CE-3

LEGAL ASPECTS OF BUSINESS

Shanti Business School

Session 2020-22

CASE 1
Showfronts Ltd., building contractors, who were under a contract for the reconstruction of
showrooms and offices on the first floor of a building. They appointed Philip Head & Sons Ltd.
as their sub-contractor for tiling work and for providing and laying carpets. There was a separate
estimate for the tiling work. The contractor approved the estimate. While performing the contract,
the sub-contractor received carpet material from the manufacturer, at the site. The carpeting work
was completed in the smaller rooms. The showroom, however, was big in size, measuring 40 ft. X 20
ft. There could not be a single carpet of this size. The manufacturer supplied carpet for the
showroom in lengths, at the site. The sub-contractor sent the lengths for stitching and received it
back at 4.30 PM on Friday. The carpet thus stitched, made a formidable bundle. It required six men
to move it from the lift into the main showroom, which was the only space where it could be put
because of its unmanageable size. The tiling and carpeting work had been delayed. This in turn, was
delaying certain finishing work, such as decorating and touching up. The contractor arranged to
allow the sub-contractor complete use of the premises over the week-end so that they might
complete the tiling work and make further progress with the carpeting work. The carpet was seen by
various men on Saturday. On Sunday morning, the carpet was not there. It had been stolen. The sub-
contractor claimed that the property in the carpet had passed to the contractor and thus, they were
entitled to recover the amount in the estimate for the carpet. It was contended that it was not a
contract for a sale of goods, but was a work contract. The court reiterated that whether a contract is
a work contract or a sale of goods has to be judged by assessing the main object of the contract. The
court concluded it to be a contract of sale of goods. It noted:

... the conclusion I have come to is that notwithstanding that the planning in connection with this
carpeting and the laying of the carpeting (which, of course, included cutting, stitching and so forth)
were of very great importance ... nevertheless this was a contract of sale and one to which the Sale
of Goods Act, 1893, applied.

The next question was: Had the property in the carpet passed to the buyer and if so, when? Decide.

CASE 1 Answer:
As Per Section 22 of Sale of Goods Act 1930:
The specific goods must be in a deliverable condition, so now the seller must do something
or to perform any act on good and it will not pass to the seller until it inform the seller or he
do the kind of act. So. In this case the property in the carpet HAD NOT passed to the buyer.
  Conclusion:
1. Contractor allows the sub-contractor to complete the carpet in his premises but
on the next day the carpet was stolen from the Contractor premises.
2. Show front enter a contract with Phillips for providing and laying carpet in
showroom.
Here, the property had not passed to the Showfronts Ltd. It was only delivered to the
premises as the showroom was the only space where it could be put because of its
unmanageable size. Thus, the ownership of the property was not passed.

CASE 2
George Edward Kenneth Dennant carried on business as the South London Motor Auctions. In an
auction sale, he knocked down a motor car to the highest bidder among 150 prospective buyers. On
inquiring, the highest bidder said that his name was George Albert King. Thereafter, Dennant
knocked down four more vehicles to him. After the sales, King said he would like to pay by cheque.
Dennant replied that he did not accept cheques from people he did not know. King represented that
he was the son of the owner of King’s Motors, well known motor car dealers in another town. In
support of his financial worthiness, he showed the counterfoils in his cheque book, according to
which he had been paying large amounts to well-known auctioneers. Dennant then accepted the
cheque but made King sign a form which stated:

I hereby certify my cheque no. will be met on presentation at my bank. Furthermore, I agree that the
ownership of the vehicles will not pass to me until such time as the proceeds of my cheque have
been credited to South London Motor Auction account at Lloyds Bank. Assured with the protection
of the undertaking signed by King, Dennant allowed King to remove the vehicle. King sold off the car
to a person, who in turn, sold it to Skinner, another motor car company. The cheque was
dishonoured on presentation and it was found that King had no connection with King’s Motors. The
police were informed of the matter. King pleaded guilty and was convicted. Dennant sought to
recover the car, claiming it to be his property, from Skinner. Dennant’s contention was that the
property in the car had never passed to King. Thus, as the valid owner, he had the right to have the
car restored to him. Skinner disputes this. Decide.

CASE 2 Answer:
The buyer bought a vehicle on auction by providing a fraud identity and making a
transaction by cheque. The cheque gets dishonoured and at the time buyer further sell the
vehicle to the third party. The vehicle was delivered to the buyer in the cheque exchange.

 Conclusion:
1. The cheque gets dishonoured and the buyer further sell the vehicle to Sinner, the
auctioneer cannot restore the car even the king was convinced.
2. It was mistake of an auctioneer hat he had not made any inquiry about king’s
identity when contract is made.
Now, he can only claim for the price of the vehicle and not for the ownership. The
ownership of the vehicle continues to remain with Skinner.

CASE 3
Miss Hopkin’s Ford Fiesta car was stolen from her on February 3, 1983. On September 23, 1983, the
thieves were convicted. Prior to this, however, they had sold the car to Lacey, who in turn, had sold
it to Roderick Thomas. On February 6, 1983, Thomas had sold the car to Autochoice (Bridgend) Ltd.
for £2,100. Autochoice sold the car to Mid-Glamorgan Motors Ltd. on March 14, 1983, for £2,350.
On March 18, 1983, Mid-Glamorgan Motors Ltd. sold the car to Jones for £2,650. Jones had
absolutely no idea about all the prior transactions of the car. Miss Hopkin had an insurance policy for
the car with the National Employers Mutual General Insurance Association Limited. They paid her
£2,750 as her insurance claim and became the owners of the stolen car, which was now in the
possession of Jones. They managed to track down the car to Jones. They asked him to hand over the
car to them, by a letter dated January 6, 1984, but Jones refused to hand it over. The National
Employers Mutual General Insurance Association Limited, accordingly, began court proceedings.
Decide.

CASE 3 Answer:
Sales of Goods Act Section 21(1) states that where goods are sold by a person who is not
their owner, 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, until and unless
the owner of the goods is by his conduct precluded from denying the seller’s authority to
sell.
Thus, the ownership of the Ford Fiesta car continues with Miss Hopkin. Jones had no right
on the car. As Miss Hopkin was paid by National Employers Mutual General Insurance
Association Ltd., the ownership is transferred to Insurance company. Thus, Jones is legally
responsible to handover the car to The National Employers Mutual General Insurance
Association Ltd.

CASE 4
Saini purchased an air compressor from a seller. For making the purchase, he had to sign a Customer
Request Form. The details of the product and the terms of the sale were mentioned in the standard
form. The compressor was of a brand called Commander. The compressor developed defects in the
first week itself. Smoke and a burning smell started to emerge from the compressor and the unit
stopped functioning. An agitated Saini took the compressor to the seller. The compressor of the unit
had got burnt out. The seller repaired it and made the unit functional. Saini

had lost confidence in the product. He told the seller to keep the unit and refund his money. The
seller refused to oblige. An argument developed between them. The seller showed the terms of the
contract, contained in the Customer Request Form signed by Saini. It included the following clause
12:
(12) Warranty: The equipment is warranted for a period of 6 months from the date of purchase. We
will at our option repair it, or replace parts. The limited 6 months warranty and remedy set forth
above are in lieu of all implied or express condition and warranty.

Can Saini demand replacement of the air compressor? Why?

CASE 4 Answer:
In the given case Saini purchased the compressor but it gets defective within a week, so the
seller repaired it. After that Saini lost confidence over the compressor and demand refund
of his money to seller. As Saini cannot demand for refund because he sign a Customer
Request Form in which the seller is only liable for repair and replace parts of the
compressor. If there is any defect in the product within the period of warranty the company
will repair or replace its parts not the entire product. Thus, Saini cannot demand
replacement of the air compressor.

QUESTION 5.
Give examples (Your own) to the exceptions to the rule “No one can give what he does not

himself possess.”

Ans. 5

Following are the exceptions to the rule “No one can give what he does not himself
possess”.

1. Sale by A Co-Owner:
Example: Anil, Bharat, Chetan purchased a taxi together for their side business of
taxi services and they mutually decided to keep the car in Anil’s house. One day his
friend Dinesh come to his house and he sell the taxi to him. Dinesh buys the taxi in
good faith and has no knowledge that car is purchased jointly. In this case Dinesh get
the good title of the taxi.

2. Sale by Mercantile Agent:

Example: There’s a mercantile agent Jayesh who is in possession of flat with
documents and with the consent of the owner, Harsh. As Jayesh has the title and the
possession of the flat, he can sell it to Vishakha. The transfer of ownership is valid in
such case as the buyer, Vishakha act in good faith and has no reason to believe that
seller doesn’t have any right to sell property.

3. Estoppel:
Example: Pavan, Suresh, Ramesh were talking, and Ramesh says he has a bike but
that belong to Pavan, however Pavan remain silent. Lately Ramesh sell the bike to
 Suresh. In this case Ramesh get the title of the bike even Ramesh has no title over it.
As Pavan didn’t deny Ramesh authority to sell the Bike.

4. Sale by an Unpaid Seller:

Example: Dinesh sells a car to Suresh for Rs. 10,00,000 but due to lack of fund Suresh
is not be able to pay the full amount. So, Dinesh sold the car to Mohan. In this case,
the ownership will be transferred to Mohan and not to Suresh as he was not able to
make payment.

5. Sale by a Person in Possession of the Goods under Voidable Contract:

Example: Mohan purchased a car from Sohan through fraud. But before realizing the
fraud Mohan sell the car to another person till than Sohan did not void the contract.
The person buys the car without knowing the fraud. In this case Sohan cannot
recover the car as he did not void the contract before sale.

6. Sale by the Person who has already sold the Goods but Continues to have
Possession:
Example: Ram has a car which he sold to Dev but still the documents are owned by
him. Now, Ram decides to sell the car to Shakti who is unaware about the previous
deal with Dev. Here, the ownership of the car will be passed to Shakti even though
the car was earlier sold to Dev.

Submitted By: Jayesh Sharma

Roll No.: 22

Section: C

PGDM Student 2020-2022