranty: In every contract of sale of goods there are certain stipulations made with reference to goods which are the subject matter thereof. If the stipulation though not essential to the main purpose of the contract is collateral to the main purpose of the contract – that is to say – is a subsidiary promise – it is known as warranty. The effect of a breach of warranty is to give the aggrieved party a right to claim the damages. In case of the breach of warranty a buyer cannot repudiate the contract.

1995 – Nov [5] Answer the following:

(d) What are the implied conditions in case of sale by sample?                                (5 marks)

Answer:

Sale by sample (Section 17 of Sale of Goods Act)

A contract of sale is a contract for sale by sample where there is a term in the contract, express or implied, to that affect. In the case of a contract for sale by sample there is an implied condition:

(i) that the bulk shall correspond with the sample in quality;

(ii) that the buyer shall have a reasonable opportunity of comparing the bulk with the sample;

(iii) that the goods shall be free from any defect, rendering than unmerchantable, which would not be apparent on reasonable examination of the sample. This condition is applicable only with regards to defects which could not be discovered by an ordinary examination of the goods (Drummond and Sons vs. Van Inger).

1996 – May [5] Answer the following:

(e) State the law relating to sale by description.                                                        (5 marks)

Answer:

Implied conditions in a sale by description: The law relating to ‘Sale by description’ is contained in Section 15 of the Sale of Goods Act, 1930.

  1. Though the Act has not defined the term ‘description’, a sale is deemed to be made by description:

(a) where class or kind of goods has been specified e.g., Egyptian cotton.

(b) where goods are described by its characteristics for identification e.g., dimensions for steel.

  1. In a sale by description, there is an implied condition that goods shall correspond with description (by statement or representation as regards goods by its identity, place of origin or mode of packing etc) alone made by the buyer, which is essential for deciding either acceptance or rejection of goods by the buyer.

This implied condition goes to the root of the contract and the breach of , its entitles the buyer to reject whether he is able to inspect them or not.

1996 – Nov [6] (a) Define the term ‘warranty’. What are the kinds of implied warranties under the provisions of Sale of Goods Act, 1930? (10 marks)

Answer:

Definition of warranty: A stipulation in a contract of sale with reference to goods which are the subject thereof may be a condition or a warranty. The warranty has been defined under Section 12(3) of the Sale of Goods Act, 1930. A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated.

Implied Warranties: The examination of Sections 14 and 16 of the Sale of Goods Act disclosed the following implied warranties:

  1. Warranty as to undisturbed possession: An implied warranty that the buyer shall have and enjoy quiet possession of the goods. That is to say, if the buyer having got possession of the goods, is later on disturbed in his possession, he is entitled to sue the seller for the breach of the warranty. .
  2. Warranty as to non-existence of encumbrances: An implied warranty that the goods shall be free from any charge or encumbrance in favour of any third party not declared or known to the buyer before or at the time the contract is entered into.
  3. Disclosure of dangerous nature of goods: There is another implied warranty on the part of the seller that in case the goods are inherently dangerous or they are likely to be dangerous to the buyer and the buyer is ignorant of the danger, the seller must warn the buyer of the probable danger. If there is breach of this warranty,-the seller will be liable in damages.

1997 – May [2] Comment on the following:

(d) “Breach of a condition in a sale of goods can be treated as a breach of warranty, but not otherwise.”  (5 marks)

Answer:

‘Breach of a condition in a sale of goods can be treated as a breach of warranty, but not otherwise:

This statement is quite correct. Sections 12 and 13 of the Sale of Goods Act, throw light on this statement. The definitions given of these two terms under the Act are quite meaningful to support this statement.

“The condition in a contract of sale with reference to goods, is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated.” [Section 12(2)].

“A warranty is a stipulation collaterial 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.” [Section 12(3)] These definitions distinguish the nature of the two stipulations as well the effect of the breach of the stipulations. Condition is an important stipulation than warranty and the law gives a right to the aggrieved party to cancel the contract in case of a breach of this stipulation, which right is not available in the case of breach of a warranty. On this basis the above statement is supported.

1998 – Nov [3] (b) What is meant by the doctrine of ‘Caveat Emptor’? State the circumstances under which the doctrine is not applicable. (10 marks)

Answer:

Caveat Emptor: In the case of sale of goods, the doctrine applicable is “Caveat Emptor” which means “Let the buyer beware”. When sellers display their goods in the open market, it is for the buyers to make a proper selection or choice of the goods. If the goods turn out be defective he cannot hold the seller liable. The seller is in no way responsible for the bad selection of the buyer. The seller is not bound to disclose the defects in the goods which is selling. It is the duty of the buyer to satisfy himself before buying the goods that the goods will serve the purpose for which they are being bought. If the goods turn out to be defective or do not serve his purpose or if he depends on his own skill or judgement, the buyer cannot hold the seller responsible. The rule of Caveat Emptor is laid down in the opening lines of Section 16, which states that “subject to the provisions of this Act or of any other law for the time being in force, there is no implied warranty or condition as to the quality of fitness for any particular purpose of goods supplied under a contract of sale”.

Exceptions: The doctrine of Caveat Emptor is, however, subject to the following exceptions;

  1. Where the buyer makes known to the seller the particular purpose for which the goods are required, so as to show that he relies on the seller’s

skill or judgement and he goods are of a description which is in the course of seller’s business to supply, it is the duty of the seller to supply such goods as are reasonably fit for that purpose [Section 16(1)].

  1. In case where the goods are purchased under its patent name or brand name, there is no implied condition that the goods shall be fit for any particular purpose [Section 16(1)].
  2. Where the goods are sold by description there is an implied condition that the goods shall correspond with the description.
  3. Where the goods are bought by description from a seller who deals in goods of that description there is an implied condition that the goods shall be of merchantable quality. The rule of Caveat Emptor is not applicable. But where the buyer has examined the goods this rule shall apply if the defects were such which ought to have been revealed by ordinary examination [Section 16(2)].
  4. Where the goods are bought by sample, this rule of Caveat Emptor does not apply if the bulk does not correspond with the sample [Section 17],
  5. Where the goods are bought by sample as well as description, the rule of Caveat Emptor is not applicable in case the goods do not correspond with both the sample and description [Section 15].
  6. An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade and if the seller deviates from that, this rule of Caveat Emptor is not applicable.
  7. Where the seller sells the goods by making some misrepresentation or fraud and the buyer relies on it own or when the seller actively conceals some defect in the goods so that the same could not be discovered by the buyer on a reasonable examination, then the rule of Caveat Emptor will not apply. In such case the buyer has a right to avoid the contract and claim damages.
  8. If trade usage attached an implied warrants or a condition as regards quality of goods. [Section 16(3)].

2000 – May [2] Explain the following (Give brief answer):

(v) When a condition in a contract of sale may be treated as a warranty?

(5 marks)

Answer:

When a condition may be treated as a warranty (Section 13, Sale of Goods Act, 1930).

In the following case, a contract is not avoided even an account of a breach of a conditions. These are:

(i) where the buyer altogether waives the performance of the condition, a party may for his own benefit, waive a stipulation or

(ii) where the buyer elects to treat the breach of the condition as one of a warranty i.e. he may only claim damages instead of repudiating the contract.

(iii) where the contract is non-severable and the buyer has accepted either the whole goods or any part thereof, unless there is an express or implied term in the contract to the effect that it amounts to rejection of goods and repudiation of the contract.

^iv) where the fulfilment of any condition or warranty is excused by law by reason of impossibility or otherwise.

2000 ■ May [5] Explain the following:

(v) Give the exceptions to the ‘doctrine of caveat emptor’ in Sale of Goods Act.     (5 marks)

Answer:

Doctrine of Caveat Emptor (“Let the buyer beware”): It is no part of the seller’s duty in a contract of sale of goods to give to the buyer an article suitable for a particular purpose or of a particular quality, unless such quality or fitness is made an express term of the contract. If the buyer makes a bad choice, he is to suffer for this own judgement.

Exceptions: The doctrine has no application:

(i) If the seller has made a false representation relating to the goods and the buyer relies upon it to his detriment.

(ii) When the seller has deliberately concealed a defect which-is not apparent on the reasonable examination of goods.

(iii) When the seller is a manufacturer or a dealer of the type-of goods sold, and the buyer has communicated to him as the purpose for which the goods are required, and he relies on the skill or judgement of the seller. [Section 16(1), Sale of Goods Act, 1930].

The exception does not apply if the goods are bought under the patent or trade name.

(iv) The goods shall be of “merchantable quality”, in case of goods sold by description.

(v) In the case of goods sold by sample, if the bulk does not correspond with the sample of if the buyer is not provided a reasonable opportunity of inspecting the goods. [Section 17(2)].

(vi) If the trade usage attaches an implied warranty or a condition as regards quality of goods. [Section 16(3)].

(vii) In the case of sale by sample as well as description, if the bulk does not correspond with the description as well as sample. [Section 15].

2000 – Nov [2] Briefly answer of the following:

(d) A contract of sale is not avoided even on account of breach of a condition.       (5 marks)

Answer:

The Sale of Goods Act, 1930 defines a condition as a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as having been repudiated. Thus it is clear from the definition, that the buyer gets the right to avoid the contract in case of a breach of a condition on a contract of sale of goods. But the law does not force the buyer to avoid the contract in case of breach of a condition. The buyer can treat the breach of a condition, as a breach of a warranty. He also gets a right to waive the condition. Further, where the contract is non- severable and the buyer has accepted either the whole goods or any part thereof, then he cannot avoid the contract. Further, where the law excuses the fulfilment of a condition or warranty, then the breach of a condition shall not allow the buyer to repudiate the contract. Thus, a contract of sale can be avoided by the buyer in case of breach of a condition and therefore, the statement as given in the question is not true.

2001 – May [5] Briefly answer of the following:

(d) What are the implied conditions in a Contract of Sale?                                       (5 marks)

Answer:

It is open to the parties to include in their contract any number of conditions and warranties. But in addition to what the contract may provide, the law implies every sale of goods a number of conditions. They are read with every contract of sale. They are known as implied conditions. They are stated as under:

(i) Condition as to title (Section 14): It is an implied condition in every sale that the seller has right to sell. That means the title of the seller is perfect.

(ii) Sale by description: Section 15 lays down the condition that where the sale is by description the goods must correspond with description. If the goods does not correspond with the description the sale may be set aside.

(iii) Sale by description as well as be sample (Section 15): Section 15 further provides that “if the sale is by sample as well as by description, the delivery of goods should correspond to description as well as sample.

(iv) Goods supplied must be fit for buyers purposes: If the buyer has disclosed the purpose it should be fit for his purpose otherwise the contract may be set aside (Section 16(i)).

(v) Goods supplied should be of mercantile quality: It is an implied condition of sale that goods must be of mercantable quality (Section 16(2)).

It is open to the parties to include any express condition in their contract. But an express condition does not negative a condition implied by the Sale of Goods Act, 1930.

2001 – Nov [3] (b) Define the terms ‘Condition’ and ‘Warranty’ as used in the Sale of Goods Act. Can a breach of warranty be treated as a breach of condition and vice-versa? (10 marks)

Answer:

“Condition” and “Warranty”: Section 12(2) of the Sale of Goods Act, 1930, defines a condition as a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to a right to treat the contract as having repudiated.

Section 12(3) of the Act defines a warranty as a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not a right to repudiate the contract.

X buys a car from Y for touring purposes. The car is unfit for touring purpose. Here X can repudiate the contract since “touring purpose” is a condition for buying the car.

On the other hand, the horn of the car is defective. X can not repudiate the contract, since defective horn is only a warranty and horn can be repaired or replaced.

Whether a stipulation is a condition or a warranty depends in each case, on the construction of contract. ‘Conditions and Warrantees’ may be either express or implied.

A warranty cannot be treated as a condition because it is a lesser importance to the concerned parties. But a condition may be treated as a warranty under the following circumstances:

(1) the buyer altogether waives the performance of the condition.

(2) the buyer elects to treat the breach of the condition as breach of warranty and claims damages only.

(3) where the contract is non-severable and the buyer has accepted either the whole goods or any part thereof.

(4) where the fulfilment of a condition or warranty is excused by law by reason of impossibility of performance or otherwise.

2001 – Nov [5] Briefly answer the following:

(d) What are the implied conditions in a Sale by Sample?                                        (5 marks)

Answer:

Implied conditions in a sale by sample:

A sale is by sample where there is a term in contract (express or implied) to that effect. The effect is that where goods are sold by sample, there should not be any latent defect which render the goods unmerchantable.

(a) The bulk must correspond with the sample in quality.

(b) The buyer shall have a reasonable opportunity of comparing the bulk with the sample; and

(c) The goods shall be free from any defects rendering them unmerchantable, which would not be apparent on reasonable examination of the sample. (Section 17, Sale of Goods Act), 1930.

2002 – May [5] Briefly answer the following:

(d) When shall a condition be treated as a warranty?                                               (5 marks)

Answer:

A condition shall be treated as a warranty in the following cases,.

  1. Voluntary wavier of condition: Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may (a) waive the condition, or (b) elect to treat the breach of the condition as a breach of warranty [Section 13(1)]. If the buyer once decides to waive the condition, he cannot afterwards insist on its fulfilment.
  2. Acceptance of goods by buyer: If the contract of sale is not severable and the buyer has accepted the goods or part there of, the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty, unless there is a term of the contract, express or implied, to the contrary. [Section 13(2)].

The provisions of Section 13 of the Sale of Goods Act, 1930 do not affect the cases where the fulfilment of any condition or warranty is excused by law by reasons of impossibility or otherwise. [Section 13(3)].

2002 – Nov [3] (b) What is meant by the doctrine of ‘Caveat emptor’? State the circumstances under which the doctrine is not applicable (10 marks)

Answer:

Caveat Emptor: This means “Let the buyer beware”, i.e. in a contract of sale of goods the seller is under no duty to reveal unflattering truths about the goods sold. Therefore, when a person buys some goods, he must examine them thoroughly. If the goods turn out to be defective or do not suit his purpose or if he depends upon his own skill or judgement and makes a bad selection, he cannot blame anybody excepting himself.

The rule of caveat emptor is enunciated in the opening words of Section 16 which runs thus: “Subject to the provisions of this Act and of any other law for the time being in force, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale”

Exceptions: The doctrine of caveat emptor has certain important. The exceptions are given below:

  1. Fitness for buyer’s purpose: Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which he requires the goods and relies on the seller’s skill or judgement and the goods are of a description which it is in the course of the seller’s business to supply, the seller must supply the goods which shall be fit for the buyer’s purpose [Sec. 16(1)].
  2. Sale under a patent or trade name: In the case of a contract for the sale of a specified article under its patent or other trade name, there is no implied condition that the goods shall be reasonably fit for any particular purpose [Proviso to Sec. 16(1)].
  3. Merchantable quality: 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. But if the buyer has examined the goods, there is no implied condition as regards defects which such examination ought to have revealed [Sec. 16(2)].
  4. Usage of trade: An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade [Sec. 10(3)].
  5. Consent by fraud: Where the consent of the buyer, in a contract of sale, is obtained by the seller by fraud or where the seller knowingly conceals – defect which could not be discovered on a reasonable examination (i.e. where there is’oa latent defect’ in the goods), the doctrine of caveat emptor does not apply.
  6. Sale by sample (Section 17): when goods are bought by sample’ the bulk must correspond with the sample and the buyer must have reasonable opportunity of inspecting the goods.

2018 – Nov [4] (a) What is the Doctrine of “Caveat Emptor”? What are the exceptions to the Doctrine of “Caveat Emptor”?                                                                                                                     (6 marks)

Answer:

In case of sale of goods, the doctrine ‘Caveat Emptor’ means ‘let the buyer beware’. When sellers display their goods in the open market, it is for the buyers to make a proper selection or choice of the goods. If the goods turn out to be defective he cannot hold the seller liable. The seller is in no way responsible for the bad selection of the buyer. The seller is not bound to disclose the defects in the goods which he is selling.

The exceptions to the Doctrine of Caveat Emptor are:

  1. Fitness as to quality or use: Where the buyer makes known to the seller the particular purpose for which the goods are required, so as to show that he relies on the sellers’ skill or judgement and the goods are of a description which is in the course of seller’s business to supply, it is the duty of the seller to supply such goods as are reasonably fit for that purpose [Section 16(1)].
  2. Goods purchased under patent or brand name: In case where the goods are purchased under the patent name or brand name, there is no implied condition that the goods shall be fit for any particular purpose [Section 16(1)].
  3. Goods sold by description: Where the goods are sold by description there is an implied condition that the goods shall correspond with the description [Section 15]. If it is not so then seller is responsible.
  4. Goods of merchantable quality: Where the goods are bought by description from a seller who deals in goods of that description there is an implied condition that the goods shall be of merchantable quality. The rule of Caveat emptor is not applicable.
  5. Sale by Sample: Where the goods are bought by sample, this rule of Caveat emptor does not apply if the bulk does not correspond with the sample [Section 17].
  6. Goods by sample as well as description: Where the goods are bought by sample as well as description, the rule of Caveat Emptor is not applicable.
  7. Trade Usage: An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade and if the seller deviates from that, this rule of Caveat emptor is not applicable [Section 16(3)].
  8. Seller actively conceals a defect or is guilty of fraud: Where the seller sells the goods by making some misrepresentation or fraud and the buyer relies on it or when the seller actively conceals some defect in the goods so that the same could not be discovered by the buyer on a reasonable examination, then the rule of Caveat Emptor will not apply.

2019 – June [1] (c) Discuss the various types of implied warranties as.per the Sales of Goods Act 1930? (4 marks)

Answer:

Implied Warranties:

It is a warranty which the law implies into the contract of sale. It is a stipulation which has not been included in express words, but the law presumes that the parties have incorporated it into their contract.

Following types of implied warranties are provided by Sale of Goods Act, 1930:

(i) Warranty as to undisturbed possession:

An implied warranty that the buyer shall have and enjoy quiet possession of the goods. If the buyer is later on disturbed, he is entitled to sue the seller for the breach of the warranty.

(ii) Warranty as to non-existence of encumbrances: An implied warranty that the goods shall be free from any charge or encumbrance in favour of any third party not declared or known to the buyer at the time of making the contract.

(iii) Warranty as to quality or fitness by usage of trade: An implied warranty as to quality or fitness for a particular purpose may be annexed or attached by the usage of trade.

(iv) Disclosure of dangerous nature of goods: Where the goods are dangerous in nature and the buyer is ignorant of the danger, the seller must warn the buyer of the probable danger.

Practical Question

2019 – June [5] (a) M/S Woodworth & Associates, a firm dealing with the wholesale and retail buying and selling of various kinds of wooden logs, customized as per the requirement of the customers. They dealt with Rose wood; Mango wood; Teak wood; Burma wood etc.

Mr. Das a customer came to the shop and asked for wooden logs measuring 4 inches broad and 8 feet long as required by the carpenter. Mr. Das specifically mentioned that he required the wood which would be best suited for the purpose of making wooden doors and window frames. The Shop owner agreed and arranged the wooden pieces cut into as per the buyers requirements.

The carpenter visited Mr. Das’s house next day, and he found that the seller has supplied Mango Tree wood which would most unsuitable for the purpose. The carpenter asked Mr. Das to return the wooden logs as it would not meet his requirements.

The Shop owner refused to return the wooden logs on the plea that logs were cut to specific requirements of Mr. Das and hence could not be resold.

(i) Explain the duty of the buyer as well as the seller according to the doctrine of “Caveat Emptor’.

(ii) Whether Mr. Das would be able to get the money back or the right kind

of wood as required serving his purpose?                                                                 (6 marks)

Answer:

Caveat emptor means “let the buyer beware”, i.e. in sale of goods, the seller is under no duty to reveal unflattering truths about the goods sold. Therefore, when a person buys some goods, he must examine them thoroughly. If the goods turn out to be defective or do not suit his purpose, or if he depends upon his skill and judgement and makes a bad selection, he cannot blame any body except himself.

The rule is enunciated in the opening words of section 16 of the Sale of Goods Act, 1930, which runs thus, “subject to the provisions of this Act and of any other law for the time being in force, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale.”

The rule of caveat emptor does not apply in the following case: Fitness for buyer’s purpose :

Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which he requires the goods and relies on the seller’s skill or judgement and the goods are of a description which it is in the course of the seller’s business to supply, the seller must supply the goods which shall be reasonably fit for the buyer’s purpose.

In the given case Mr. Das had clearly intimated the seller of his specific purpose and the goods supplied by the seller were totally unfit for that purpose. The seller is bound to supply the goods that are reasonably fit for the purpose.

Held, the contract is avoidable by Mr. Das and he holds full right to either get his money back or to get right kind of wood as required for his purpose.

CHAPTERThe Sale of Goods Act, 1930
2
Unit: 3 Transfer of Ownership and Delivery of Goods

 

Self Study Questions

Q.1: Describe the rules relating to passing of property in the Sale of

Goods Act.

Answer:

Sale of goods involves transfer of ownership in three stages i.e.

Passing of property -► Delivery of goods -• Passing of risk.

3.1 Passing of Property (Section 18-26)

  • It means passing / transferring of ownership.

If the property has passed to the buyer, the risk in the goods sold is that of buyer and not of seller, though the goods may still be in the seller’s possession.

Q.2: What are the rules Related to the Transfer of Ownership ?

Answer:

  • Risk passes with the ownership
  • Only owner have proprietary right over the goods. Owner can take action in case of goods being damaged by third party. When there is danger of good by the, action of third party.
  • Seller’s right for price.
  • If buyer/seller is declared insolvent it is necessary to know the party with whom the property in goods is there to know if it can be taken over by official assignee or not.
  • Ownership and possession are two different concepts.

Q.3: Describe the Rules Regarding Passing of Property in Specific

Goods.

Answer:

  • It happens as and when the parties intend to pass. The intention must be gathered from the terms of contract of parties and circumstances of the case.

t

Rules
 

Section 20

 

 

Section 21

 

 

Section 22 1

 

Goods in deliverable state and price is determined

 

 

Goods not in deliverable state

 

Goods in deliverable state, but price is not determined

 

Property passes at the time when contract is madeProperty passes after completion of process to make it deliverableProperty passes after price determination
  1. Where there is a contract for the sale of specific goods not in a deliverable state i.e. the seller has to do something to the goods to put them in a deliverable state, the property does not pass until that thing is done by seller and buyer has notice of it (Section 21)
  2. When there is a sale of specific goods in a deliverable state, but seller is bound to weigh, measure, test or do something with reference to the goods for the purpose of ascertaining the price, the property to the goods for the purpose of ascertaining the price does not pass until such act or thing is done and buyer has notice of it (Section 22)
  • Deliverable state refers to that state in which the buyer would be bound to take the delivery of goods.

’ Fact that the time of delivery or the time of the payment is postponed does not present property from passing it once (Section 20)

If goods are delivered to the buyer “on approval” or on sale or return basis”:

The property passes to the buyer when:

  • He signifies his approval or acceptance to the seller
  • He does any other act adopting the transaction
  • He does not signify his approval or acceptance to the seller but retains goods beyond a reasonable time.

Q.4: What are the Rules relating to Passing of Property is case of Sale of Unascertained Goods?

Answer:

(Future Goods)

  • The property does not pass until the goods are ascertained.
  • The ascertainment of goods and their unconditional appropriation to the contract are the two pre conditions for the transfer of property from seller to buyer.
  • Ascertainment of goods is the process by which the goods to be delivered under the contract are identified and set apart.
  • Section 23: Following conditions must be satisfied:

(i) Goods of description mentioned must be produced or obtained.

(ii) They must be in deliverable state

(iii) They must be unconditional appropriated

Note: Unconditional Appropriation of Goods is when the seller delivers the goods to the buyer or at a carrier or other bailee for the purpose of transmission to the buyer.

  • The assent of parties may be given either before or after the appropriation
  • In case of sale of quantity of goods out of a large quantity, property will pass on the appropriation of the specified quantity by one party with assent of the other.
  • The property in goods does not passes if seller reserves the right of disposal of goods.

Q.5: Describe the Exceptions Relating toSec.23 of the Sale of Goods Act.

Answer:

(i) If the goods are delivered to a railway administration for carriage by railway, the goods are deliverable to the order of the seller or his agent.

(ii) If the seller sends bill of exchange along with bill of lading to the buyer for his acceptance, the property in goods does not passes unless he accepts the bill.

Q.6: Write the Exceptions regarding under Sec. 26 of the Sale of Goods

Act,1930.

Answer:

(i) If there is agreement between the parties.

(ii) If the delivery of goods are delayed either due to buyer’s orseller’s default, goods are at risk of party in default.

(iii) Trade Customs.

Q.7: Describe the Rules Regarding Transfer of Tile.

Answer:

  • Section 27

The general rule is where goods are sold by a person who is not the owner thereof and who does not Bell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than that the seller had.

  • This rule is expressed in the Latin maxim “Nemo dat quot not happen” which means that no one can give what he has not got. i.e. no one can pass a better title than he himself has:

Example: A finds ring of B sell it to C, who purchase it in good faith so true owner B can have it from C. ■

  • Even a bonafide buyer gets no valid title.

Q.8: What are the Exceptions under Sec.27 of the Sale of Goods

Act,1930?

Answer:

(i) Effect of estoppel

(ii) Sale by mercantile agent

(iii) Sale by joint owner

(iv) Sale by person in possession under a voidable contract.

(v) Sale by seller in possession after sale.

(vi) Sale by buyer in possession after sale.

(vii) Sale by an unpaid seller

(viii) Sale by person under other laws.

Q.9: Define the Effect of Estoppel.

Answer:

Where the owner is stopped by the conduct from denying the seller’s authority to sell, the transferee will get a good title as against the true owner.

Sale by a Mercantile Agent

Buyer will get a good title in the following cases:

(a) If he was in possession of goods or documents with the owner’s consent.

(b) If the sale was made by him when acting in the ordinary course of business.

(c) If buyer had acted in good faith.

(d) At the time of a contract, buyer had no notice of the fact that seller has no authority to sell.

Q.10: What are Rules Related to Sale by a Joint Owner (Co-owner)?

Answer:

As per Section 28

  • If one of the several joint owners,
  • Who is in sole possession of the goods by the permission of other co-owners,
  • Sell the goods,
  • Buyer gets a good title to the goods,
  • If done in good faith.

Q.11: Describe the Sale by a person in possession under a voidable contract.

Answer:

As per Section 29

  • A buyer acquires a good title if goods are sold to him by seller having possession under a voidable contacts, provided it has not been rescinded until the time of sale.

Q.12: What are the Rule related to Sale by seller in possession after sale?

Answer:

As per Section 30

  • Where the buyer with the seller’s consent,
  • Obtain possession of goods before property in them has passed to him,
  • He may sell it to the third party,
  • Third party obtains goods in good faith, and without notice of the lien,
  • He would get a good time to them.

Q.13: Which Rule Applies in case of Sale by person under other laws?

Answer:

  • A finder of goods has the power to sell the goods under certain circumstances also called “Quasi Contract”
  • Sale of gods pledged by Pawnee Conveys goods title to buyer if

(a) Pawner or pledger makes default

(b) Pawnee has given reasonable notice to Pawnor

  • Sale by official receiver, official assignee, receiver or liquidator conveys goods title to buyer.
  1. 14: What do you understand by Performance of the Contract of Sale?

Answer:

(Section 31-44)

  • It means voluntary transfer of possession from one person to another
  • It is the duty of seller to deliver the goods.
  • Buyer’s duty is to accept the goods and pay for them in accordance with the contract.

Q.15: How many types of Delivery are there? Answer:

Modes of Delivery

 

 

Actual/Physical

 

Constructive

 

Symbolic
Goods are physically handed over to buyer or his authorised agent 

Possession of goods is changed without anyactual change in their custody and delivery takes place vJrien the person in possession of goods acknowledge is that he holds the goods on behalf and at the disposable of buyer.

 

Goods are not delivered physically but some symbol carrying real possession or control is handed over.

Q.16: Describe the all types of Delivery of Work Quantity.

Answer:

  • Delivery of Work Quantity

(a) Short Delivery: Buyer may either accept the goods and pay for it at a contract rate or reject it.

(b) Excess Delivery: Buyer may accept or reject the delivery. If he accepts the whole of it, he shall pay for them at the contract rate.

(c) Mixed Delivery: Buyer may accept the relevant goods and reject the rest or reject the whole.

  • Instalment Deliveries: Unless otherwise agreed, buyer is not bound to accept delivery in installments.

Q.17: Describe the Suits for Breach of Contract.

Answer:

Where the property in the goods has passed to the buyer, the seller

may sue him for the price.

  • Where the price is payable on certain day regardless of delivery; the seller may sue him for price.
  • Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer, may sue him for damages for nondelivery.

Q.18: Write a short notes on Acceptance of Delivery.

Answer:

  • Acceptance is “deemed” to take place when the buyer:

(i) Intimates to the seller that he had accepted the goods,

(ii) Does any act to the goods, which is inconsistent with the ownership of seller,

(iii) Retains the goods after the lapse of reasonable time, without intimating to seller that he has rejected them.

Short Practice Questions

  1. State the significance of transfer of ownership.
  2. Mention the rules relating to passing of property in case of sale of unascertainable goods. f
  3. “Risk Prima facie passes with the property.” Explain
  4. What are the modes of delivery of goods as per Sales of Goods Act, 1930.

Objective Questions

Past Year Questions and Answers

1994 – Nov [1] State with reason whether the following statement is correct or incorrect:

(ix) In a sale, the property of the goods is transferred from seller to the buyer in case of generic goods. (2smarks)

Answer:

incorrect: Section 18 of the gale of Goods Act, states “Where there is a contract for the sale of unascertained (generic) goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained.” Therefore, the goods are first to be ascertained and then only property in them passes to the buyer

1996 – May [1] State with reason whether the following statement is correct or incorrect:

(ix) When goods are delivered at a distant place, the liability for

deterioration necessarily incidental to the course of transit will fall on the seller.     (2 marks)

Answer:

Incorrect: Under Section 40 of the Sale of Goods Act, 1930, where the goods are delivered at a distance place, the liability for determination necessarily incidental to the cause of transit will fall on the buyer, though the seller agrees to deliver at his own risk.

1996 – May [1] State with reason whether the following statement is correct or incorrect:

(x) In a contract for the sale of unascertained goods, no property in the goods is transferred unless and until the goods are ascertained.

(2 marks)

Answer:

Correct: Where there is a contract for the sale of unascertained goods, ascertainment of the goods is the first condition, and their appropriation to the contract, the second and thereupon the property passes to the buyer. (Section 18 of the Sale of Goods Act).

1996 – Nov [1] State with reason whether the following statement is correct or incorrect:

(ix) A railway receipt is not a document of title.                                                         (2 marks)

Answer:

Incorrect: A railway receipt is a “document of title”, within the definition of the term in Section 2(4) of the Sale of Goods Act, and enables the person mentioned as consignee to give a valid discharge in respect of the goods to which he relates.

2001 – May [1] State with reason whether the fallowing statement is correct or incorrect:

(viii) The seller of the goods is bound to celiver the goods whether the buyer has applied for delivery or not.                                                                                                                                    (2 marks)

Answer:

Incorrect: Apart from any express contract, the seller of goods is not bound to deliver the goods until the buyer applies for delivery.

2001 – Nov [1] State with reason whether the following statement is correct or incorrect:

(viii) In a Sale on Approval, the property in goods passes to the buyer on the delivery of the goods.         (2 marks)

Answer:

Incorrect: According to Section 24(1) of the Sale of Goods Act, 1930, the property passes only when the buyer gives his approval or does some thing which is equivalent to approval or acceptance of such goods.

Short Notes

1994 – Nov [7] Write short note of the following:

(c) Documents of Title to Goods.                                                                               (5 marks)

Answer:

Documents of title to goods: A document of title to goods is one which enables its possessor to deal with the goods described in it as if he were the owner. It is used in the ordinary course of business as proof of the possession or control of goods. It authorises, either by endorsement or by delivery, its possessor to transfer or receive goods represented by it [Sec. 2(4)]. It symbolises the goods and confers a right on the purchaser to receive the goods or to further transfer such right to another person. This may be done by mere delivery or by proper endorsement and delivery. But such document is not a negotiable instrument, for unlike ‘a holder in due course’, the transferee of such a document does not acquire a title better than the one held by transferor. Only bona fide holder of a document of title can

Some instances of documents of title to goods are bill of lading, dock warrant, warehouse keeper’s or wharfingers’ certificate, railway receipt and delivery order.

1995 – May [7] Write short note of the following:

(c) Symbolic delivery. (5’marks)

Answer;

Symbolic delivery: Delivery denotes a voluntary transfer of possession from one person to another. The delivery may be actual (i.e., by an actual transfer of physical custody), or symbolic (i.e., by causing a change in the possession of the goods without any change in their actual or visible custody). If the goods are bulky or ponderous or not capable of being actually handed over by the seller to the buyer, a symbol indicating the transfer of title of the goods may be given which will tantamount to delivery. For example, A sells to B 100 quintals of wheat lying in the possession of C, a warehouseman. A makes over to B, an order, to C, called a delivery order, to transfer the wheat to B and C accepts such an order by transferring the wheat in his books to B. This would be construed as a symbolic delivery to B. In such a case complete access to the goods is essential otherwise it will not be a symbolic delivery (Sanders vs. Maclean 1883).

Thus in symbolic delivery the goods remain where they are, but the means of obtaining possession of goods is delivered. Other examples of symbolic delivery are bill of lading or railway receipt.

1997 – Nov [7] Write short note of the following:

(e) Kinds of Delivery of Goods.                                                                                  (5 marks)

Answer:

Kinds of Delivery of Goods: Delivery means voluntary transfer of possession by one person to another [(Section 2(2)]. As a general rule delivery of goods may be made by doing anything which has the effect of putting the goods in the possession of the buyer or any person authorised to hold them on his behalf. Delivery may be of three kinds which may be enumerated as follows:

(i) Actual delivery: It is actual when the goods themselves are delivered to the buyer or the key of a warehouse containing the goods is handed over to him.

(ii) Constructive delivery: When it is effected without any change in the custody or actual possession of the thing as in the case of delivery by attornment (acknowledgment) e.g. where a warehouseman holding the goods of A agrees to hold them on behalf cf B, at A’s request.

(iii) Symbolic delivery: When there is a delivery of a thing in token of a transfer of something else, i.e., delivery of goods in cause of transit may be made by handing over documents of title to goods, like bill of leading or railway receipt or delivery orders.

Descriptive Questions

1995 – May [6] (a) When may a non-owner of goods validly transfer the title of goods to another person, under the Sale of Goods Act? (10 marks)

Answer:

The general rule relating to the transfer of title on sale is that a person can not pass a better title than what he himself has. This rule is expressed by the maxim “Nemo dat Quod non habet”, which means “no one can give what he has not got”. Since the seller’s title is defective the subsequent transferee’s title will also be defective.

This rule has been stated in Section 27 which runs thus “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 than the seller had”.

Exceptions to this rule: Section 27 to 30 lay down the situations in which Nemo dat rule does not apply. These are as follows:

(i) Title by estoppel (Section 27): Where the true owner by his conduct or by act or omission causes the buyer to believe that the seller has the authority to sell the goods and induces the buyer to buy them, he can not afterwards set up seller’s want of title or authority to sell as defence. He shall be estopped or precluded from denying the authority of the seller to sell. The buyer in such a case gets a better title than that of the seller.

(ii) Sale by mercantile agent: Where the mercantile agent is, with the consent of the owner, in possession of goods or of a document of title to the goods, any sale made by him shall be valid as if he is the owner of the goods, provided he has acted in good faith and has not, at the time of the contract of sale, noticed that the seller has not authority to sell.

(iii) Sale by a join owner (Section 28): If one of the several joint owners of goods has the sole possession of them by permission of the coowners, the property in the goods is transferred to any person who buys them from such joint owner in good faith and has not at the time of the contract of sale noticed that the seller has no authority to sell.

(iv) Sale by person in possession under voidable contract (Section 29): When the seller of goods has obtained possession thereof under a voidable contract, but the contract has not been rescinded at the time of the contract of sale, the buyer acquires a good title to the goods provided he buys them in good faith and without notice of the seller’s defective title.

(v) Seller in possession after sale [Section 30(1)]: Where a seller having sold the goods continues to be in possession of the goods or documents of title to the goods, he may resell the goods and the new buyer will get a good title over the goods provided he acts in good faith, without notice of the prior sale, and obtains possession of the goods or documents of title to the goods.

(vi) Buyer in possession after sale [Section 30(2)]: Where a person has bought or agreed to buy certain goods whose possession has been given over to him, but the seller, still has some lien or right over the goods, and the buyer sells the goods,, the second buyer will get a title free from seller’s right of lien provided he acts in good faith and without notice of any lien or other right of the original seller in respect of the goods [Martin vs. Whale (1917)].

(vii) Resale by unpaid seller: Where an unpaid seller while after exercising his right resells the goods, the buyer acquires a good title thereto as against the original buyer, not-withstanding that no notice of resale has been given to the original buyer.

(viii) Sale by finder of lost goods: Under cedain circumstances, a finder of goods may. sell them and convey a good title to the purchaser (Section 169 of Indian Contract Act).

(ix) Sale under order of the Court: A transferee under a Court sale gets a good title notwithstanding he title or authority of his transferor.

1995 – Nov [4] (a) Describe the rules relating to passing of property in the sale of goods. (10 marks)

Answer:

Passing or transfer of property constitutes the most important element and factor to decide legal rights and liabilities of sellers and buyers. Passing of property implies passing of ownership. If the property has passed to the buyer, the risk in the goods sold is that of buyer and not of seller, though the goods may still be in the seller’s possession.

The primary rules relating to the passing of property in the sale of goods are:

(1) No property in the goods is transferred to the buyer, unless and until the goods are ascertained.

(2) Where there is a contract for sale of specific of ascertained goods, property passes to the buyer at the time when parties intend to pass it. For the purpose of ascertaining intention of the parties regard shall be had to the terms of contract, conduct of parties, and circumstances of the case. Where the intention of the parties cannot be ascertained, rules contained in Sections 20 to 24 shall apply.

For specific goods: Where there is an unconditional contract for the sale of specific goods in a deliverable state, property in the goods passes to the buyer when the contract is made (Section 20). Deliverable state means such a state that the buyer would under the contract be bound to take delivery of the goods. If the goods are not in a deliverable state, property does not pass until such a thing is done to put the goods in a deliverable state. This ‘something’ may mean packing the goods, testing, polishing, filling in casks etc. It should be noted that the property shall not pass when the goods are made in deliverable state but shall pass only when the buyer has notice of it (Section 21). But where they are in deliverable state, but the seller is bound to weight, measure, test or do some other act or thing for the purpose of ascertaining the price, the property does not pass until such act or thing is done. When the seller has done his part the property passes even if the buyer has to do something for his own satisfaction. (Section 22). Unascertained goods: Until, goods are ascertained, there is merely an agreement to sell. The ascertainment of goods and their unconditional appropriation to the contract are the two pre-conditions for transfer of property from seller to buyer in case of unascertained goods. A seller is deemed to have unconditionally appropriated, where he delivers the goods to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer. (Section 23).

Goods sent on approval or “on sale or return”: When the goods are delivered to the buyer on approval or on sale or return or other similar terms the property passes to the buyer, (i) when he signifies his approval or acceptance to the seller, (ii) when he does any other act adopting the transaction, and (iii) if he does not signify his approval or acceptance to the seller but retains goods beyond a reasonable time. (Section 24).

1996 – May [6] (a) What are the rules regarding delivery of goods?

(10 marks)

Answer:

Rules regarding delivery of goods: The Sale of Goods Act prescribes the following rules of delivery of goods:

(i) Effect of Part delivery: A delivery of part of goods, taking place in the course of the delivery of the whole, has the same effect for the purpose of passing the property in such goods as delivery of the whole. But such part delivery, with the intention of severing it from the whole will not operate as a delivery of the remainder, it will be construed as part delivery only. (Section 34)

(ii) Buyer to apply for delivery: The seller of the goods is not obliged to deliver them until the buyer has applied for delivery, unless otherwise agreed. (Section 35)

(iii) Place of delivery: If there is no contract to the contrary, goods must be delivered at the place where they were at the time of sale, and the goods agreed to be sold are required to be delivered at the spot at which they were lying at the time the agreement to sale entered into, or if not then in existence, at the place where they would be manufactured or produced. [Section 36(1)].

(iv) Time of delivery: When the time of sending the goods has not been fixed by the parties, the seller must send them within a reasonable time. [Section 36(2)].

(v) Goods in possession of a third party: Where the goods at the time of sale are in possession of a third person, there is no delivery unless and until such third person acknowledges to the buyer that he holds the goods on his behalf. The issue or transfer of any document of title to goods operates as delivery, symbolic in character, even if the goods are in the custody of a third person without such attornment. [Section 36(3)].

(vi) Time for tender of delivery: Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour. What is reasonable hour is a question of fact. [Section 36(4)]

(vii) Expenses for delivery: The expenses of and incidental to putting the goods into a deliverable state must be born by the seller, in the absence of a contract to the contrary. [Section 36(5)].

(viii) Delivery of wrong quantity: In case of tender of lesser quantity of goods, the buyer may either accept the same and pay for it at the contract rate or reject it. [Section 37(1)]. In case of excess delivery the buyer may accept or reject the delivery, if he accepts the whole of the goods, he shall pay for them at the contract rate. [Section 37(2)]. In case the seller makes a delivery of the goods contracted mixed with goods of a different description, the buyer may accept the relevant goods and reject the rest or reject the whole [Section 37(3)]. Mixing of goods with inferior quality does not amount to a mixing of goods of different description. (Hamarain v. Firm Radha Krishan Naraindas AIR 1949 Nag. 178)

(ix) Instalment deliveries: Unless otherwise agreed, the buyer is not bound to accept delivery in instalments. The rights and liabilities in cases of delivery by instalments and payments there for may be determined by the parties by contract. (Section 38)

(x) Delivery to carrier: Subject to the terms of contract, the delivery of the goods to the carrier for transmission to the buyer, is prima facie deemed to be delivery to the buyer. [Section 39(1)].

(xi) Deterioration during transit: Where goods are delivered at a distant place, the liability for deterioration necessarily incidental to the course of transit will fall on the buyer, though the seller agrees to deliver at his own risk. (Section 40).

(xii) Buyer’s right to examine the goods: Where goods are delivered to the buyer, who has not previously examined them, he is entitled to a reasonable opportunity of examining them in order to ascertain whether-they are in conformity with the contract. Unless otherwise agreed, the seller is bound, on request, to afford the buyer a reasonable opportunity of examining the goods. (Section 41)

1996 – Nov [5] (e) Explain the law relating to passing of risk in case of the

sale of goods.                                                                                                             (5 marks)

Answer:

Passing of the risk in the property to the buyer of goods: The general rule is, “Unless otherwise agreed, the goods remain at the seller’s risk until the property therein is transferred to the buyer, but when the property therein is transferred to the buyer, the goods are at the buyer’s risk whether delivery ‘has been made or not.” Section 26.

However, Section 26 also lays down in exception to the rule that ‘risk follows ownership.’ It provides that where delivery of the goods has been delayed through the fault of either buyer or seller, the goods are at the risk of the party in fault as regards any loss which might not have occurred but for such fault.

Thus in ordinary circumstances, risk is borne by the buyer only when the property in the goods passes over to him. However, the parties may be special agreement stipulate that ‘risk’ will pass sometime after or before the ‘property’ has passed.

1997 – Nov [2] Comment on the following:

(d) Delivery of the goods and payment of the price are concurrent conditions.        (5 marks)

Answer:

The law in this regard is laid down in Section 32 of the Sale of Goods Act, 1930. The section says that unless otherwise agreed the delivery of the goods and payment of the price are concurrent conditions, that is to say, the seller shall be ready and willing to give possession of the goods to the buyer in exchange for the price, and the buyer shall be ready and willing to pay the price in exchange for possession of goods.

The general rule is that the obligations of the seller to deliver and that of the buyer to pay are implied concurrent conditions in the nature of mutual conditions precedent, and that neither can enforce that contract against the other without showing performance or offering to perform or averring readiness and willingness to perform his own promise.

This section lays down the rule as regards what are known as reciprocal promises to be simultaneously performed. In such a case no promisor need perform his promise unless the promisee is ready and willing to perform his reciprocal promise [Pandurang vs. Dadabhay (1902) 26 Bom. 643].

1998 – Nov [5] (e) When the property in the goods passes to the buyer in case of the delivery of the goods to the buyer on approval basis?

(5 marks).

Answer:

Goods Delivered on Approval Basis: (Passing of the property). According to Section 24 of the Sale of Goods Act, 1930, the property in the goods passes to the buyer in case of the goods to the buyer on approval basis in the following manner:

  1. when he signifies his approval or acceptance to the seller, or
  2. does any other act adopting the transaction, or
  3. if without signifying his approval or acceptance the buyer retains the goods without giving notice of rejection refection, then, if time fixed for the return of goods, on expiry of such time, and if no time is fixed, on the expiration of reasonable time.

1999 – May [2] Comment on the following:

(e) Risk prima facie passes with the property in the goods.                                      (5 marks)

Answer:

Section 26 of the Sale of Goods Act, 1930 lays down the general rule that “riskprima facie passes with the property”. In other words, risk always follows ownership and the owner has to bear the burden or loss. Thus, whoever is the owner, carries the risk. The goods remain at the seller’s risk until the ownership therein is transferred to the buyer and the goods are at buyer’s risk when their ownership is transferred to him whether the delivery has been made to him or not.

However, there are following exceptions to the general rule that risk prima facie passes with the property:

  1. if the parties have by a special agreement stipulated that the risk will pass sometime after or before the ownership has passed.
  2. where the delivery of the goods has been delayed due to the fault of either the seller or the buyer, in such cases the goods are at the risk of that party who is responsible for such fault as resulted in loss of any kind. The defaulting party will bear the loss.
  3. Sometimes trade customs may put the ownership and risk separately in two parties.

1999 – May [5] (e) When the ownership in the goods may be transferred by a person who is not having title ever it?                                                                                                                                (5 marks)

Answer:

The general rule of law is that ‘no one can give that which he has not got’. However under, the following cases the goods can be sold even by the persons who are not having title over it.

  1. Sale by a person not the owner or title by estoppel. (Section 27):

Sale of Goods Act i.e. where the true owner by his conduct, or by an act or omission, leads the buyer to believe that the seller has the authority to sell and induces the buyer to buy the goods he shall be estopped from denying the fact of want of authority of the seller. The buyer in such a case gets a better title than that of the seller.

  1. Sale by a mercantile agent (Proviso to Section 27): Provided the agent is in possession of the goods or documents of title to the goods with the consent of the owner; the agent sells the goods while acting in

the ordinary course of business of a mercantile agent; the buyer acts in good faith and the buyer has not at the time of the contract of sale notice that the agent has no authority to sell.

  1. Sale by one of several joint owners (Section 28): If one of the several joint owners, who is in sole possession of the goods by permission of the other co-owners sells the goods, a buyer in good faith of those goods gets a good title to the goods.
  2. Sale by a person in possession under a voidable contract. (Section

29): Where the seller of goods has obtained the possession under a voidable contract, but the contract has not been rescinded at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith and without notice of the seller’s defect of title.

  1. Sale by seller in possession after sale (Section 30(1).
  2. By buyer in possession after sale-(Section 30(2).
  3. By an unpaid seller (Section 54(3).

1999 – Nov [3] (ii) What are the exceptions to the doctrine of “Nemo dat quad non-habet” (one cannot give better title than what he has). (10 marks)

Answer:

The general rule is that the owner of goods can sell the goods. No one can convey a better title than he himself has. This rules protects the true owner as the buyer from a non-owner does not acquire a better title than what the seller had.

But the following are the exceptions to the above rule provided in the Sale of Goods Act, 1930:

(a) Sale by a mercantile agent: A sale made by a mercantile agent of the goods or document of title to goods would pass a good title to the buyer in the following circumstances, namely:

(i) if he was in possession of the goods or documents with the consent of the owner.

(ii) if the sale was made by him when acting in the ordinary course of business as a mercantile agent, and

(iii) if the buyer had acted in good faith and has at the time of a contract of sale, no notice of the fact that the seller had no authority to sell (Proviso to section 27)

(b) Sale can be made by co-owner (Section 28): If one of the several joint owners, who is in possession of the goods by permission of the other coowners, sells the goods, a buyer in good faith of those goods gets a good title to the goods.

(c) Sale can be made by a person in possession under a voidable contract (Section 29): When the seller of goods has obtained their possession under a voidable contract, but the contract has not been rescinded at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith and without notice of the seller’s defects of title.

(d) Sale can be made by seller in possession after sale [Section 30(1)]:

Where a seller having sold goods, continues to be in possession of the goods or documents of title to the goods and sells them either himself or through a mercantile agent to a person who buys them in good faith and without notice of the previous sale, the buyer gets a goods title.

(e) Sale can be made by buyer in possession [Section 30(2)]: When where a person, having bought or agreed to buy the goods, obtains, with the consent of the seller, possession of the goods or documents of title to the goods and sells them, the buyer who acts in good faith and without notice of any lien or other rights of the seller in respect of the goods, gets a good title.

(f) Effect of Estoppel (Section 27): Where the owner is stopped by the conduct from denying the seller’s authority to sell, the transferee will get a good title as against the true owner.

(g) Exceptions in Other Acts:

(i) Sale by a finder of lost goods under certain circumstances (Section 169 of the Indian Contract Act).

(ii) Sale by a pawnee or pledgee under certain circumstances (Section 176 of the Indian Contract Act)

(iii) Sale by an official receiver or official assignee or liquidator of a company.

2000 – May [4] (ii) When the property in specific or ascertained goods passes to the buyer? (10 marks)

Answer:

Transfer of property in specific or ascertained goods to the buyer [Sale of Goods Act, 1930]: Passing of property implies passing of ownership. When property is transferred to the buyer, the risk of destruction or deterioration of the goods sold is that of the buyer and not of the seller, though the goods may still be in the seller’s possession.

(a) Where there is a contract for the sale of specific or ascertained goods, the property in the goods is transferred to the buyer at such time as the parties to the contract intend it to be transferred (Section 19).

(b) In an unconditional contract of sale of specific goods in a deliverable state. The property in the goods passes to the buyer when the contract is entered into. It is not affected by the time of payment of price or the time of delivery of the goods of both (Section 20).

(c) Where there is a contract for sale of specific goods and the seller is bound to do something to the goods for putting them in a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof (Section 21).

(d) Where there is e contract for sale of specific goods in a deliverable state, but the seller is bound to weight, measure, test or do some other act or thing for ascertaining the price, the property does not pass till such act or thing is done and the buyer has notice thereof (Section 22).

2000 – Nov [6] (a) State the rules of the Sale of Goods Act, relating to the delivery of goods:

(i) when it is given in instalments.

(ii) when it is in excess of Contracted quantity. (10 marks)

Answer:

Rules of Sale of Goods Act, 1930 Relating to the Delivery of Goods:

(i) Where delivery of goods is given in instalments:

Unless otherwise agreed upon, the buyer of the goods is not bound to accept delivery by instalments. However, under a contract, the goods sold may be delivered in instalments. In such a case each instalment shall be treated separately and paid for.

In the following two cases, there will be a breach of such a contract:

  1. where the seller makes the delivery or makes defective delivery of one or more instalments; or
  2. where the buyer neglects or refuses to take delivery of one or more instalments.

In each such breach, it will depend upon the terms of the contract and the circumstances of the case whether:

(a) the whole contract is repudiated; or

(b) it is a severable breach giving rise to claim for compensation, but not a right to treat the whole contract as repudiated. (Section 38)

(ii) Where delivery of goods is given in excess of contracted quantity:

Section 37(2) of the Act, Sale.of Goods Act, 1930 deals with such a case.

Where the seller makes a delivery to the buyer or to his agent of the excess quantity of goods than contracted for the buyer:

(a) may accept the agreed quantity and reject the rest; or

(b) he may reject the whole lot.

(c) he may accept the whole lot even, and in such a case has to pay for the whole quantity at the contract rate.

2001 – May [2] Briefly answer the following :

(d) Risk prima facie passes with the property.                                                           (5 marks)

Answer:

Please refer 1999 – May [2] (e) on page no. 247

2001 – May [4] (a) State the rules as to passing of the property, when goods are delivered on approval in a Contract of Sale. (10 marks)

Answer:

Section 24 of Sale of Goods Act, 1930 lays down rules as to passing of property when goods are delivered on approval or “on return”. In such cases property in goods passes either by acceptance or by failure to return.

(i) By acceptance: The property in goods passes when buyer signifies his acceptance or approval or otherwise adopts the transaction.

Acceptance means acceptance of that part of the contract which makes him the purchaser absolutely. That will be some act which signifies that he intends to be the absolute purchaser. If he does some act which will be right only if he were the absolute purchaser that ‘ signifies an acceptance or adoption with in the statute where a person pawned the goods, he had no power of returning the goods unless he repaid the amount advanced by the Pawnee. That is inconsistent with his free power of returning the goods.

(ii) By failure to return (Section 24(2):

The second circumstance in which the property in goods passes to buyer, is when the latter fails to return the goods with in reasonable time or if a time has been fixed on the expiration of that time. Till the expiry of such time, goods remains the property of the seller.

Where a horse was delivered to the defendant on terms that he should try it for eight days and then return it if he did not like it. The horse died on third day without the fault of the defendant. The seller could not recover the price from the defendant, the horse being still his property when it perished (Elphick v. Barnes (1880) SCPD. 32).

On failure to return With in the specific time, the property passes to the buyer and the seller may then sue for price. Where no time is fixed, the goods should be returned with in reasonable time, or else they became they property of the buyer. What is reasonable time in a question fact in each case.

2001 – Nov [2] Briefly answer the following :

(d) Risk in the goods sold passes with the delivery of goods to the buyer.

(5 marks)

Answer:

Risk in the goods sold passes with the delivery of the goods to the buyer: Risk prima facie passes with ownership and not delivery. Passing of the risk is not very much related to the delivery of goods. Unless otherwise agreed upon, the goods remain at sellers risk until property therein has passed to the buyer. After passing of the property to the buyer, the goods remain at buyer’s risk. Thus, risk is more related to the passing of the title than to delivery of the goods. The goods may be in the possession of the buyer but the title upon them may be with the seller. Thus, unless as agreed upon, the goods remain at seller’s risk subject to the following two qualifications:

  1. Delivery of the goods has been delayed by the fault of the buyer or the seller. In this case risk will be in the party to the default, and
  2. Duties and liabilities of the seller or the buyer as bailee of goods for the other party remain unaffected even where the risk has passed generally.

However, parties may by special agreement stipulate about passing of the risk.

2002 – May [2] Briefly answer the following :

(d) Transfer of property when goods are sold on approval.                                       (5 marks)

Answer:

Goods on Approval:

Under Section 24 of the Sale of Goods Act, 1930 when goods are delivered to the buyer on approval, the ownership in such goods passes to the buyer in any of the following situations:

  1. When the buyer signifies his approval or acceptance to the seller.
  2. When the buyer does some act which amounts to adoption of the transaction, i.e. the acceptance of the goods.
  3. When the buyer fail to return the goods on the fixed time, namely, retains it beyond the fixed time without notice of rejection.
  4. When no time has been fixed for the return of goods and the buyer retains the goods beyond reasonable time without giving notice of rejection. Reasonable time is a question of fact and hence will depend on facts and circumstances of every case.

2002 – May [3] (b) “Nemo dat quad non habeat” i.e. one cannot sell what he does not possess. Discuss this statement and state the exceptions to’ this doctrine. (10 marks)

Answer:

Stranger to a Contract

It is a general rule of law that only parties to a contract may sue and be sued on that contract. This rule is known as the “doctrine of privity of contract”. Privity of contract means relationship subsisting between the parties who fiave entered into contractual obligations. It implies a mutuality of will and creates a legal bond or tie between the parties. These are two consequence of doctrine:

  1. A person who is not a party to a contract cannot sue upon it even though the contract is for the benefit and he provided consideration.
  2. A contract cannot confer rights or impose obligation arising under it on any person other than the parties to it.

The following are the exceptions to the general rule that a stranger to

a contract cannot sue:

  1. A trust or charge: A person in whose favour a trust or other interest in some specific immovable property has been created can enforce it even though he is not a party to the contract. (Madhav Trading Co. vs. Union of India).
  2. Marriage settlement, partition or other family arrangements: Where an arrangement is made in connection with marriage, partition or other family arrangements and a provision is made for the benefit’of a person, he may sue although he is not a party to the agreement.
  3. Acknowledgment or estoppel: Where the promisor by his conduct, acknowledges or otherwise constitutes himself as an agent of the third party, a binding obligation is thereby incurred by him towards the third party.
  4. Assignment of a contract: The assignee of rights and benefits under a contract not involving personal skill can enforce the contract subject to the equities between the original parties. (Krishan Lai Sadhu vs. Promila Bala).
  5. Contracts entered into through an agent: The principal can enforce the contracts entered into by his agent provided the agent acts within the scope of his authority and in the name of the principal.
  6. Convenants running with the land: In case of transfer of immovable property, the purchaser of land with notice that the owner of the land is bound by certain conditions or convenants created by an agreement affecting the land shall be bound by them although he was not a party to the original agreements which contained the conditions of convenants. (Tulk vs. Moxhay).

2002 – May [7] Explain of the following (Give brief answers):

(d) Meaning of Constructive Delivery                                                                         (5 marks)

Answer:

Meaning of Constructive Delivery:

Where a third person (e.g., a bailee) who is in possession of the goods of the seller at the time of the sale acknowledges to the buyer that he holds the goods on his behalf, there takes place a delivery by attornment or constructive delivery [Section 36(3)]. Sale of Goods Act, 1930.

This may happen in the following cases:

(a) Where the seller in possession of the goods agrees to hold them on behalf of the buyer.

(b) Where the buyer is in possession of the goods and the seller agrees to the buyer’s holding the goods as owner.

(c) Where the third person in possession of the goods acknowledges to the buyer that he holds them on his behalf.

2002 – Nov [5] (d) What is meant by Constructive Delivery?                                     (5 marks)

Answer:

Constructive Delivery of goods

Delivery may be actual or constructive. In actual delivery actual transfer of physical custody takes place while in case of constructive delivery, the change in the possession of goods is caused without any change in their actual and visible custody. For example, A sells to B 100 quintals of wheat lying in the possession of C, a warehouseman. A makes delivery over to B, by an order to C, called a delivery order, to transfer the wheat to B, and C accepts such an order by transferring the wheat in his books to B. This would be considered as a constructive delivery to. Thus, constructive delivery may takes place in any of the following manner:

(i) the seller in possession of the goods agrees to hold them on behalf of the buyer.

(ii) the buyer is in possession of the goods but the seller agrees to the buyer’s holding the goods as owner.

(iii) a third person is in possession of the goods but acknowledges to the buyer that he holds them on his behalf.

2018 – May [4] (a) What is appropriation of goods under the Sale of Goods Act, 1930? State the essentials regarding appropriation of unascertained goods.                                                      (6 marks)

Answer:

Appropriation of goods involves selection of goods with the intention of using them in performance of the contract and with the mutual consent of the seller and the buyer.

The essentials regarding appropriation of unascertained goods are as follows:

(a) There is a contract for the sale of unascertained goods or future goods.

(b) The goods should confirm to the description and quality stated in the contract.

(c) The goods must be in a deliverable state.

(d) Goods must be unconditionally appropriated.

(e) The appropriation must be made by:

(i) the seller with the assent of the buyer, or

(ii) the buyer with the assent of the seller.

(f) The assent may be express or implied.

(g) The assent may be given either before or after the appropriation.

2019 – June [4] (a) “A non-owner can convey better title to the bonafide purchaser of goods for value”. Discuss the cases when a person other than the owner can transfer title in goods as per the provisions of Sales of Goods Act 1930?                                                                                                                   (6 marks)

Answer:

The general rule regarding the transfer of title is that the seller cannot transfer to the buyer of goods a better title than he himself has. If the seller is not the owner of goods, then the buyer also will not become the owner i.e. the title of the buyer shall be the same as that of the seller. This rule is Expressed as “Nemo datquod Non babef which means that no one can give what he has not got.

In the following cases, a non-owner can convey better title to the bonafide purchaser of goods for value:

  1. Sale by a Mercantile agent: A sale made by a mercantile agent of the goods for document of title to goods would pass a good title to the buyer if sale is made with the consent of the principal.
  2. Sale by One of the Joint Owners: If one of several joint owners of goods has the sole possession of them by permission of the Co-owners, the property in the goods is transferred to any person who buys from such joint owner in good faith.
  3. Sale by a person in possession under voidable contract: A buyer would acquire a good title to the goods sold to him by a seller who had obtained possession of the goods under a contract voidable on the ground of coercion, fraud, etc. provided that the contract had not been rescinded until the time of sale.
  4. Sale by one who has already sold the goods but continues in possession thereof: If a person has sold the goods but continues to be in possession of them or of the documents of title to them, he may sell them to third person, and if such person obtains the delivery thereof in good faith and without notice of the previous sale, he would have good title to them, although property in goods had passed to the first buyer earlier.
  5. Sale by buyer obtaining possession before the property in the goods has vested in him: Where a buyer with the consent of the seller obtains possession of the goods before the property in them has passed to him, he may sell, pledge or otherwise dispose of the goods to a third person, and if such person obtains delivery of the goods in good faith and without notice of the lien, he would get a good title to them.
  6. Effect of Estoppel: Where the owner is estopped by the conduct from denying the sellers authority to sell, transferee will get a good title as against the true owner.
  7. Sale by an unpaid seller: Where an unpaid seller who had exercised his right of lien or stoppage in transit, resells the goods, the buyer acquires a good title to the goods as against the original buyer.
  8. Sale under provisions of other Acts:

(i) Sale by an official receiver/ liquidator.

(ii) Purchase of goods from finder of lost goods.

(iii) A sale by pawnee can convey a good title to the buyer.

Practical Question

2018 – May [5] (a) Mr. D sold some goods to Mr. E for ? 5,00,000 on 15 days credit. Mr. D delivered the goods. On due date Mr. E refused to pay for it. State the position and rights of Mr. D as per The Sale of Goods Act, 1930.

(6 marks)

Answer:

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 a 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. Provided that nothing in this sec.ion shall affect the rights of the seller where the neglect or refusal of the buyer to take delivery amounts to a repudiation of the contract.

Thus, in the given case, Mr. D can recover damages from Mr. E and can repudiate the contract as well.

2018 – Nov [5] (a) Mr. G sold some goods to Mr. H for certain price by issue of an invoice, but payment in respect of the same was not received on that day. The goods were packed and lying in the godown of Mr. G. The goods were inspected by H’s agent and were found to be in order. Later on, the dues of the goods were settled in cash. Just after receiving cash, Mr. G asked Mr. H that goods should be taken away from his godown to enable him to store other goods purchased by him. After one day, since Mr. H did not take delivery of the goods, Mr. G kept the goods out of the godown in an open space. Due to rain, some goods were damaged.

Referring to the provisions of the Sale of Goods Act, 1930, analyse the above situation and decide who will be held responsible for the above damage. Will your answer be different, if the dues were not settled in cash and are still pending?                                                                                                        (6 marks)

Answer:

According to the facts of this case it stands pretty much clear to the judgement of an independent observer that the property in the goods sold by Mr. G had already passed to Mr. H after the payment of dues and the examination of goods by the agent of Mr. H. Hence it can be easily concluded that the liability for damage suffered by the goods would fall on the buyer i.e. Mr. H and not Mr. G since the transfer of title of the goods had already taken place before the damage occurred.

 

 

 

CHAPTERThe Sale of Goods Act, 1930
2
Unit: 4 Unpaid Seller

Q.1: Define Unpaid Seller.

Answer:

As per Section 45, seller is deemed to be an unpaid seller, when:

(i) Whole of the price has not been paid or tendered and seller had an immediate right of action for the price.

(ii) A bill of exchange or other negotiable instrument was given as payment, but the same has been dishonoured, unless this payment was an absolute and not a conditional payment.

Q.2: What are the Rights of an Unpaid Seller ?

Answer:

  • Right of lien or retention
  • Right of stoppage in transit
  • Right of resale
  • Right to withhold delivery

Q.3: What are the Rights of unpaid seller against the goods ?

Answer:

  1. Seller’s lien (Section 47):

[1] It can be exercised on the goods for the price while he is in possession until the payment of price of such goods. It can be exercised in following cases:

(i) Where the goods have been sold without any stipulation as • to credit.

(ii) Where goods have been sold on credit but the terms of credit has expired.

(iii) Where buyer becomes insolvent.

  • The right depends upon physical possession.
  • It can only be exercised for the non-payment of price.

Part Delivery (Section 48):

  • In case of part delivery, lien can be exercised of remaining goods unless contrary provided in the agreement.

Q.4: Which Conditions will be Applies in Termination of lien ?

Answer:

As per Section 49

This right is terminated under following circumstances:

(i) Where he delivers goods to carrier or bailee for the purpose of transmission to buyer without reserving the disposal right.

(ii) Where buyer or his agent lawfully obtains possession of goods.

(iii) Where seller has waived the right of lien.

(iv) By estoppel

Q.5: What are the Rights of stoppage in transit ?

Answer:

  • Right of stoppage in transit (Section 50)

It means right to stop the further transit of goods, to resume possession and to hold the same till the price is paid

  • It can be exercised in following cases:

(i) Seller must be unpaid

(ii) He must have parted with the possession of goods

(iii) Goods are in transit

(iv) Buyer has become insolvent

(v) Right is subject to provisions of the act.

  • Insolvent here means that a person has ceased to pay his debts is the ordinary course of business or cannot pay his debts as they become due.

Q.6: What do you Understand by Duration of transit?

Answer:

As per Section 51

Goods are deemed to be in transit from the time they are delivered to carrier or other bailee for transmission until buyer or his agent takes delivery of them.

  • The right is lost under following cases:

(i) Buyer taking delivery

(ii) Acknowledgment by^carrier

(iii) Delivery to ship

(iv) Wrong denial to deliver by carrier

(v) Sub sale

(vi) Goods in possession of ship’s.master acting as buyer’s agent

  • If buyer rejects the goods and carrier or bailee continues to be in its possession, the transit does not ends, even if seller refuses to receive them back.

Q.7: How stoppage in transit is effected ?

Answer:

As per Section 52

  • It may be exercised by:

(i) Taking actual possession of goods or.

(ii) Giving notice of his claim to carrier/bailee who hold the goods.

Q.8: Distinguish between right of lien and right of stoppage in transit.’*

Answer:

BasisRight of LienRight of Stoppage in Transit
SolvencyThe right can be exercised even when the buyer is solvent buy refuses to pay the price.The right can be exercised only when the buyer has become insolvent.

 

The goods must be in actual possession of the seller.The goods must be in the possession of a carrier or other bailee who is acting as
an independent person.
PurposeThe purpose of the right is to retain possession of the goods.The purpose of this right is to regain the possession of the goods.
Mode of

exercising

right

This right can be exercised by the seller himself.This right can be exercised by the seller through the carrier or the other bailee.

Q.9: Define the Effect of sub-sale or pledge by buyer.

Answer:

As per Section 53

It not effected by any sale or other disposition of goods made by buyer, unless the seller has assented to it.

Q.10: What are the Rights of re-sale ?

Answer:

As per Section 54

  • It can be exercised in following cases:

(i) Where, the goods are of perishable nature, buyer need not be informed of the intention of resale.

(ii) Where he gives notice to the buyer of his intention to resell the goods, the buyer does not within or reasonable time pay or tender the price.

(iii) Where the right is expressly reserved in the contract.

‘ • If no notice has been given to the buyer of intention to re-sell,

unpaid seller cannot claim any damages and buyer will be entitled for all profits.

  • Unpaid seller can recover from buyer the balance amount (if any) on resale.
  • If notice has been given to buyer, then profit origin out of sale of goods won’t be shared with buyer. Only seller with hold the samples.

Q.11: What are the Rights of unpaid seller against the buyer ?

Answer:

As per Section 55-61

Rights of unpaid seller against buyer:

  • Suit for price
  • Suit for damages for non-acceptance

Q.12: Write Short notes on Suit for price ?

Answer:

As per Section 55

  • Seller may sue—

(i) Where the property has passed to the buyer and he wrong fully neglects or refuses to pay for goods.

(ii) Where the property has not passed and price is payable on a certain day irrespective of delivery and buyer wrongfully neglects or refuses to pay such price.

Q.13: Write Short notes on Suit for damages for non-acceptance.

Answer:

As per Section 56

  • The seller may sue the buyer for non-acceptance, where he wrongfully neglects or refuses to accept and pay the goods.

Q.14: Describe the Repudiation of contract before due date.

Answer:

As per Section 60

  • If buyer repudiates the contract before date of actual delivery, seller may treat contract rescinded and sue for the breach.

Q.15: Write Short notes on Suit for interest.

Answer:

As per Section 61

  • If there is a specific agreement for interest on price, seller can recover interest from the date on which payment becomes due.
  • If no specific agreement, seller may change interest from the day he notify the buyer about the payment being due.

Q.16: What are the Conditions Applies on Remedies of buyer against the seller ?

Answer:

(i) Damages for non-delivery

(ii) Suit for specific performance (only in case when goods are ascertained or specific)

(iii) Suit for breach of warranty

(iv) Repudiation of contract before due date and sue for damages for breach

(v) Suit for interest

Q.17: What you understand by Auction Sale ?

Answer:

As per Section 64

  • It is a mode of selling property by inviting bids publically and the property is sold to the highest bidder.
  • It is a public sale where goods are offered to be taken by bidders.
  • Auctioneer is only an agent of seller
  • Following rules apply—

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

(ii) Sale is complete when the auctioneer announces its completion by fall of hammer or in another customary manner.

(iii) Right to bid may be reserved expressly by or on behalf of seller.

(iv) If such right is not reserved, it is not lawful for the auctioneer knowingly to take any bid from seller.

(v) Sale may be notified to be subject to a reserve or upset price.

(vi) If seller makes use of pretending bidding to raise the price, sale is voidable at the buyer’s option.

Q.18: Write Short note on Inclusion of Increased or Decreased taxes is contract of sale.

Answer:

As per Section 64A

  • If after entering into the contract of sale, tax revisions takes place
  • Buyer needs to pay increased price in case is increase in taxes and vice-versa unless anything contrary is stated in agreement.

Short Practice Questions

  1. Define unpaid seller.
  2. Differentiate between right of lien and right of stoppage in transit.
  3. What are the rights of unpaid seller against the buyer?
  4. Write short note on Auction Sale.
  5. State the remedies of buyer against the seller.

Objective Questions

Past Year Questions and Answers

1994 – Nov [1 ] State with reasons whether the following statement is Correct or Incorrect:

(x) An unpaid seller who is in possession of goods sold, can exercise the right of lien even when the property has passed to the buyer.

(2 marks)

Answer:

Correct: According to Sec. 47(2) of the Sale of Goods Act, the seller may exercise his right of lien notwithstanding that he is in possession of goods as agent or bailee for the buyer. Therefore, an unpaid seller may exercise the right of lien (being a possessor right of goods) even when the property has been passed to the buyer.

1995 – May [1] State with reasons whether the following statements are Correct or Incorrect:

(ix) A seller can never bid at an auction sale.                                                            (2 marks)

(x) An unpaid seller can exercise the right of stoppage of goods in transit

if the buyer becomes insolvent.                                                                                 (2 marks)

Answer:

(ix) Incorrect: Section 64(3) of the Sale of Goods Act permits a seller to reserve his right to bid and when the right is so reserved, the seller or any one person on his behalf may bid at the auction.

(x) Correct: As per the provisions of Section 50, of the Sale of Goods Act, an unpaid seller has the right to stop the goods in transit when the buyer becomes insolvent. The conditions are that the goods must be in transit and the buyer must have become insolvent.

1996 – Nov [1 ] State with reasons whether the following statement is Correct or Incorrect:

(x) When goods are delivered to the buyer and he refuses to accept them, he is not bound to return the goods to the seller.                                                                                                                (2 marks)

Answer:

Correct: Section 43 of the Sale of Goods Act clearly provides that where goods are delivered to the buyer and he refuses to accept them, having the right to do so, he is not bound to return them to the seller, but it is sufficient if he intimates to the seller that he refuses to accept them.

1997 – May [1 ] State with reasons whether the following statement is Correct or Incorrect:

(viii) The right of lien by an unpaid seller can be exercised for the nonpayment of price of goods and other charges.                                                                                                                      (2 marks)

Answer:

Incorrect: The unpaid seller is given ‘right of lien’ over the goods, only in case of non-receipt of the price of goods and not for any other charges.

1997 – Nov [1] State with reasons whether the following statements are Correct or Incorrect:

(vii) In an auction sale, goods to be auctioned can be put for sale in lots.

(2 marks)

(viii) ‘Right of lien’ and ‘right to stoppage the goods in transit’ may be exercised simultaneously by an unpaid seller.                                                                                                                          (2 marks)

Answer:

(vii) Correct: Section 64 of the Sale of Goods Act, 1932 provides that in the auction sale where goods are put up for sale in lots, each lot is prima facie deemed to be subject of a separate contract of sale.

(viii) Incorrect: Right of lien is exercisable as long as the seller is in

possession of goods whereas Right of Stoppage in transit is exercisable as long as the goods are passing through channels of communication for the purpose of reaching in the hands of the vendee. ^

1998 – May [1] State with reasons whether the following statements are Correct or Incorrect:

(vii) After completion of the sale in an auction, the property in the goods

and the risk of the loss caused in an accident to the auctioned property therein, is transferred to the bidder.                                                                                                                                    (2 marks)

(viii) Where the goods are of perishable nature the unpaid seller cannot

re-sell the goods without any notice to the buyer.                                                     (2 marks)

Answer:

(vii) Correct: Section 26 of the Sale of Goods Act, 1930 lays down that unless otherwise agreed, the goods remains at the seller’s risk until the property therein is transferred to the buyer. When property therein is transferred to the buyer, the goods are at the buyer’s risk whether delivery has been made or not. Therefore, the property in the goods and risk of loss thereof has been passed to the bidder and the buyer has to bear the loss.

(viii) Incorrect: According to Section 53(2) and (3) of the Sale of Goods Act, 1930, a unpaid seller should give a notice to’the buyer of his intention to re-sell the goods. However, in respect of perishable goods no such notice appears to be compulsory.

1998 – Nov [1 ] State with reasons whether the following statement is Correct or Incorrect:

(ix) In an auction sale, seller or any other person on his behalf may bid at the auction. (2 marks)

Answer:

Correct: A bid can be made provided such a right is expressly reserved by the seller. According to Section 64(3) of the sale of Goods Act, 1930, in the case of a sale by auction, a right of 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 herein after contained bid at the auction

1999 – Nov [1 ] State with reasons whether the following statement is Correct or Incorrect:

(vii) ‘Right of lien’ and ‘right to stoppage the goods in transit’ may be exercised simultaneously by an unpaid seller.                                                                                                                          (2 marks)

Answer:

Please refer 1997 – Nov [1] (viii) on page no. 269

2000 ■ May [1] State with reasons whether the following statement is Correct or Incorrect:

(vii) Right of lien is linked with the possession of goods.                                          (2 marks)

Answer:

Correct: The unpaid seller has a lien on the goods, for the price, while he is in possession of goods, until the payment or the tender of the price. A lien is a right to retain possession of goods, until payment of the price.

2000 – Nov [1] State with reasons whether the following statement is Correct or Incorrect:

(viii) In an auction sale, a bid once made cannot be withdrawn by the.

bidder.                                                                                                                        (2 marks)

Answer:

Incorrect: The bidder can withdraw his bid anytime before the fall of the hammer i.e. completion of sale.

2C02 – May [1 ] State with reasons whether the following statement is Correct or Incorrect:

(vii) A seller of goods shall be called an ‘Unpaid seller’ even when a part

payment of the price of goods sold has been made to him by a buyer.                    (2 marks)

Answer:

Correct: According to Section. 45(1) of Sale of Goods Act, 1930 a seller of goods is deemed to be an unpaid seller when the whole of the price has not been paid. Hence the seller shall be called an unpaid seller even when a part payment of the price of goods has been made.

2002 – Nov [1 ] State with reasons whether the following statement is Correct or Incorrect:

(viii) In an auction sale, seller or any other person on his behalf may bid at the auction, if such a right is expressly reserved.                                                                                                                    (2 marks)

Answer:

Correct: According to Section 4(3) of the Sale of Goods Act, 1930 in an Agreement to Sell the transfer of property in the goods is to take place at a future time or subject to some conditions thereafter to be fulfilled. Hence the property in the goods does not pass to the buyer immediately.

Short Notes

1994 – Nov [6] Write short note on:

(a) Who in an ‘unpaid seller’? Discuss briefly, his rights under the Sale of Goods Act. (10 marks)

Answer:

Unpaid Seller: According to Section 45(a) of the Sale of Goods Act, the

seller of goods is deemed to be an ‘Unpaid Seller’ when:

(a) the whole of the price has not been paid or tendered and the seller had an immediate right of action for the price.

(b) a bill of exchange or other negotiable instrument was given as payment, but the same has been dishonoured, unless this payment was an absolute, and not a conditional payment.

Any person who is in a position of a seller, is also a seller, any may exercise the rights conferred upon an ‘unpaid seller’ in above said circumstances. For instance, an agent of the seller, to whom bill of lading has been endorsed,, is in the position of seller and may exercise rights of ‘unpaid seller’.

Rights of an unpaid seller: An unpaid seller has been expressly given the rights against the goods as well as the buyer personally which are discussed as follows:

A rights of an unpaid seller against the goods: The unpaid seller has the following rights against the goods whether the property in the goods has passed to the buyer or not.

  1. Rights of lien (Sec. 47): He has a right of lien on the goods for the price while he is in possession, until the payment or tender of the price of such goods. The right of lien can be exercised by him in the following cases only:

(a) where gods have been sold without any stipulation of credit;

(b) where goods have been sold on credit but the term of credit has expired; or

(c) where the buyer becomes insolvent.

However, the unpaid seller loses his right of lien under the following circumstances:

(i) 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.

(ii) where the buyer or his agent lawfully obtains possession of the goods.

(iii) where seller has waived the right of lien.

(iv) By Estoppel i.e. where the seller so conducts himself that he leads third parties to believe that the lien does not exist.

  1. Right of stoppage in transit: When the unpaid seller has parted with the goods to a carrier and the buyer has become insolvent, he can exercise this right of asking the carrier to return the goods back, or not to deliver the goods to the buyer.

However, the right of stoppage in transit is exercised only when the following conditions are fulfilled:

(a) The seller must be unpaid.

(b) He must have parted with the possession of goods.

(c) The goods are in transit.

(d) The buyer has become insolvent.

(e) The right is subject to provisions of the Act.

  1. Right of re-sale: The unpaid seller can exercise the right to re-sell the

goods uhder the following conditions:

(i) When the goods are of a perishable nature. In such a case the buyer need not be informed of the intention of resale.

(ii) When the gives notice to the buyer of his intention to re-sell the goods and the buyer does not within a reasonable time pay or tender the price.

1995 – Nov [7] Write short note on:

(e) Buyer’s Rights Against the Seller.                                                                        (5 marks)

Answer:

Buyer’s Rights Against the Seller:

(i) Buyer has right to examine the goods purchased by him. Where the goods are delivered to the buyer which he has not previously examined, he is not deemed to have accepted them unless and until he has a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract [Section 41(1)].

(ii) Unless otherwise agreed when the seller tenders delivery of goods to the buyer, he is bound, on required to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity with the contract [Section 41 (2)].

(iii) Unless otherwise agreed, where goods are delivered to the buyer and he refuses to accept them, having the right so to do, he is not bound to return them to the seller, but it is sufficient if he intimates to the seller that he refuses to accept them (Section 43).

(iv) Where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may reject them [Section 37(i)].

(v) If the goods delivered are larger than he contracted, the buyer may accept the goods included in the contract and reject the rest, or he may reject the whole.

(vi) If the goods ordered have been mixed with goods of different description the buyer may accept the goods as contracted and reject the rest, or may reject the whole.

(vii) Besides, the buyer has all the rights against the seller in case if there is a violation of any kind of stipulation or condition or warranty, the contract may be avoided on damages may be claimed for the loss caused, if any.

1996 – May [4] Write short note on:

(a) Describe the law relating to the “right of resale” available to an unpaid seller in the Sales of Goods Act, 1930. (10 marks)

Answer:

Right of resale: This right of resale available to an unpaid seller may be

described as follows (Section 54(2), Sale of Goods Act, 1930):

  1. Where the goods are of a perishable nature, the unpaid seller may resell the goods without any notice to the buyer.
  2. When the unpaid seller has exercised his right of lien or stoppage in transit, he has to give notice to the buyer of his intention to re-sell. Thereupon, the buyer may pay the price within a reasonable time. If the buyer does not pay, the unpaid seller can re-sell the goods and recover from the original buyer the damages for any loss occasioned by his breach of contract. The original buyer shall not be entitled to any profit which may occur on re-sale. If however, the unpaid seller re-sells the goods without notice to the buyer, the unpaid seller shall not be entitled to recover damages and the buyer shall be entitled to the profit, if any, occurring on the re-sale.
  3. Where an unpaid seller who has exercised his right of lien or stoppage in transit resells the goods, the buyer acquires the good title thereof as against the original buyer, despite the fact that the notice of resale has not been given by the seller to the original buyer.
  4. A re-sale by the seller where a right of re-sale is expressly reserved in a contract of sale has the effect of rescinding the contract, but it does not prejudice any which the seller may have for damage against the buyer.

1997 – May [5] Write short note on:

(e) What are the remedies available to the buyer, when goods in wrong quantity are delivered to him?     (5 marks)

Answer:

Wrong quantity may be either short delivery 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 pay for them at the contract price. By accepting the lesser quantity the buyer is not debarred from suing or damages on the ground of short delivery.

(a) Short delivery: When the seller delivers to the buyers 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 may pay for them at the contract price. By accepting the lesser quantity the buyer is not debarred from suing for damages on the ground of short delivery.

(b) Excess delivery: Where the seller delivers to the buyer a quantity.of goods larger than contracted for the buyer has the option.

(i) to accept the contracted quantity and reject the excess or . (ii) to accept the whole and pay for them at the contract price or

(iii) to reject the whole quantity.

(c) Mixed delivery: Where the seller delivers to the buyer the goods he contracted to sell mixed with the 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 reject the whole. When the goods wrong quantity are delivered the buyer has the option to reject the whole lot and if he does so it does not amount to cancellation of the contract. The seller has the right to deliver the goods contracted for and the buyer shall be bound to accept the same.

1997 – May [7] Write short note on:

(e) Liability of an incoming partner..                                                                           (5 marks)

Answer:

An incoming partner is not liable for any act of the firm done prior to his admission as a partner. This is because the old partner were not the agents of the new partners at the time when they acted. By a mutual agreement, the new partners may agree with the old partners to be liable for the past liabilities of the firm. However, the creditors of the firm cannot sue the new partners for their past debts, because there is no privity of contract between the creditors and the new partner. Similarly the acts of the old partner can not be ratified by the new partner because he was not in existence as a principal at the time when acts were done. He is liable for the acts of the old firm only if the new firm assumes the liabilities of the old firm and the creditors accept the new firm as their debtor and discharge the old firm from his liability.

1997 – Nov [3] Write short note on:

(b) Describe in brief the rights of the buyer against the seller in case of breach of contract of sale. (10 marks)

Answer:

Buyer’s rights against the seller in case of breach of contract: Sections 57 to 59 & 61 of the Sale of Goods Act, 1930, proceed to deal with the remedies of a buyer in cases where the seller commits a breach of the contract. They are as follows:

(i) Damages for non-deiivery (Section 57): Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non-delivery. In this case the general rules as regards to the ascertainment of the damages given under Section 73of the Contract Act, 1872 and the rule in Hadley vs. B Baxendale will be applicable.

(ii) Suit for specific performance (Section 58): Where property has passed to the buyer, he also can exercise another right, i.e. a right to sue for specific performance and its limits regulated by the Specific Relief Act. In such cases the court may, in its discretion grant a decree ordering the seller to deliver those specific or ascertained goods which formed the subject matter of the contract. The remedy is discretionary and will only be granted if the goods are of specific value or are unique, e.g., a rare book, a picture or a piece of jewellery, and the damages are not an adequate remedy.

(iii) Remedy for breach of warranty (Section 59): Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject of the goods; but he may:

(a) set up against the seller the breach of warranty in diminution or extinction of the price; or

(b) sue the seller for damages for breach of warranty.

The measure of damage for breach of warranty is the estimated loss or damage arising directly or naturally from the breach, which is prima facie the difference between the value of the goods at the time of the delivery and the value they would have had if the goods had answered to the warranty.

(iv) Suit for recovery of price (Section 61): The buyer has a right to recover the money paid to the seller where the consideration for •payment of it has failed. For example, where the buyer is deprived of goods by their true owner, he may recover the price for breach of the condition as to title’.

1998 – May [3] Write short note on:

(b) Discuss the remedies available to seller against the buyer in case of breach of contract of sale. (10 marks)

Answer:

Remedies available to the seller against the buyer: Following remedies are available to the seller against the buyer in case of the breach of contract of sale:

(i) Suit for price: Where the property in the goods has passed to the buyer or he was wrongfully neglected or refused to pay for the goods according to the terms of the contract, the seller may sue him for the price of goods. Further, where the price is payable under the contract on a certain day irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price, the seller may sue him for the price even if the property in the goods has not passed and the goods have not been appropriated to the Contract. (Section 55).

For instance, there was a sale of some quantity of iron to be delivered between 3rd May and 30th June, if the buyer so required, the price to be paid on the latter date at all cost. By 30th, only a portion of the iron had been delivered since the buyer did not require any further delivery. In such situation, the seller would be able to recover the whole price without showing that he had appropriated to the contract any specific iron to complete the delivery of the remainder. Incidentally, the seller has a lien on the goods for the price while he is in possession of them. The statement in a contract of sale that the seller would have the right to resell after notice will not deprive him of his legal right to sue for the price of the goods if he so desires.

(ii) Damages for non-acceptance (Section 56): Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for damages for non-acceptance.

Some of the rights of an unpaid seller viz., lien stoppage in transit, and resale are additional rights. These, however, do not compensate the seller for the breach of the contract but simply protect him from additional loss; the breach of the contract, no doubt remains and the seller is entitled to be compensated for the same. The above referred remedies under Section 55 and 56 deal with the remedies available to a seller and may be exercised by him (seller).

(a) If the property in the goods sold has already passed to the buyer the seller can either sue for price or for damages for non- acceptance [Section 55(1) and 56].

(b) If the property in the goods sold has not passed the seller’s only remedy is to sue for damages, for non-acceptance (Section 56), but the seller can even if the property has not passed, bring an action for the price if it is “payable on a day certain” and the buyer has failed to pay such price [Section 55(2)].

(c) When the seller is ready and wiling 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 change for the care and custody of the goods. In this case the seller’s right will

not be affected where the neglect or refusal of the buyer to take the delivery amounts to a repudiation of the contract – (Section 44).

(d) The seller’s right of re-sale is available subject to the provisions of Section 54(2) and (4). .

(e) How much damages will be awarded to the seller in case of the breach of contract of sale by the buyer will be reassured according to the provisions of Section 73 and 74 of the Indian Contract Act, 1872.

1999 – May [3] Write short note on:

(b) Who is an ‘Unpaid Seller’? When can such a seller exercise his ‘Right of Lien’ against the goods? Explain the rules for exercising the right of lien by an unpaid seller. (10 marks)

Answer:

A seller be deemed to be an unpaid seller when:

  1. the whole of the price has not been paid or tendered.
  2. a bill of exchange or other negotiable instrument has been received as conditional payment, and the condition on which it was received has not been fulfilled by reason of the dishonour of the instrument or otherwise. (Section 45(1) Sale of Goods Act, 1930).

Thus the following conditions must be fulfilled before seller can be deemed

to be an unpaid seller:

  1. he must be unpaid and the price must be due.
  2. he must have an immediate right of action for the price.
  3. a bill of exchange or other negotiable instrument was received but the same has been dishonoured.

Right of an unpaid seller :

Right of Lien: (Section 46(1 )(a), 47 to 49).

A lien is a right to retain possession of goods until payment of the price. It is

available to the unpaid seller who is in possession of the goods sold, where:

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

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

(c) the buyer becomes insolvent (Section 47(1)).

Rules regarding lien:

  1. The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the buyer (Section 47(2)). If he loses the possession of the goods, he loses the right of lien also.
  2. The lien depends on actual possession and not on title. It is not affected even if the seller has parted with the document capable of transferring title.
  3. The possession of the goods by the seller must not expressly exclude the right of lien.
  4. The lien can be exercised by the unpaid seller only for the price and not for any other charges such as warehouse or dock charges.
  5. Where an unpaid seller has made part delivery of the goods, he may exercise his right of lien on the remainder. He may refuse to deliver such remainder of the goods till he is paid for the goods already delivered and the goods are yet to be delivered.

Where, however, a part of the goods is delivered under such circumstances as to show an agreement to waive the lien, the seller cannot retain the remainder (Section 48).

  1. The unpaid seller of goods, having a lien thereon, does not lose his lien by reason only that he has obtained a decree for the price of the goods (Section 49(2)).

1999 – Nov [5] Write short note on:

(iii) Stoppage in transit. ‘                                                                                             (5 marks)

Answer:

Stoppage in Transit: (Section 50 Sale of Goods Act, 1930): It is a right of

stopping the goods while they are in transit, resuming possession of them

and retaining possession until payment of the price.

This right is exercised by the seller when:

(a) he is unpaid.

(b) he may have parted with the possession of goods.

(c) the goods must be in transit.

(d) the buyer must have become insolvent.

(e) the right is subject to provisions of the Act.

The unpaid seller may exercise this right either by taking actual possession of the goods or by giving notice of is claim to the carrier, or another bailee in whose possession the goods are. The right of stoppage in transit begins when the right of lien ends.

2000 – May [6] Write a short note on:

(ii) State the provisions given under the Sale of Goods Act relating to ‘Auction Sale’. , (10 marks)

Answer:

Auction Sale: An ‘Auction Sale’ is a mode of selling property by inviting bids publicly and the property is sold to the highest bidder. An auctioneer is an agent governed by the Law of Agency. When he sells, he is only the agent of the seller. He may, however, sell his own property as the principal and need not disclose the fact that he is so selling.

Under section 64 of the Sale of Goods Act, 1930 in the case of an auction:

(a) where goods are put for sale in lot, each lot is prima facie deemed to be subject matter of a separate contract of sale.

(b) the sale is complete when the auctioneer announces its completion by the fall of hammer or in any other customary manner and until such announcement is made, any bidder may retract from his bid.

(c) right to bid may be reserved expressly by or on behalf of the seller and where such a right is expressly reserved, but not otherwise, the seller or any one person on his behalf may bid at the auction.

(d) where the sale is not notified to be subject to the right of the seller to bid, 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 person representing him. Any sale contravening this rule may be treated as fraudulent by the buyer

(e) the sale may be notified to be subject to a reserve or upset price; and

(f) if the seller makes use of pretended bidding to raise the price, the sale if voidable at the option of the buyer.

2001 – Nov [7] Write short note on:

(d) Unpaid seller’s right to re-sale.                                                                             (5 marks)

Answer:

An unpaid seller’s right to resale: (Section 54 Sale of Goods Act, 1930).

  1. When the goods are of a perishable nature, the unpaid seller may re-sell the goods without any notice to the buyer.
  2. When the unpaid seller has exercised his right of lien or stoppage in transit, he has to give notice to the buyer of his intention to resell. Then only he will be entitled to recover any loss and keep all profits with him. Otherwise not. But so far as the new buyer’s title is concerned it will be good whether the seller gives or does not give notice to the first buyer.

2002 – Nov [6] Write short note on:

(a) State the provisions given under Sale of Goods Act relating to ‘Auction Sale’. (10 marks)

Answer:

Please refer 2000 – May [6] (ii) on page no. 281

Descriptive Questions

1995 – May [2] (c) When an unpaid seller’s right of lien ends, his right to stop the goods in transit begins. (5 marks)

Answer:

When an unpaid seller’s right of lien ends, his right to stop the goods in transit begins: Line is the right of an unpaid seller to retain the goods, which are under his actual possession, until the price due in respect of them is paid or tendered. Lien being a possessor right, when the goods are delivered to the carrier for the purpose of transmission to the buyer (the possession being imparted by the unpaid seller), the right of lien comes to an end but so long the goods are in transit, the seller still has a right to stop them in transit. The right of stoppage means the right to stop further transit of goods to resume possession over the goods and to retain them until the price is paid.

The right of stoppage in transit arises only when the seller has parted with the possession of the goods and the buyer has become insolvent. This right is available only so long the goods are in transit i.e., they are in possession of a third party, they are neither in the possession of the seller nor that of the buyer. In this sense it is said that, right of stoppage in transit is an extension of the right of lien. The point where the right to lien ends, right to stoppage in transit beings.

1996 – Nov [2] (d) Sub-sale by the buyer does not extinguish unpaid seller’s right of lien. (5 marks)

Answer:

Sub-sale and rights of unpaid seller: The unpaid seller’s right of lien or stoppage in transit is not affected by any further sale or other disposition of the goods by the buyer. (Section 53 of the Sale of Goods Act).

However, there are two exception to the said rule:

(a) When the seller was assented to the sale, mortgage or other disposition of the goods made by the buyer. [Sub-Section (1)].

, (b) When a document of title of goods has been transferred to the buyer and the buyer transfers the documents to a person who has bought goods in good faith and for price, then, the proviso of Sub-Section (1) of Section 53 prescribes as follows:

(i) If the last mentioned transfer is by way of sale, right of lien or stoppage in transit is defeated, or

(ii) If the last mentioned transfer is by way of pledge, unpaid seller’s right of lien or stoppage only be exercised, subject to the rights of the pledgee.

However, the pledgee may be required by the unpaid seller to use in the first instance, other goods or securities of the pledger available to him to satisfy his claim [Sub-Section (2)].

1998 – Nov [4] (b) (ii) Right of lien and Right of stoppage of goods in transit available to an unpaid seller. (5 marks)

Answer:

Right of Lien and Right of Stoppage in Transit:

  1. The unpaid seller’s right to stop the goods in transit arises only when the buyer is insolvent but the right of lien can be exercised even when the buyer is able to pay but does not pay.
  2. The right of lien can be exercised on goods which are in actual or constructive possession of the seller, while right of stoppage in transit can be exercised when the goods are in the possession of a middleman between the seller who has parted with the possession of the goods and the buyer who has not yet acquired the possession.
  3. The right of lien comes to an end when the possession of the goods is surrendered by the seller, but the right of stoppage in transit commences when the goods have left the possession of the seller and continues until the buyer has acquired their possession.
  4. The right of lien is to retain possession while the right of stoppage in transit is to regain or resume possession.

2002 – May [4] (b) (ii) Right of lien and Right of stoppage of goods in transit

available to an unpaid seller.                                                                                     (5 marks)

Answer: Please refer 1998 – Nov [4] (b) (ii) on page no. 283

*This article contains all topics about The Sale of Goods Act 1930-BUSINESS LAWS.

Along with Sale of Goods Act 1930 article, Check our other best free resources used by topper:-

For notes on all CA foundation topics, you can visit this article CA foundation note

Leave a comment

Your email address will not be published. Required fields are marked *