Sales of Goods

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 SALE OF GOODS ACT, 1930

Contents

CHAPTER TOPIC
1. Contract of Sale

2. Conditions & Warranties

3. Passing of Property

4. Transfer of Title

5. Performance of the Contract

6. Right of unpaid seller against goods

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 Chapter-1

CONTRACT OF SALE

The sale of Goods Act, 1930 is based mainly on English Sale of Goods Act,1893.This Act
was previously contained in the Indian Contract Act, 1872 (Sec. 76 to 123) (repealed).
Though the law relating to the sale of goods is now enacted in a separate Act, the
unrepealed provisions of the contract Act are to continue to apply to contract for the sale of
goods.

NATURE AND DEFINITION

Section 4 (1) of Sale of Goods Act, 1930 states “A contract of Sale of Goods is a contract
whereby the seller transfers or agrees to transfer the property in the goods to the buyer for a price.”
According to Pothier contract of sale is “consensual, bilateral and commutative“. A
“commutative” contract is one in which the thing given or act done by one party is regarded as the
exact equivalent of money paid or act done by the other.
According to Section 4 of Sale of Goods Act, 1930:
i) Contract of sale of goods is a contract whereby seller transfers or agrees to transfer the
property (with adequate consideration) in goods to the buyer for a price.
ii) Contract of Sale of Goods can be absolute or conditional.
iii) Where under contract of sale property actually transfers then there is sale but where the transfer
of property in the goods takes place at a future time or subject to some condition thereafter to
be fulfilled, the contract is called an agreement to sell.
iv) Agreement to sell becomes sale when time passes or conditions are fulfilled.

INGREDIENTS
(i). Bilateral Contract: Two parties – there must be two distinct parties i.e. buyer and seller.
Section 2(1) defines buyer according to which a person is buyer who buys or agrees to buy goods.
Section 2(13) defines seller according to which a person is seller who sells or agrees to sell goods.
(Bilateral Contract) A sale has to be bilateral because the property in goods has to pass from
one person to another. The seller and buyer should be two different person. Thus if the
person purchases his own goods, it is no sale (except where he purchases his own goods
being sold in execution of a decree).

In the case of State of Gujarat v. Ramanlal & Co. shares were divided among partners. The Court
held that it is not a sale because there is absence of two distinct parties.
Graff v. Evans:- The club was not licensed for the sale of intoxicating liquors but these were
supplied by the manager to the members at fixed price.
This was held not to be a sale but was merely a distribution of the of the liquors among the
members being joint owners of the club.
ii) Goods: According to Section 2(7) every kind of movable property is goods other than
actionable claim and money. But it includes stock and shares, growing crops, grass and things
attached to earth agreed to be severed.
Case: Narayanappa v. Bhasker (1966), ASC 1300
Human organs and tissues have become an object of sale. Bodily products such as hair,
blood, urine and genetic materials have developed their own market. Human hair for wig making
and bones for skeletons have been objects of sale for long.
iii) Price: Consideration for contract of sale must be money called price. Where the property in
goods is transferred for any consideration other than money that will not be sale, but an
exchange or barter. In other words, where goods are exchanged for goods that is not a sale. But
where goods are sold for a definite sum and the prices paid partly in terms of valued up goods
and partly in cash that is sale. For example, in Aldridge v. Johnson.

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 Fifty-two bullocks, valued at £ 6 a piece, were exchanged for 100 quarters of barley at £ 2
per quarter, the difference to be made up in cash; the contract was treated as one of sale.
Similarly, where corn was delivered on terms that on demand either the price would be paid
or an equal quantity of corn would be returned, that was held to be a sale.
iv) Transfer of general property in goods: All the rights should go to buyer such as right of
ownership, right of enjoyment, right of possession etc.
v) All the essential elements of a valid contract must be there.

The provisions of this Act relating to contracts of sale do not apply to any transaction in the
form of a contract of sale which is intended to operate by way of mortgage pledge, charge
or other security.

DIFFERENCE BETWEEN CONTRACT OF SALES AND OTHER TRANSACTIONS

Contract of Sale and Agreement to Sell Distinguished
Sale Agreement to Sell
1. Transfer of property – Property passes from 1. Property passes in future or subject to
buyer to seller immediately. certain contingency.
2. Type of goods – existing or specific goods. 2. Generally relates to future or contingent
goods.
3. Risk or loss – risk fully on the buyer even if 3. Loss fully on seller even if goods are in
the goods are in possession of the seller possession of the buyer.
4. Consequences of breach of contract – if the 4. Seller can sue only for damages and not for
buyer fails to pay the price of goods, seller price.
can sue the buyer for price of goods even
though goods are in possession of seller.
5. Right of re-sale of goods – 5. A subsequent purchaser who takes the
Seller cannot re-sale the goods with two goods for consideration and in good faith
exceptions: (without notice of prior sale) gets the good
title.
ii) Under Section 30 if the sale is by the
seller who is in possession of goods,
and
iii) Under Section 54 – sale by unpaid
seller.
6. General and particular property – Sale is 6. Agreement to sell is merely a contract and
contract plus conveyance of property. So, it not conveyance, so it creates jus-in-
creates right jus-in-rem (Right against personam (Right only against seller).
whole world).

ABSOLUTE AND CONDITIONAL CONTRACTS OF SALE

A contract of sale may be absolute or conditional. It is absolute when it is a sale pure and
simple, transferring the property absolutely to the buyer. It is conditional if there are conditions
(precedent or subsequent) to the contract by the parties. The conditions may have to be fulfilled by
the seller or the buyer. An example of condition precedent is where goods are delivered to the
buyer on approval i.e. “on sale or return” basis. Another example – A agrees to buy from B a
quantity of nitrate of soda to arrive ex a certain ship. This is an agreement for sale subject to the
two conditions of the ship arriving and that too with the specified cargo. An example of condition
subsequent is where there is an actual sale passing the property to the buyer, but subject to
defeasance on the happening of some specified event. Thus on a sale of goods by auction, there is
usually a condition that if the goods are not paid for within a specified time they may be resold.

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DIFFERENCE BETWEEN CONTRACT AND OTHER TRANSACTIONS
1. Contract of Sale and Agreement to Sell:
A “contract of sale” is a generic term and includes both an actual sale, and an agreement to
sell. The main points of distinction between the two are given above in the table.

2. Contract of Sale and Contract of Work and Material Distinguished

Sometimes a contract may involve supply of some Article which also involve rendering of
some work or service in respect of the same. In such a case there may be difficulty in deciding
the nature of contract. Whether the contract is one of sale of goods or of work and labour
depends on the circumstances of each case. The difference between the two is:
i) In Delivery of goods: In case of contract of sale property passes from one person to
another but contract of work and labour involves exercise of skill and labour by one party
irrespective of material supplied by another.
ii) Object: In case of contract for sale the main object is the transfer of property in and the
delivery of the possession of a good, as the good to the buyer. Where the main object of
contract of work undertaken by the payee of the price is not the transfer of a good as a good
but the the contract of work and labour.
To determine a contract is of sale or is of work and labour various tests have been
evolved.

Tests:
i) In case of Myers & Co. v. Brent Cross Services Co., Court held that what has to be seen
is whether the essence of contract is supply of goods and material is incidental or whether
the exercise of skill and labour is incidental.
ii) In case of Lee v. Griffin, Court held that one should see the end of transaction. If some
moveable property is transferred at the end of transaction then it is sale. In this case, a lady
asked for false teeth to be made by doctor. It was held by the Court as a contract for sale,
but the end of transaction is not the conclusive test as it does not provide for what had
happened in between.
iii) In the case of Robinson v. Grave, Court held that essence of transaction should be seen
and if the essence is material then it is sale, however if customer is interested merely in
construction or work then it is control for work and labour.
iv) In the case of Common Sales Tax, M.P. v. Pursotlamji Premji, the Court said, “the
primary difference between two is that if no property in thing provided as a whole then it is
contract of work and labour but if the thing produced as a whole has individual existence as
the sale property of the party who produced it at some time before delivery to another them
it is contract of sale.

These tests were applied by courts in many cases:

a) State of Madras v. G. Dunkerley & Co.: In this case there was a building contract; the
agreement between the parties was that the contractor should construct a building
according to the specification contained in the agreement. The company provided material
for construction and also foods for their workers and received money from their salary. The
question involved was that whether material used to conduct building is sale of material and
also food supplied is sale or not.
Held: There is no sale as foods are given for subsistence of worker and there was no profit
motive and also the material supplied was not sold. In Supreme Court only material point was
raised and Supreme Court held that material used is not sold as it does not pass to the customer
as an independent good but as per the contract the essence is work. Also held that contract
cannot be divided into two parts i.e., contract for work and for sale. “Rule of indivisibility of
contract” provided that there is no sale.
b) Sentinel Shutters Engineering Co. v. Central Sales Tax: Supreme Court said, ”One
should look at the completed thing and whether it belonged to the person making it or the
person ordering for it”. In this case order was given for a rolling shutter to be fixed in a shop.

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 Supreme Court held that it is not a sale because as soon as the parts are assembled it
becomes the property of customer. So, it is not sale but contract for work and material.
c) Ram Singh & Sons Engineering Works v. Central Sales Tax: In this case, Co. was
involved in fabricating or erecting three motion electrical overhead travelling crane made up
of 44 different parts and covering more than 10,000 sq. feet area. Supreme Court held in
this case that it is a contract for work and labour because as soon as crane was assembled
it becomes immovable property and therefore it is not liable to be transferred as chattel.
d) Northern India Caterers v. Lt. Governor of Delhi (1978): In this case the question
involved: in a restaurant two types of customer may come i.e. one who is resident of the
hotel of which restaurant is a part and another is non-resident and whether food supplied to
both types of customer is sale or not. Supreme Court held that in a hotel the essence of
contract is to provide comfort with food. The object is to provide comfort and not the
purchasing and selling of food only. Food is only an ancillary part of whole commercial
transaction. Also held that there cannot be distinction between meals supplied to a resident
in a hotel and those served to a customer in a restaurant. But this view was reviewed in
1980 and held that meals supplied in a restaurant is in substance a sale of meal and service
is merely incidental to it, then it is eligible to sales tax. But it is submitted that a meal
supplied to a lodger or a resident hotel guest is part of a contract of services (Northern India
Hotels Ltd. V CST.) (1984)

3. Distinction between Sale and Statutory Order

In order if there is scarcity of essential commodities then under Essential Commodities Act,
1955, a statutory order may be passed and entire transaction may be controlled by the above
enactment. In which the stock may be fixed, quantity to be bought by consumer may be fixed,
cost may be fixed etc. Now the question is whether this type of transaction in which dealer
supplies goods to the customer at a fixed price under the said Act is sale or not.
In the case of Appleby v. Sleep, the Court held that when there is supply of goods by virtue
of a statutory order the consensual element is missing and therefore such a transaction will not
be a sale. But in India there is a rule of complete exclusion. In case of such transaction i.e.
under statutory order, whether in law they amount to sale or not would depend upon whether
the liberty of contract in relation to fundamentals of transaction is completely excluded by the
provisions of statutory order or not. In case of statutory order only upper limit is fixed, so there is
scope for bargaining in relation to (i) price (ii) mode of payment (iii) mode of delivery etc. and,
therefore, it amount to sale.
n case of Vishnu Agencies v. C.I.T. (1978) SC: in this case Vishnu Agency was a dealer in
cement which was a controlled commodity. The West Bengal Cement Control Act, 1948
provided that how much/at what price/whom they can sell and also violators of such guidelines
shall be punished. Vishnu Agencies argued that there is a complete control and so consensual
element is missing and therefore it is not a sale. Supreme Court held that consumers are willing
to buy cement as per the rule of permit and also seller is willing to sell cement as per rules, so
there is implied consent present. Also:
i) Dealers are free to deal in any other commodity.
ii) They are also free to sell below the maximum retail price.
iii) Mode of payment and delivery are free to both of them.
iv) Although entire transaction is primarily controlled by the enactment but the consumers are
free to reject the goods if not satisfied with quality or weight.
Other Cases:
Coffee Board v. Commr. of Commercial Tax (AIR 1988 SC 1487): In this case, it was
held that the compulsory delivery of coffee by the coffee growers to the Coffee Board
constitutes a sale, and not compulsory acquisition, and the State can impose Purchase Tax on
the same. Previously, the delivery of coffee by coffee growers to Coffee Board not being treated
a purchase by board; the State didn’t demand any tax from the board in respect of such
deliveries.
The schemer of the Coffee Act, 1942 is to provide for a single channel for sale of coffee
grown in the registered estates. Hence the act directs the entire coffee produced, except the
quantity allotted for internal sale quota, to be sold to the Coffee Board through the modality of

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 compulsory delivery and imposes a corresponding obligation on the coffee Board to
compulsorily purchase coffee. If a grower delivered coffee to board, the Coffee Act extinguished
his title and absolutely vested the same in the board, however, preserving his right for payment
of its value or its price. The amount paid to the grower, thus, is neither compensation nor
diffident.
The Court, citing the decision in Vishnu Agencies case, held that all the four essential
elements of ‘sale’ are present in the transaction in question. When once the Board was held to
be a ‘dealer’ it also followed that there was sale by the grower, purchase by the board, and then
a sale by the board.
In Ghasiram v. State (AIR 1965 SC 1655), the accused, a retailer, made an agreement with
State Government (entitled ‘Agreement for distribution of wheat through Fair price Shops), and
agreed to sell wheat during ship-hours to consumers within his zone at a retail rate fixed by the
government. The wheat was delivered by the government to the retailer on his deposit of price of
wheat at the agreed whole-sale rate. At one stage, by night-time, retailer removed some bags of
wheat from ship and thereafter, possibly apprehensive of adverse consequences brought them back
to his ship.
The question in the case was whether there was an agreement of sale or that of an agency.
The Court held that retailer by virtue of agreement could not be regarded as an agent of
government in respect of wheat received by him under agreement. The property in wheat
received by retailer, under the agreement, did pass to him. There was no criminal breach of
trust by him, as he was not an agent of the government.
Compulsory Acquisition
A forced purchase or procurement is an acquisition and not a sale. Where property is
compulsorily acquired pursuant to an authority conferred by statute there is no “sale” of the
property, even though compensation is payable and its amount may be fixed by negotiation
between the parties. The expression “compulsory purchase” commonly used in this connection
is misleading.
Where drugs or appliances were supplied to a member of the public under the National
Health Service Scheme (whether by a hospital or a pharmacist), although for a charge, this was
not held not to be a sale. There is no need for an agreement between the patient and either the
hospital or the chemist and there is certainly no room of bargaining [Pfizer Corpn. v. Ministry
of Health (1965), 1 All ER 450].
On the same reasoning, the supply of electricity, gas or water by public authority is not a
‘sale’ of such commodities. There is no contractual obligation on which an action may be
brought against an authority for failure to make the supply available to the consumer. [Read v.
Croyden Corpn. (1938), 4 All ER 631]
Concluding Remarks:
Thus the Supreme Court has taken the view that transaction effected in compliance with
obligatory terms of a statute is nevertheless a ‘sale. Courts are conscious of the fact that
towards the close of 19th Century the background of law – social, political and economical – has
changed fundamentally. Laissez faire economic policy of State (and corresponding freedom and
sanctity of contract) has been supplanted by “social security” whereby State plays a positive role
and may compel persons to make contract and incorporate into it certain terms positively.
4. Distinction between Sale and Hire Purchase
A hire-purchase agreement is a contract of hire and it may eventually ripen into a sale.
According to Section 2(c) of the Hire Purchase Act, 1972, “hire purchase” agreement means an
agreement under which goods are let on hire and under which the hirer has an option to
purchase them in accordance with the terms of agreement, and includes an agreement under
which –
i) the possession of goods is delivered by the owner to a person on condition that such person
pays the agreed amount (i.e. rent) in periodical installments,
ii) the property in the goods is to pass to such persons on the payment of the last of such
installments,
iii) such person (i.e. hirer) has a right to terminate agreement at any time before the property
so passes.

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 Contract of Sale Hire Purchase
1. In it, the seller transfers or agrees to 1. In it, there is no such agreement. It is a
transfer the property in the goods to contract of hire and it may eventually ripen
buyer for a price, whether paid at once into a sale.
or later in installments.
2. In it, there is an agreement to buy. 2. A hirer is not the buyer, who buys or agrees
to buy; he has merely an option to buy.
3. Ownership transfers immediately 3. Ownership transfers only when certain
number of installments paid, and at the
option of hirer.
4. Buyer becomes owner of goods and has 4. A hirer is only a bailee of goods (i.e. in
all rights of own. possession of goods for some time.)
5. Buyer cannot terminate a contract and is 5. Hirer cannot be compelled to buy. Hirer
bound to pay price. An agreement to may terminate bailment by returning the
buy imports a legal obligation to buy. If Article to its owner, without any liability to
there was no such obligation, there pay remaining installments. If hirer defaults
cannot properly be said to have been an in payment, owner has a right to
agreement. immediately resume possession of foods,
6. If the seller or buyer sold goods to a without any liability to refund amount
third party, then such a person gets a received till then.
good title, if he was acting in good faith 6. If a hirer assigns his right to a third party (or
and unaware of previous sale or any lien make a sale/pledge of goods to him), then
or right of original seller. such person won’t get a good title, as a
hirer is not the buyer [Helby v. Mathews
7. Benefits of implied conditions and (1895) AD 4571]
warranties under Sale of Goods Act are 7. Provisions of Hire Purchase Act 1972 are
applicable. applicable.
8. Sales-tax can be imposed. 8. Sales-tax cannot be imposed.

It may again be emphasised that where the hirer does not have the option to return, it will be
an agreement to buy and not a hire purchase, even if the price is payable in installments and
the seller has the power to seize the goods on default. In Lee v. Butler (1893) 2 QB 318, a lady
hired certain furniture from the plaintiff, the price to be paid in two installments, and the plaintiff
having the right to take back the furniture if an installment was not paid. Before the last
installment was paid, the lady sold the furniture to the defendant. It was held that the defendant
had acquired a good title, the lady being in possession of the furniture under an agreement to
buy. She did not have the option to return, but was compellable to buy.
A hire purchase agreement confers two distinct sets of rights on the hirer, namely, the right
to use the goods and the option to purchase. Both the rights are capable of joint as well as
separate assignment. The hirer may be prohibited from selling away the goods or pledging them
but he cannot be prohibited from assigning his rights. The assignee of such rights becomes a
trustee of the goods for the hirer. It is his duty to protect the goods and if he allows the owner to
wrongfully seize the goods and buys them himself from the owner, he is liable to the hirer for the
loss [D. E. Kasisah v. N. T. Engineer AIR 1965 Mad 257]. Thus the word “hirer” includes his
assignees.
Sundram Finance Ltd. v. State of Kerala (AIR 1966 SC 1178): In this case, the appellant
company carried on the business of financing purchase of motor vehicles on the security of
these vehicles. The State imposed sales tax on the transactions between the appellants and
their customers. Appellant contended that they were mere financers and that they did not enter
into any transaction of Sale of Goods with parties, and they were not ‘dealer’ within the meaning
of the Act.

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 The scheme for financing the purchase of vehicle was as follows – the customer purchases
vehicle from the dealer directly, and registers it in his name. The appellant company agrees to
advance the balance of unpaid price, and pay it to dealer on the customer’s executing
promissory note for repayment of amount, a hire-purchase agreement and other documents. On
repayment of said amount, vehicle becomes the sole property of customer. There was a “sale
letter” in the scheme, reciting that the customer has on the date of application of loan sold to
appellants the motor vehicle. Under the hire-purchase agreement, appellant agree to let out to
the customer motor vehicle for a specified term, under specified conditions; under Cl. 6, it is
stipulated that on repayment of due payment, the vehicle becomes sole property of customer.
The sales-tax authorities contended that a ‘sale’ has occurred under the “sale –letter”, and also
a sale has occurred by virtue of Cl. 6 of hire-purchase agreement. The appellants submit that
execution of a “sale-letter” by the customer acknowledging sale of vehicle to them, does not create
in them any right of ownership, the “sale latter” is merely a document under which arrangements
for granting a loan and for ensuring repayment of loan is made. The vehicle continues to remain in
ownership of the customer, and that under Cl. 6 of hire-purchase agreement, there is extinction of
encumbrance and not a transfer of title which may be called a ‘sale’.
The Court observed that a hire-purchase agreement broadly takes one or the other of two
forms. In the first, goods are purchased by financer dealer, and he obtains a hire-purchase
agreement from customer, under which the latter become owner of goods on payment of all
installments by exercising his option to purchase the goods. In the second, goods are purchased
by the customer which remain in his possession, subject to liability to any amount paid by financer
on his behalf to dealer, and the financer obtains a hire-purchase agreement which gives him a
license to seize the goods in event of failure by customer to fulfill agreement’s conditions.
The Court, citing the decision in Mass v. Peeper, Polsky v. A. Services Ltd., observed that
the second form of transaction is neither a hire-purchase agreement, nor a sale, but in fact, a
loan or financing transaction. (In Mass v. Peeper, M entered into a contract with a wine
merchant under which latter was to provide 2,000 pounds, for purchasing the furniture by M.
The merchant paid said sum to vendor who gave a receipt for the sum as part of purchase
money of furniture. M then executed a hire-purchase agreement in favour of wine merchant who
let the furniture to M to be paid for by installments, and the furniture not to become property of M
till all installments paid). It will be a question of fact in each case whether there is a real
purchase and sale complete before the hiring agreement. If there be such a purchase and sale
in fact and afterwards the goods are hired, the case is not within Sale of Goods Act. The
intention of the appellants in obtaining the hire-purchase and allied agreements was to secure
the return of loan, and no real ‘sale’ of vehicle was intended by the customer to appellant.
M/s K. L. Johar and Co. v. Commr. Tax Officer (ART 1965 SC 1982): In this case, the
appellant, a financing company, carried on the business of entering into hire-purchase
agreements with those who want to purchase motor vehicles. C.T.O. imposed tax and such
transactions, treating them to be sales, under the Madras General Sales Tax Act, 1939.
Appellant objected to the levying of such tax.
The High Court observed that a hire-purchase agreement has two elements: (i) element of
bailment, and (ii) element of sale. The second element fructifies when the option is exercised by
the intending purchaser, after fulfilling the terms of agreement. The High Court summed up its
conclusions: (1) the transaction of hire-purchase entered into by appellant constituted sale,
exception in cases where owing to default on part of hirer in payments, the vehicle is seized by
appellant and so no title passed to intending purchaser. (2) These transaction of hire-purchase
could having regard to their main intent and purpose be treated as sales at the moment. The
agreements were entered into.
The Supreme Court agreed with the High Court, that in cases of this kind, there are two
sales: One by the dealer to the financier (i.e. appellant co.), and the other by the financier to the
intending purchaser. It is clear from various terms of hire-purchase agreement, which shows
that whole of the price of vehicle is paid by the appellant to the dealer. Even where a part of the
price is paid by intending purchaser, the payment is known as hire for the first month and is
made to the appellant. The agreement also shows that the appellant is the owner of vehicle and
intending purchaser is merely a hirer. The vehicle has to be registered in the name of the
appellant. Clauses 14 and 15 give power to the appellant to retake possession of vehicle and
determine the agreement. Now, if the property in vehicle had passed to intending purchaser at

8
the time of hire-purchase agreement, it would not have been open to appellant to take
possession of vehicle. Under the law, all that the appellant would have been entitled was to
realize the loan by filing a suit and then attaching and selling vehicle. Then clauses 20 and 21
give an option to the person who wanted purchase vehicle to do so. If he had already become
the owner when the agreement entered into, these two clauses couldn’t have been included in
agreement.
The Supreme Court, however, rejected the second conclusion of the High Court. The
explanation to Section 2(h), Madras General Sales Tax Act had provided that the transfer of
goods on hire-purchase agreement was ‘deemed to be a sale’ for the purpose of levying tax,
even though the property in goods does not pass to the intending purchaser and remains in the
seller. The state legislature had not pass to the intending purchaser and remains in the seller.
The State legislature had not power alter the definition of term ‘sale’ under the Sale of Goods
Act and transaction under a hire-purchase agreement could not become sale until the intending
buyer had actually exercised his option of purchasing goods. It was observed that, “as the
taxable event is the Sale of Goods, the tax can only be levied when the option is exercised.
Therefore, even though eventually most cases of hire-purchase may be result in sales, tax is not
exigible at the time when the hire purchase agreement is made, for at that time taxable events
has not taken place. It can only be exigible when the option exercised, and all the terms of
agreement fulfilled and the sale actually takes place.”
Thus held that the transaction amounted to a hire-purchase agreement, and would amount
to sale only when the option is exercised.
Contract of sale how made section 5:- (1) A contract of sale is made by an offer to buy or
sell goods for a price and the acceptance of such offer. The contract may provide for the
immediate delivery of the goods or immediate payment of the price or both, or for the delivery or
payment by instalments, or that the delivery or payment or both shall be postponed.
(2) Subject to the provisions of any law for the time being in force, a contract of sale may be
made in writing or by word of mouth, or partly in writing and partly by word of mouth or may be
implied from the conduct of the parties.

Subject matter of contract section 6:-The subject matter of a sale under the Act can only
be goods. The goods may be either existing goods, owned or possessed by the seller or “future
goods”. A person may sell goods which he has not yet acquired and the acquisition of which
depends upon uncertain contingencies. When a person purports to make a present sale of
future goods, the contract operates as an agreement to sell the goods.

Effect of destruction of goods section 7:- A contract for the sale of specific goods is void
if at the time of the contract the goods have without the knowledge of the seller already perished
or become so damaged as no longer to answer their description in the contract. This rule
applies subject to the following conditions:-
(1) The contract must be for the sale of specific goods
(2) They must have perished before the contract is made and without the knowledge of
the seller
Barrow Lane & Bollard v. Phillips
There was a contract for the sale of a parcel of 700 bags of Chinese grundnuts. Unknown to
the seller 109 bags had been stolen at the time of the contract. The seller delivered the
remaining 591 bags and an buyers refusal to take them, brought an action for the price.
It was held that the buyers were not liable to take or pay for goods. The contract had
become void by reason of the loss of the goods.

Goods perishing after agreement to sell section 8:-An agreement to sell specific goods
becomes void if subsequently the goods without the fault of the seller or buyer have become
so damaged as no longer to answer their description in the agreement provided this
happens before the risk has passed to the buyer.
For Example:-An agreement to sell a horse after a few specified days becomes void if the
horse dies in the meantime (Howell v. Coupland)

Ascertainment of Price section 9:-Though price is a part of the definition of sale, its
fixation can be done after wards also. The price may be fixed according to the

9
manufacturer’s list or according to the market or as the seller may decide in which case he
has to exercise his discretion fairly. Where the parties have failed to arrive at an agreement
for ascertainment of price, the deal would end in failure if the goods have not been delivered
and if delivered reasonable price would be payable.
Where the price is to be fixed by a valuer and there is a failure in appointing him or he fails
to do his work, doctrine of reasonableness will take over the situation.

Agreement to sell at valuation section 10:-The parties may agree to sell and buy goods
on the terms that the price is to be fixed by the valuation of a third party. If such third party
fails to make the valuation the contract becomes void. However if the buyer has received
and appropriated the goods or any part thereof, he becomes bound to pay reasonable price.
If the third party is prevented from making the valuation by the fault of the seller or the
buyer, the innocent party may maintain suit for damages against the party in fault.

10
 Chapter-2

CONDITIONS AND WARRANTIES

A contract of sale of goods,is likely to contain a number of terms and stipulations about the
nature and quality of the goods and their fitness for the buyer’s purpose. Such stipulations may be
either conditions or warranties. [Section 12(1)]
If a stipulation forms the very basis of the contract, or is essential to the main purpose of
contract, it is called a condition. [Section 12(2)]
If the stipulation is only of secondary importance, or is collateral to the main purpose of contract,
it is called a warranty. [Section 12(3)]

SECTION 12
Section 12(1) provides the stipulation in a contract of sale with reference to goods may be
conditions or warranties. The section then goes on to explain the distinction between the two.
Explaining the term conditions, it says:
“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. [Section 12(2)]”

Defining a warranty, the section says:

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. [Section 12(3)]

This Section concludes:

Whether a stipulation in a contract of sale is a condition or a warranty depends in each case on
the construction of the contract. A stipulation may be a condition though called a warranty in the
contract. [Section 12(4)]

Thus, conditions go directly to the root or substance of the contract, or, in other words, are so
essential to its very nature that their non-performance may fairly be considered by the other party
as a substantial failure to perform the contract at all. On the other hand, warranties are obligations
which, though they must be performed, are not so vital that a failure to perform them goes to the
root or substance of the contract. The remedies of the buyer arising from a breach by the seller of a
condition and a breach of a warranty are different.
The Court may assess the relative importance of the stipulation in dispute in the light of all the
circumstances including the intention of the parties.

The concept of a condition is well illustrated by the case of Baldry v. Marshall.

The plaintiff consulted the defendants, motorcar dealers, for a car “suitable for touring
purposes”. The defendants suggested that a “Bugatti” car would be appropriate and the plaintiff
accordingly bought one. The car turned out to be unfit for touring purposes and the plaintiff sought
to reject it. The defendants relied upon a term in the contract which guaranteed the car for twelve
months against mechanical defects and excluded every other guarantee or warranty. But it was
held that the suitability of the car for touring purposes was not a guarantee or warranty, but a
condition of the contract. The term was so vital that its non-fulfillment defeated the very purpose for
which the plaintiff bought the car. He was, therefore, entitled to reject and have refund of the price.

An illustration of a warranty is Harrison v. Knowles and Foster.

The plaintiff bought two small ships from the defendants relying upon particulars furnished by
the defendants that the dead weight capacity of each ship was 460 tons. The capacity was in fact
only 360 tons.

The plaintiff sought to reject the ships. It was held that the representation of capacity was not a
condition but a warranty, for which the plaintiff could have sued in damages had liability for

11
warranties not been excluded. Similarly, in another case, there was sale of timber properly
seasoned for shipment, the requirement as to seasoning was held to be a warranty and not a
condition.

STIPULATIONS IN SALE OF GOODS

There are stipulations in Sale of Goods Act. These are:
1. Stipulation as to time (Section 11)
2. Stipulation as to goods (Section 12)

Stipulation as to Time (Section 11):

It may be of two types:
i) Time of payment of the price
ii) Time of performance of other term

According to Section 11 as a general rule stipulation as to time of payment will not be deemed
to be condition if contrary intention is not expressed.
But as regard to stipulation as to time of performance of other terms the act is silent.
– So whether stipulation as to time of performance of other terms is the essence of contract or
not, depends on the term of the contract and now it is well settled by the courts that ordinarily in
commercial transaction, as regards stipulations other than such as related to time of payment,
time is the essence of the contract.
– In the case of Hartley v. Hyman, Court held that in ordinary commercial contract’s for the sale of
goods the rule is clear that time is prima facie the essence of the contract with respect to delivery.
– Wasoo Enterprises v. M/s J. J. Oil Mills: In this case J. J. Oil Mills was the seller of groundnut
oil. There was a contract with Wasoo Enterprises. There was stipulation regarding shipment i.e.
goods are to be delivered in a particular ship named S. S. Hakuyo Maru and in the month of
August, goods to be sent from Bhavnagar to Hong Kong.
As ship came late to Bhavnagar, shipment reached late to Hong Kong.
– The issue involved was which stipulation is more important ship or time.
– The Court held that both stipulations are the essence of contract and so violation of any one
gives right to repudiate the contract the transferee.

British Paint Ltd. v. Union of India: There was a contract between British paint ltd. and
Union of India for the supply of paint till October 15, 1952. British Paint Ltd. asked for extension
of time which was then fixed till 30-04-1953. Some quantity of paint was delivered between the
two dates which was checked and accepted by union of India. But later some quantity was
rejected on the following grounds:
i) It was not well in time, and
ii) It was of sub-standard.
British Paint Ltd. challenged the rejection on the ground that paint was not of sub-
standard as the method of checking was not proper.

This contention was rejected by the Court.

– British Paint Ltd.’s second contention was that since time was extended therefore time is not
the essence of the contract. The Court rejected this contention also and held that when time
is extended, the extended time becomes the essence of contract.

Stipulation as to Goods (Section 12):

i) Essential – Conditions [Section 12(2)]
ii) Collateral – Warranty [Section 12(3)]
There is no hard and fast rule as to which stipulation is a condition and which one is warranty.

According to Section 12(4):

a) Condition or warranty depends upon construction of contract
b) The stipulation may be condition though termed as warranty in the contract.

12
 – Whether a stipulation is condition or warranty the Court should look at the actual terms of
the contract and the intention.
– When there is a breach of condition by the seller, the buyer may:
i) Treat the contract as repudiated, i.e., he may reject the goods or
ii) Waive the condition, i.e., he may accept the goods without bringing any action against
the seller.
iii) Treat the breach of condition as a breach of warranty, i.e., he may accept the goods
instead of rejecting them and can claim damages as if there was a breach of warranty only.

IMPLIED CONDITIONS [SECTION 14 TO 17]

It is open to the parties to include in their contract any number of express conditions and
warranties. But in addition to what the contract may provide, the law implies into every sale of
goods a number of conditions and warranties. They are read into every contract of sale unless they
are excluded, and are known as implied conditions and warranties.
The implied conditions and warranties are:
1. Implied Condition as to title [Section 14]
In a contract of sale, unless the circumstances of the contract are such as to show a
different intention there is an implied condition on the part of the seller that in the case of a sale,
he has a right to sell the goods and that, in the case of an agreement to sell, he will have a right
to sell the goods at the time when the property is to pass.
The essence of sale being the transfer of ownership, it is one of the duties of the seller to
ensure that he has the right to sell what he purports to sell. That is why the law reads into every
sale the implied condition that the seller has the right to sell. If the seller’s title turns out to be
defective the buyer may reject the goods.
In Niblett v. Confectioners’ Materials Co., the defendants sold to the plaintiffs 3,000 tins of
condensed milk. On their arrival in England from New York it was found that 1,000 tins were
labeled ‘Nissley Brand’. Another manufacturer of condensed milks under the name of “Nestle
Brand” claimed that this was an infringement of his trademark. The plaintiff had to remove all the
labels in order to obtain the goods and subsequently sold them at a reduced value. He sued the
sellers for the breach of the condition as to title.
It was held that the plaintiff has the right to reject the goods or to recover as damages the
loss caused by the sale at a reduced price.
In the case of a chain of transactions beginning with the original owner from whom the
goods are stolen and ending with the last buyer, each buyer would have his remedy against his
immediate seller and the owner would have the right to recover possession from the buyer who
is in possession.
In Karlsharims Objata Briker v. East Part Navigation (1982) All ER. 208: the view given
by the Court was that if the seller is the owner then he has a right to sell the goods. But Section
does not require that seller should be the owner and so a contract for sale can perfectly well be
performed by seller who never has title at any time by causing a third party to transfer it directly
to the buyer.
If a person has no title to the goods or otherwise does not have a right to dispose off certain
goods the buyer of such goods has a right to reject them and to claim back the price if the same
has already been paid.
Rowland v. Divall: In this case, A purchased a car from B and resold it to C. Later on A
found that B was not the owner of car and so he paid back the money to C and got the car back.
Then gave back the car to B asked for his full money. B refused on the ground that car was
used for some time and so he is entitled to deduct some money. Court rejected B’s contention
on the ground that he was not the owner of the car and so he had no title, therefore he has to
pay back full money.

2. Implied Condition of sale by description [Section 15]

According to Section 15 when there is sale by description then there is an implied condition
that goods shall be in accordance with the description.

13
 Sale by description may be both existing and future goods and in case of future goods,
goods shall be in accordance with the description. In case of existing goods if buyer is seeing
the goods and seller is describing the goods but he has relied on what has been described by
seller then it will be a case of sale by description. But if buyer is not relying on the description
but by his own judgment he has purchased the goods then it is not a case of sale by description.

Nichalson & Venn v. Smith Harrioff: In this case there was an auction sale and seller was
selling some antiques saying it was of 17th Century. Buyer purchased the goods but later on
found that goods belonged to 18th Century.
Held that it is sale by description as it was not possible to detect at the time of sale whether
it belonged to 17th Century or not. Hence it is breach of an implied condition.
Harlington Ltd. v. Hull Fine Arts ltd.: In this case seller was the owner of an Art Gallery
where he was selling some paintings. A catalogue describing nature of painting and the name of
painter was given to buyer. Buyer was an expert who was told by the seller that he is not sure
whether the paintings were trained by the same painter described in the catalogue or not. But
the buyer ignored his words and bought the paintings. Later on painting was found to be fake.
Held that buyer had relied on his own judgment and not on the description so there is no breach
of condition. The fact that a description was applied to goods either in the course of negotiation or in
the contract itself did not necessarily make the contract one for the sale of goods by description.
Since for the sale of goods to be by description, the description has to be influential in the sale so as
to become an essential term or condition of the contract.
Description need not necessarily be related to quality of goods. It may relate to something
else also e.g. packing
Moore and Co. v. Landauer (1921): In this case contract was to sell tinned fruits and with a
description that parcel should contain 30 tins per parcel. Later it was found to be 24 tins per
parcel. Held there is a breach of condition.
In case description does not match with the goods but goods can be used for the intended
purpose then the question is whether the buyer can reject the goods?
Yes – He can reject the goods on the ground of breach of condition.
Meaning of Correspondence with Description – Once it is proved that the sale is by
description, the law implies the condition that the goods must correspond with the description. If
they do not do so that buyer may reject them and it will be no defence to say that they will serve
the buyer’s purpose. For example, in Acors v. Ronaasan and Son:
The contract was for the sale of staves (timber) to be ½ inch thick. The timber supplied
varied in thickness from ½ inch to 2/3 inch. The buyer’s purpose in buying was to make cement
barrels and the staves as supplied were fit for that purpose.
The House of Lords held that the buyers could reject the goods as they did not correspond
with the description in the contract. Lord BUCKMASTER said: “If the article they have
purchased is not in fact the article that has been delivered, they are entitled to reject it, even
though it is the commercial equivalent of that which they have bought.”
Thus, the requirement of “correspondence with description” is a strict one. The goods must
answer to the description even where they are sold “with all faults.” If they do not do so the
buyer may reject even if the contract specially provides that the buyer shall not reject the goods
and the dispute, if any, shall be referred to arbitration. This is so because no amount of
exemption clauses can compel a person to buy a thing different from what he contracted to buy.

3. Rule of Caveat Emptor [Section 16]

According to Section 16 as a general rule there is no implied condition or warranty as to the

quality or fitness for any particular purpose of goods supplied under a contract of sale.
It is incorporation of the rule involved in the maxim “caveat emptor”, which means “let the
buyer beware”. Sometime the goods purchased by the buyer may not suit the particular purpose
for which the buyer wants them. So, according to this rule if the goods are subsequently found
to be unsuitable for his purpose he cannot blame the seller for the same as there is no implied
undertaking by the seller that he shall supply such goods as suit the buyer ‘s purpose. So this
rule is applicable only where there is a particular purpose of the buyer.

14
 Example: A purchases a horse from B. A needs horse for riding but he does not mention this
to B. The horse is not suitable for riding but is suitable only for being driven in a carriage. A can
neither reject the horse nor can he claim any compensation from B.

Hoddard v. Hobbs: In this case there was an auction-sale of pigs. There was no implied
warranty about the fitness of pigs. Buyer found that some of the pigs were suffering from typhoid
and died later. They infected others also. So buyer asked for damages. The Court decided the
case in favour of the seller as the buyer was aware of the terms that fitness was not the condition.

Exceptions to rule of Caveat Emptor

The rule of caveat emptor owes its origin to the times when nearly all sales took place in the
open market. The buyer and the seller came face to face, the seller exhibited the wares the buyer
examined them and bought them if he liked.
But as trade grew and assumed global dimensions, it became difficult for buyers to examine
goods before hand, most transactions being concluded by correspondence. Further on account of
the complex structure of modern goods it is only the seller who can assure the contents and
quality of goods. For this reason it became necessary to restrict the rule of caveat emptor by
grafting few exceptions to this rule.
Exception to Section 16: According to Section 16 the rule of “caveat emptor” is not
applicable where:
i) Buyer expressly or impliedly makes known to the seller the particular purpose for which he
wants goods, and
ii) Also he relies on the seller’s skill and judgment.
iii) The goods must be of description which it is in the course of the seller’s business to supply.
So, if above these conditions are fulfilled then there is an implied condition on the seller
that goods must be fit for that purpose.

Exception – 1 [Implied condition as to quality or fitness]

In re Andrew Yule and Co.: In this case order was made for cloth to pack foodstuffs.
However this purpose was not disclosed to the seller. Later it was found that cloth could not be
used for that purpose. Court decided the case in favour of seller.
R. T. Grant v. Australian Knitting Mills: In this case A brought an action against B and C
claiming damages on the ground that he contracted dermatitis by wearing underwears sold by B
and C manufactured by C. Contention of B and C was that the particular purpose was not
disclosed. The Court decided the case in favour of A as there could not be any other purpose of
buying such goods.

Proviso to the Exception 1 of Section 16: According to this proviso if the goods is asked for
by the trade mark or patent name of the goods and purpose is also disclosed, even then seller
has no responsibility i.e. Exception 1 of Section 16 will not apply.

Baldry v. Marshall – Court observed in this case – “The test of an article having been sold
under its name within the meaning of proviso is – did the buyer specify it under it’s trade name in
such a way as to indicate that he specified rightly or wrongly that it will answer his purpose and that
he is not relying on the skill or judgment of the seller however what the skill or judgment may be.”

Exception – 2 [Implied condition of merchantable quality]: This is the second exception to

the rule of “Caveat emptor” and so it is an implied condition. According to exception II of Section
16 when the goods are bought by description and the seller is selling the same as description
then it is an implied condition that the goods must be of merchantable quality and if it is not then
seller is liable.
In R.T. Grant v. Australian Knitting Mills Court defined the term “merchantable”. The term
“merchantable” means that the article sold if only meant for one particular use in ordinary course
then it is fit for that use.”
Merchantability is regarding the quality of goods and not with reference to purpose of buyer.

15
 Priest v. Last: Court observed that hot water bottles are used commonly for applying heat
to human body. So if that purpose is not disclosed it does not matter as Section 16, Exception II
is applicable.
Exception II to Section 16 is also applicable as things should match with the use as
described.
If things are capable of being used for more than one purpose then it should be of
merchantable quality for ordinary purpose.
Jones vs. Padgett: In this case there was a transaction between wool manufacturer and
buyer. Buyer wanted the wool for resale for making human cloths. Wool purchased was found
not fit for making human clothes. Court held that because such purpose was not disclosed to
manufacturer so Section 16, Exception–I is not applicable and exception II is not applicable as
the wool can be used for many other purposes.
Bristol Tramways v. Fiat Motors Ltd.: In this case, there was a sale regarding complete
omnibus and fiat chasis. Seller was aware that buyer was relying on his skill and judgment.
Later it was found that bus was not useful for heavy load. Contention of the seller was that bus
was asked for with its patent name so proviso to the Exception–I of Section 16 is applicable. But
Court held that as per the facts design of engine was changed continuously so proviso will not
be applicable as the thing is not static and patent cannot be used for such thing.
Also held bus was not fit for heavy load as the material used was not of required quality.
Material used especially as regard the size and strength of necessary fittings was not of
merchantable quality.
R. S. Thakur v. H. G. E. Corporation: In this case there was a sale of radio but that was
not working properly. Buyer got it repaired by seller many times. At last buyer refused to take it
and asked for compensation. Held that if the buyer is a layman and purchasing the things for
ordinary use, it is presumed that he is relying on the skill and judgment of seller and also thing
must be of merchantable quality.

4. Sale by Sample [Section 17]

A sale by sample is defined in Section 17(1). It says that” a contract of sale is a contract for
sale by sample where there is a term in the contract, express or implied, to that effect. A term to
that effect is readily implied when a sample is shown and it is the common intention of parties
that the goods should be of the kind and quality as the sample is.
The law implies three conditions into every contract of sale by sample:
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 them unmerchantable which would
not be apparent on reasonable examination of the sample.

Bulk to correspond with sample – The first implied condition is that the bulk of the goods
actually delivered must match the sample in quality.
PM Ruben Ltd. v. Faire Bros: It was a contract for the sale of rubber material of which
samples were shown. The material was to be in rolls of specific length and width. The rubber
material delivered was of measurements out of accord with the sample.
It was, therefore, held that the goods did not correspond with the sample in quality, their
measurement being a part of their quality and the buyer, having not rejected the goods, was
entitled to damages for breach of the condition. And this would be so even if a very simple
process was required to make them accord with the sample.

Opportunity to compare bulk with sample – The second implied condition is that the
buyer shall have a reasonable opportunity of comparing the bulk of the goods with the sample.

Free from defects rendering goods unmerchantable – The third condition requires the
goods to be free from any defect which renders them unmerchantable and which is not apparent
on reasonable examination. In other words, there is no implied condition where the defect is a

16
 patent one. The condition arises only when the defect is a latent one, that is, not discoverable
by reasonable examination.
Drummond & Sons v. Van Ingen: A cloth merchant ordered cloth manufactures worsted
coating which were to be in quality and weight equal to samples previously furnished. The
buyer’s object was to sell the cloth to clothiers and tailors. The coatings supplied correspond in
every particular with the samples, but owing to certain defects, were unmerchantable. The same
defect existed in the samples, but was not discoverable by due diligence upon such inspection
as was ordinary and usual upon sale of cloths.
The House of Lords held that the defect was a latent one and, therefore, the goods were
unmerchantable.

IMPLIED WARRANTIES
The following warranties are implied by law into every contract for sale of goods:
i) Quiet Possession [Section 14(b)]
In every contract of sale, unless there is an agreement to the contrary, there is “an implied
warranty that the buyer shall have and enjoy quiet possession of the goods.” “It is a warranty
that the vendor shall not, nor shall anybody claiming under a superior title, or under his
authority, interfere with the quiet enjoyment of the vendee.” If the possession of the buyer is
disturbed by a person having a superior right than that of the seller, the buyer is entitled to hold
the seller responsible for breach of this warranty. Thus, in Rowland v. Divall.
The plaintiffs purchased a motorcar from the defendants. The car turned out to be stolen
property and the plaintiff had to restore it to the true owner. The plaintiff was held entitled to recover
the whole of the price paid by him despite the fact that he had used the car for some months.
ii) Free from Encumbrance [Section 14(c)]
The second 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 when the contract is made.” Where, for example, a person has pledged his goods and,
having taken them from the pledgee under some pretence, sells them the goods being subject
to an encumbrance, this warranty is broken and the buyer may recover compensation if his
possession is disturbed by the pledgee.

CONDITIONS REDUCED TO WARRANTY [SECTION 13]

In certain circumstances a condition is reduced to the status of a warranty. The effect is that the
buyer loses his right to reject the goods. He has to be content with the remedy of damages for the
breach of the condition. This happens in the following cases:
1. Waiver by buyer
“Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer
may waive the condition or elect to treat the breach of the condition as a breach of warranty.”
The conditions, express or implied, are for the benefit of the buyer. He has, therefore, the option
to waive the breach of a condition. In that case he remains liable for the price, but may recover
damages for the breach. The buyer’s election may be express or implied.
2. Acceptance of goods by buyer
“Where a contract of sale is not severable and the buyer has accepted the goods or part
thereof, the breach of any condition to be fulfilled by the seller can only be treated as a breach
of warranty and not as a ground for rejecting the goods… unless there is a term of the contract
to that effect”. Thus, where the buyer has accepted the goods and thereafter discovers that
some condition was not fulfilled, he cannot reject. He must keep them for whatever they are
worth and recover damages to make up for his loss. “Acceptance” is defined in Section 42.
Section 42: Acceptance – The buyer is deemed to have accepted the goods when he
intimates to the seller that he had accepted them, or when the goods have been delivered to
him and he does any act in relation to them which is inconsistent with the ownership of the
seller, or when, after the lapse of a reasonable time, he retains the goods without intimating to
the seller that he has rejected them.
Where the buyer after receiving the goods, re-sells them the courts regard that as an act
inconsistent with the seller’s ownership.

17
 Hardy and Co. v. Hillerns and Fowler: Wheat sold under a contract arrived at the port of
destination. The buyers took up the shipping documents. The day on which the wheat was
unloaded they resold and dispatched a portion of it to sub-purchasers. They subsequently
discovered that the wheat was not of the contract quality and gave the sellers a notice of
rejection. All this happened within three days and, therefore, reasonable time for the
examination of the goods had not expired.
It was held that the transfer of the possession to the sub-purchasers was an act inconsistent
with the ownership of the sellers, and, therefore, that put an end to the buyer’s right of rejection
notwithstanding that it took place before the expiry of reasonable time for inspection.

EXCLUSION OF IMPLIED TERMS [Section 62]

Section 62: Exclusion of implied terms and conditions – Where any right, duty or liability would
arise under a contract of sale by implication of law, it may be negatived or varied by express
agreement or by the course of dealing between the parties, or by usage, if the usage is such as to
bind both parties to the contract.
Section 62 enables the parties to a sale to exclude liability for implied terms. The Section
recognises three modes by which liability for implied terms may be negatived – (1) by express
contract; (2) by course of dealing, and (3) by usage.
1. By express contract
Clauses by which a seller excludes his liability for breach of implied terms have always been
looked upon by the courts with disfavour. Accordingly, they are strictly construed and unless the
liability is excluded by very appropriate terms the seller is held responsible. Thus, in a sale of
car “fit for touring purposes”, the seller excluded liability for “all guarantees and warranties”, the
Court held him liable as the unfitness of the car supplied for touring purpose was not a breach of
a guarantee or a warranty, but of a condition. (Andrews v. Singer)
An agreement for the supply of “new singer cars” excluded liability for “all conditions,
warranties and liabilities, implied by statute, common law or otherwise.” One of the cars
supplied under this agreement was in fact a used car. The buyers claimed damages for breach
of contract. The sellers relied upon the exemption clause. The Court of Appeal held that the
sellers had excluded liability for implied conditions, whereas the undertaking to supply “new
singer cars” was not an implied condition but an express one.
2. Course of dealing
The implied terms of a contract of sale can also be negatived by a course of dealing
between the parties. There should be a clear proof of the existence of a course of dealing. “A
course of dealing may arise with equal force from a written or parol bargain, or from the
repeated occurrence of similar methods as between the parties. In each case the question is as
to the implication to be drawn form the past as applied to a new transaction.” But a single
transaction is not sufficient to establish a course of dealing. Thus the fact that on one occasion a
party paid against delivery telegrams was held not sufficient to exclude the implied incidents of
a c.i.f. contract by which the buyer has to pay only against shipping documents.
3. Trade usage
Lastly, implied terms may be excluded by trade usage. Thus, on a sale of meat by a butcher
which was seized and condemned as unfit for human consumption, the seller was allowed to
give evidence of the fact that by the usage of the market no warranty of fitness for food was
implied. The buyer was, however, allowed to recover damages in respect of the fine and costs
and for his loss of trade.

18
 Chapter-3

PASSING OF PROPERTY

Transfer of property in the goods from the seller to buyer is the essence of contract of sale
sometimes the property in goods may be transferred when the contract has been entered into and
sometimes at a later time. Many rights and obligations of the parties are linked with passing of
property. One of the most important effect is that “risk” prima facie passes with property i.e.—that
the goods are at the risk of the party in whom the property is.
For the purpose of transfer of property the goods may be divided into two classes-i.e.
specific or ascertained goods (ss.19,20,21,22 and 24), future or unascertained goods (ss.18,23 and
25).Specific goods means good u/s 2 (14).

Section18:- “Where there is a contract of sale of unascertained goods, no property in the goods is
transferred to buyer unless and until the goods are ascertained.”

Transfer of Property in Specific Goods

1. Property transferred as intended S.19:- Passing of the property though one of the natural results
of a sale is not the inevitable result. The Act leaves the whole question of passing of property
upon the intention of the parties (Asea Brown Boveri Ltd v. O.L.of Polysteels Ltd AIR (Noc) 56).
For the purpose of ascertaining the intention of parties regard shall be had to the terms of
contract, conduct of parties and circumstances of case.
2. Specific goods in a deliverable state S.20:- Where there is an unconditional contract for the sale
of specific goods in a deliverable state, the property in goods passes to the buyer when the
contract is made and it is immaterial whether the time of payment of price or the time of delivery
of goods or both is postponed.
In Tarling v. Baxter , a contract for the sale of a certain stack of hay was entered into on jan.6,
the price to be paid on feb.4, But stack was not to be removed until May 1. The Stock was
accidently destroyed by fire on jan.20 held that the property in goods had passed to the buyer
even though the payment of price and delivery of goods were postponed and therefore the
buyer should bear the loss.
3. Specific goods not in a deliverable state S.21 :- where according to terms of contract the seller
has to get goods packed In bags the property in goods will not pass to buyer until the seller has
packed so and buyer gets notice of the same.
If part of goods put in a deliverable state within the knowledge of buyer and before the
remainder could be put so the whole lot is destroyed by fire the property in those goods which
have been put in a deliverable state has passed to buyer and he must bear the loss in respect
of them (Rugg v. Minnet)
Notice to buyer:- The idea behind the rule is to enable buyer to know as to the point of time
when the property in goods passes to him because on such passing the goods are at his risk. It
is immaterial whether the fact of the goods being put in a deliverable state comes to his
knowledge by an information given to him by seller or in any other way.
4. Specific goods to be weighed etc. by the seller (S.22) :- For the application of this section
something must remain to be done by the seller of the seller has done all what he was required
to do them section 22 is not applicable and the property may pass at the time of making of
contract u/s 20.
Zagury v. Furnell – There was a contract for sale of 289 bales of goat skins, each bale
containing 5 dozens, the price having been fixed at 5 sh. 6d/dozen. According to usage of trade
the seller was to see that each bale contained specific number. Before the seller could do so
bales destroyed by fire. Held that the property in goods had not passed to buyer as something
still remained to be done by the seller. The loss of goods had to be borne by seller.

19
The provision relating to passing of property on sale of unascertained goods are split in to two
sections:-
5. Goods Must be ascertained section 18
6. Sale of unascertained goods and appropriation section 23
Ascertainment:-It is a process by which the identity of the goods to be delivered under the contract
is established. But “a mere setting apart or selection by the seller of the goods which he expects to
use in performance of the contract is not enough”. There must be appropriation to the contract.
The ascertainment can be a unilateral act that is, the seller alone may set apart the goods.
Example:-One of the conditions adopted by the coffee Board of India for auction sale of coffee is
that the property would not pass to the bidder until full price was paid and the coffee sold was
weighed and set apart for delivery to him. This act of setting apart is known as “ascertainment” and
it would amount to appropriation if it has the assent of the buyer.
Appropriation:-Appropriation involves the element of common intention. Selection of the goods with
the exclusive intention of using them in performance of the contract and with the mutual consent of
the parties is what constitutes “appropriation”.
Rhode v. Thwaites
There was a sale of twenty hags heads of sugar out of a larger quantity. Four hags heads were
filled and taken away by the buyer. Subsequently the seller filled sixteen more hags heads and
informed the buyer who promised to take than away. But before he could do so the goods were lost.
It was held that the buyer by promising to take them away had given his assent to take
appropriation and therefore the property had passed to the buyer at the time of loss.
Property does not pass till appropriation:-The act of appropriation has usually to be done by the
seller, where the seller has done nothing to sort out the goods, the question of the property in them
passing to the buyer does not arise. Thus where there was a contract for the sale of a quantity out
of a cask containing a much larger quantity, no part having been separated or bottled, the property
did not pass.
Healey v. Howlett & Sons
The defendants ordered of the plaintiff, a fish exporter twenty boxes of hard bright mackerel. The
plaintiff consigned 190 boxes with a railway company following the usual practice by which the
railway company had to earmark and deliver twenty boxes to the defendants and the rest to the two
other consignees. The consignment was delayed and when ultimately the twenty defendants the
fish had deteriorated and were no more merchantable. The defendants accordingly refused to
accept them and the sellers sued for the price.
It was held that at the time of deterioration the property had not passed to the buyers.

Appropriation with mutual consent:-Once “appropriation” with mutual assent has taken place, the
goods becomes the property of the buyer and if they have not been delivered they are in the
custody of the seller as a bailee.
Aldridge v. Johnson
The plaintiff had bought 100 quarters of barley from the seller’s stock which he had seen in bulk and
approved of. It was agreed that the plaintiff should send sacks, the seller should fill and deliver them
to a carrier for carriage to the plaintiff. The plaintiff sent 200 sacks of which the seller has filled 155.
But before he could find a carrier he got in to financial difficulties and re-emptied the sacks. His
assignee in bankruptcy seized the whole stock.
It was held that so much of the barley as had been filled in to the sacks became the property of the
buyer and he was entitled to it.

Appropriation without buyer’s assent, ineffective

Buyer’s assent express or implied

20
Modes of appropriation
Delivery to carrier:-One mode of appropriation is recognised by the Act itself and this is delivery to
a carrier or other bailee section 23(2). The moment the goods which have been selected in
pursuance to the contract are delivered to the carrier becomes the agent of the vendee and such a
delivery amounts to a delivery to the vendee; and if there is binding contract between the vendor
and vendee there is no doubt that the property passes by such delivery to the carrier. It is
necessary that goods should agree with the contract. Further it is also necessary that delivery to the
carrier must show to which particular buyer the goods are appropriated for otherwise the property
does not pass.(Healey vs. Howlett & Sons)

Acknowledgement by the bailee:-Where the goods are already in the possession of a bailee and
he acknowledges to hold them on behalf of the seller, that amounts to an “unconditional
appropriation”.(Warder’s (Import & Export) Co. Ltd. V. W Norwood & Sons Ltd.)
Delivery to post office:-Delivery to the post office may have the same effect as delivery to a
carrier. There is no decision on this point except that of the house of lords in Bandische Anilin And
Soda Fabrik vs Basle Chemical works. Where it appears to have been held that the posting of
ordered goods vested the property in the buyer.
Reservation of right of disposal section 25:-Where, however, the seller reserves the right of
disposal of the goods until certain conditions are fulfilled, the property does not pass. In such a case
even if the goods are delivered to the buyer himself or to a carrier or other bailee for transmission to
the buyer, the buyer does not acquire ownership until the conditions imposed by the seller are
satisfied section 25 (1).
Illustration:-A piano was sold. It was to be delivered at a packer’s premises and to be paid for in
cash. The seller left it at the packer’s premises on the express condition that it was not to be
delivered to the buyer until paid for. The Packer, however delivered it without payment. It was held
that instrument was the seller’s property and the packer was liable in trover in wrongfully delivering
it to the buyer by making delivery conditional upon payment the seller had reserved the right of
disposal and that prevented the property from passing.

Section 25 (2):-Where goods are shipped or delivered to a railway administration for carriage by
railway and by the bill of lading or railway receipts, as the case may be, the goods are deliverable to
the order of the seller or his agent, the seller is prima facie deemed to reserve the right of disposal.

Section 25 (3):-Where the seller of goods draws on the buyer for the price and transmits to the
buyer the bill of exchange together with the bill of lading or, as the case may be, the railway receipt,
to secure acceptance or payment of the bull or exchange, the buyer is bound to return the bill of
lading or the railway receipt if he does not honour the bill of exchange: and , if he wrongfully retains
the bill of lading or the railway receipt, the property in the goods does not pass to him.

Property Passes on compliance with seller’s condition:-As soon as the condition imposed by
the seller are satisfied, the property passes to the buyer.
Mirabita v. Imperial ottoman Bank
A cargo of lumber was shipped and the bill of lading and the bill of exchange for the price was given
by the seller to their bankers. The baker was to hand over the bill of lading to the buyer on his
accepting and paying the bill of exchange. Initially the buyer declined payment but subsequently
tendered the amount. But then the banker refused to accept the tender and sold the cargo.
The court held that property passed to the buyer when he tendered the amount of the bill. The
Banker’s conduct in selling cargo after the tender was wrongful and he was liable in trover.
Transfer of Risk section 26
Risk prima facie passes with property:-The “risk” and property go together. The goods are at the
risk of the party in whom the property is. For example:- Sterns Ltd. V. Vickers Ltd.
There was a sale of 1,20,000 gallons of white spirit out of 2,00,000 gallons in a tank
belonging to a third party. A delivery warrant was given to the buyer and it was accepted by the
owner of the tank. But the buyer did not take the delivery of the spirit for months for his own

21
convenience. The spirit deteriorated. The loss fell upon the buyer both because the property has
passed by attornment and even if it had not because the buyer delayed taking delivery.

Separation of risk from property:-Generally “risk” and “property” go together. But sometimes
“risk” may be in one party and “property” in another. The section itself recognises an instance of a
case of this kind.

Delay in delivery:-Demby Hamilton & Co. Ltd. V Barden (Endeavour wines ) Ltd.
The defendant contracted to buy the plaintiff 30 tones of apple juice. Delivery was to the
made in weekly truckloads. The plaintiff crushed all the apples. Deliveries would have been
completed by February 1946. Buyer took some deliveries and then stopped altoghter. The juice was
still waiting for their delivery up to November when it deteriorated.
Court held that in the circumstances the loss fell upon the buyer.
“Risk” and “Property” may be separated by a trade custom also.
Risk where goods are delivered at distant place section 40:-Risk and property may be
separated by a term of contract. Where the seller agrees to deliver the goods at his own risk at a
distant place from where they are, the buyer has, unless otherwise agreed to take any risk of
deterioration incident to the transit.
Sale on approval S.24:- When the goods are sent on approval or on sale or return basis or on trail,
the transaction is merely an agreement to sell and the property and the risk remain in the seller until
the buyer does one or other of the things mentioned in the section. If the buyer does anyone those
things the transaction becomes a sale and the property and risk pass to the buyer.
(i) By acceptances S.24(1):- The property person when the buyer signifies his acceptance or
approval or otherwise adopts the transaction. Acceptance may be express or implied
from conduct.
(ii) By failure to return within a fixed reasonable time S.24 (2) :- when the buyer fails to return
the goods or give notice of rejection within reasonable time or if a time has been fixed on
the expiration of that time. The property passed to the buyer. What is a reasonable time
is a question of fact in each case.
Example:- If A takes a house on trail for 8 days and within those 8 days ‘A’ neither
communicate his acceptance not rejection of the horse to the seller but continues to
remain the horse. A will automatically become the owner of the horse on the expiry of
this period of 8 days. It may be noted that in such cases the property will pass to the
buyer when the stipulated period expires and not before that.

22
 Chapter-4

TRANSFER OF TITLE

THE BASIC QUESTION

When the seller neither himself is the owner, nor he has the authority of the owner to sell goods
but he sells goods, the question arises as to-- should the right of owner be protected and he be
entitled to recover back possession of goods from one to whom they have been sold? Or should the
buyer, who might have bought them in good faith, be protected and allowed to return goods
defeating the rights and title of real owner?

Such question arises in cases like:

i) A person finds goods lying on the road and sells them.
ii) A thief sells stolen property.
iii) A person sold the thing bought on credit or on a hire-purchase basis.
iv) A person continuing in possession of goods which he has already sold resells goods.

SECTION 27 – GENERAL RULE

Sale by person not the owner – 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, unless the owner of the goods is by his conduct
precluded from denying the seller’s authority to sell:
Provided that, where a mercantile agent is, with the consent of the owner, in possession of
the goods or of a document of title to the goods, any sale made by him, when acting in the
ordinary course of business of a mercantile agent, shall be as valid as if he were expressly
authorised by the owner of the goods to make the same; provided that the buyer acts in
good faith and has not at the time of the contract of sale notice that the seller has no
authority to sell.
As a general rule, this section tries to protect the interest of the true owner. However, various
exceptions to this rule protect the rights of buyer.

This rule is derived from the maxim:

Nemo dat quod non habet – which means – “nobody can give what he himself has not got” i.e.
a seller can’t transfer a better title than that of his own. If seller’s title is defective, buyer’s title also is
defective.

EXCEPTIONS TO THE RULE

In following exceptional situations, the seller of goods may not be having a good title to the goods;
yet the buyer of goods gets a good title to them. (Thus buyer’s title will not always be a bad one):
1. Sale under the implied authority of owner (or transfer of title by estoppel): When the
owner of goods by his act or omission, makes the buyer to believe that seller of those goods
has a right to sell them. Subsequently, he cannot deny the existence of such a right in seller,
e.g. – If a son sells his mother’s jewellery, in her presence and she is making no objections, she
was not subsequently permitted to deny the sell; the sale was binding on her. Estoppel arises
from a representation that the seller has the authority to sell.
2. Sale by a Mercantile Agent: (proviso to Section 27) – For application of this proviso, following
conditions are to be satisfied:
a) That the seller is a mercantile agent
b) The mercantile agent got the possession of goods or documents of title to goods with the
consent of owner in his capacity as a mercantile agent.

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 c) While selling goods he must have been acting in the ordinary course of business of a
mercantile agent.
d) The buyer of goods must have acted on good faith without having any notice that such a
mercantile agent did not have an authority to sell.

Mercantile Agent:
One who is having in the customary course of business as such agent authority either to sell
the goods, or to consign them for the purpose of sale; or to buy goods, or to raise money on the
security of the goods.
Mercantile agent should be in possession of goods with the consent of owner. E.g. if A goes
out of station and leaves some valuables with his neighbour B for purpose of safe custody. The
neighbour who happens to be an auctioneer, disposes of those valuables by auction, the buyer
will not acquire good title because the seller did not get the possession in his capacity as an
agent but as a neighbour or a bailee.

Burden of Proof:
The burden of proof that buyer was acting in good faith and without notice is upon the buyer
himself.
Case law:
i) Folkes vs. King
Facts: An agent was entrusted with a car by the owner to sell the same subject to a
reserve price.
Contrary to the authority, the agent sold that car below the reserve price to a bona fide
purchaser and misappropriated the proceeds.
Held: Since the buyer has purchased the car from the mercantile agent in good faith, he
had a good title.
ii) Pearson vs. Rose
Facts: Plaintiff gave possession of his motor car to a mercantile agent, to know if the
same could be sold.
He did not actually authorise him to sell the same. The agent took the registration book
of car from the plaintiff by trick and then sold the car without the plaintiff’s authority or
knowledge.
The agent sold the car to X, X sold it to Y and Y sold the same to defendants. Plaintiff
sued defendants to claim damages for conversion on ground that the agent had no authority
to sell and, therefore, no good title could be passed to any subsequent transferee.
Observed: Agent got possession of car as a mercantile agent but not the registration
book. The sale of second hand car without the registration book could not be considered to
be “in the ordinary course of business.”
Held: For passing a good title, the agent should have obtained the possession of car as
well as registration book with the consent of buyer; in the absence of which agent was not
able to pass a good title to buyers.
3. Sale by one of the joint owners – Section 28: If one of the several joint owner is in sole
possession of goods with the permission of other co-owners, a sale by him conveys a good title
to buyer who buys in good faith and has no notice of the fact that such a joint owner has no
authority to sell.
4. Sale by a person in possession under a voidable contract – Section 29: The first condition
for the application of this exception is that the goods should have been obtained under a
voidable contract as opposed to a void contract. An illustration is supplied by Phillips V Brooks
Ltd. There a fraudulent person posed himself to be a respectable person and obtained from a
shopkeeper a valuable ring by giving a worthless cheque. Before the fraud could be discovered
the rogue had pledged the ring with a bona fide pledge, who it was held obtained a good title.
The contract was voidable by reason of the fraud and before it was recineded the goods had
gone to the hands of a third person.
Second requirement:-The contract must not have been recineded at the time of the sale.

24
 Section 29 does not apply to a void contract or where the seller has no title at all e.g. goods
by theft.
5. Sale by the seller in possession – Section 30(1): If a seller has sold the goods and the
property in goods has passed to the buyer, the seller cannot deal with such goods, and if he
does so, the buyer can sue him for tort of conversion. E.g. A sells goods to B. B for his own
convenience leaves the goods with A.
A fraudulently sells the goods to C, who buys them in good faith and without notice of the
sale to B.
C gets a good title to the goods. The delivery of the goods by A to C has the same effect as
if A were expressly authorised by B to deliver the goods.
6. Sale by the buyer in possession – Section 30(2): This section deals with a case where the
buyer is in possession of goods but the property in them has not passed to him.
If a buyer has obtained possession of goods or documents of title to them with the consent
of seller, any sale, pledge etc. to any person will convey a good title to transferee:
Provided the person receiving goods was acting in good faith and without any notice as regard a
lien or other right of the original seller in respect of those goods.
Case Laws:
i) City Fur Manufacturing Co. v. Fureenhod Ltd. (1937) 1 A.E.R. 799 – In this case, one
Herman bought certain lots of fur from the auctioneers Lampsons & Co., but he did not pay
for all lots at once, and the auctioneers held the goods in warehouse subject to the payment
of amount by purchaser Herman. In the meantime, Herman sold certain of these skins to the
plaintiff and received in payment bill of exchange. Also, he went to the defendants and
explained to them that he wanted to borrow money on these skins, which were his property
lying in Lampson’s warehouse. He got the defendants to advance him the money to pay off
Lampson’s in order that skins might be delivered by Lampson’s to defendants, and hold the
defendants as pledgee for the amount they have advanced.
The property in skins had passed to the plaintiff, but the question is whether by virtue of
Section 30(1), the defendants are or are not entitled to hold the skins as the buyer acting in
good faith and without notice of previous sale. Section 30(1) says “where a person having
sold goods” i.e. Herman, is in possession of goods...... The court observed that Herman was
in possession of goods, as “possession” here does not mean only personal or actual
possession of the person who has sold goods, possession by an agent or by a
warehouseman or mercantile agent is a well known form of possession in the business
world. These goods, until Herman sold them to plaintiffs, were Herman’s goods. They were
in possession of Lampson’s, subject to payment of balance. The property in goods had
passed to Herman, and the goods were held for him or upon his behalf by Lampson’s. Thus,
Herman was a person having possession of the goods which he had sold to the plaintiffs.
And, he transferred those goods under a contract of pledge to defendants also. In this case,
one of the two innocent parties has to suffer for the fraud of the third (i.e. Herman). And it is
the plaintiff who have to suffer, and not the defendants, by virtue of Section 30(1).
ii) Central National Bank vs. United Industrial Bank, AIR 1954 SC 187 – In this case, there
was a claim for possession of some shares and also for damages suffered by plaintiff bank
by reason of wrongful denial of its title by the defendant bank. One Bhuiya, owner of shares,
agreed to sell shares to one Mukherjee and instructed defendant bank (with whom shares
were deposited) to deliver over the share certificates and transfer deed to purchaser against
payment of consideration money. Mukherjee went to bank, examined share certificates,
deceived bank manager and escaped with share certificates without paying for them. Then
he went to plaintiff bank and pledged shares with it, taking an advance of Rs. 29,000/-. It is
the common case of parties that Mukherjee has not been heard of since then. It is not
disputed that Mukherjee did not acquire any legal title to the shares. There was only an
agreement for sale between him and Bhuiya, and under contract terms, property in shares
could not pass till price was paid. The plaintiff bank, therefore, was not a pledgee of shares
from real owner.
The plaintiff’s case was that it received shares by way of pledge in good faith and
without notice or any defect in the title of Mukherjee, who had actual possession of shares

25
 with the consent of seller. Thus, the pledge would be effective under Section 30(2), as if the
right of original seller did not exist.
The whole question is, whether Mukherjee got possession of the shares with the consent
of seller or his agent i.e. bank manager. The court observed that the consent necessary
under Section 30(2) may not be a free consent, but it should be a real consent. If there was
consent in fact, it is immaterial that it was induced by fraud or misrepresentation (vide
Folkes vs. King). But, in the present case, there was no intention on part of bank manager
to give delivery at all. Inspite of his protest, Mukherjee bolted away with papers (saying that
he was going out for getting the pay order) asking him to wait. Mukherjee undoubtedly got
possession of shares, but without consent of bank manager. The act of Mukherjee was as
much theft as if he had taken them out of manager’s pocket.
In this case, thus, both plaintiff and defendant were innocent persons, who suffered
because of a fraud of a third party, but it is the plaintiffs who have to suffer ultimately, by
virtue of Section 30(2).
iii) Morvi Mercantile Bank vs. Union of India, AIR 1965 SC 155: In this case, through the
General Manager, Central Railways, Bombay, certain boxes containing menthol crystals
were consigned by a firm to self, and entrusted to the G.I.P. Railways for carriage from
Bombay to Delhi, under the railway receipts endorsed in favour of Morvi Bank against an
advance of Rs. 20,000 made by the Bank to firm. The said consignment did not reach Delhi,
and the railway failed to deliver the goods. Thereupon the Bank as endorsee of said rail
receipts for valuable consideration, filed a suit for recovery of Rs. 35,000 being the value of
goods contained in said consignment as damages.
The Court observed, “an owner of goods can make a valid pledge of them by
transferring the rail receipts representing the said goods”. To the maxim of nemo dat quod
non habet, to facilitate mercantile transactions, the Indian law had grafted some exceptions,
in favour of bona fide pledges by transfer of document of title from persons, whether owner
of goods or their mercantile agents who do not possess the full rights of ownership at the
time the pledges are made. To confer a right to effect a valid pledge by transfer of
documents of title as owner of goods with defects in title and mercantile agents, and to deny
it to full owner thereof is to introduce an incongruity (inconsistency) into the Act by
construction. On the other hand, the real intention of legislature will be carried out if said
right is conceded to full owner of goods and extended by constructed to owners with defects
in title or their mercantile agents. Thus, court allowed a decree for Rs. 35,000 as damages.
iv) In Cahn v. Pockett’s Bristol Co. (1899), 1 QB 643, A sold goods to B and forwarded to him
the bill of exchange with bill of lading. B, who was insolvent, did not accept the bill of
exchange. Instead of returning bill of lading and dishonoured bill of exchange to A, he
transferred bill of lading to C, who took the same in good faith and for consideration. Held
that since B had obtained bill of lading with A’s consent, transfer by B could convey a good
title to C, and the right of A to stop the goods in transit was defeated.
v) In Staffs Motor Guarantee Ltd. v. British Wagon Ltd., Heap sold his lorry to the
defendants and then took the lorry from the defendants on hire-purchase basis. Thereafter
Heap sold the lorry to the plaintiffs, falsely contending that he was the owner of the goods.
Heap happened to be a Mercantile Agent. Heap defaulted in the payment of stipulated
instalments. The defendants thereupon seized the lorry. The plaintiffs sued the defendants
to recover back the lorry, contending that the plaintiffs had purchased the lorry from a
Mercantile Agent and, therefore, they had a good title.
It was held that Heap had taken the lorry from the defendants on hire purchase basis, he
was merely bailee of the lorry and not a Mercantile Agent and, therefore, the plaintiffs did
not get a good title. Their action to recover back the lorry failed.
vi) In Marten vs. Whale, Marten agreed to buy land from Theaker and in return agreed to sell
his car to Theaker. The transaction was subject to the condition that Marten’s Solicitors
approved the Theaker’s title to land. The possession of the car was handed over to Theaker
who sold the same to Whale, who bought that in good faith and without notice of Marten’s
rights, Marten’s Solicitors having refused to approve Theaker’s title to land, the sale was not
carried out. Marten sued Whale for possession of the car. It was held that Theaker, who sold

26
 the car, had agreed to buy the same and, therefore, Whale acquired a good title to the
same.
7. Resale by an unpaid seller – Section 54(3): When an unpaid seller had exercised his right of
lien or stoppage on transit and resells the goods, the buyer acquires good title thereto as
against the original owner, notwithstanding that no notice of the resale has been given to the
original buyer.
8. Sale in market overt: English law recognises an exception to the rule according to which on
sale of goods in market overt (i.e. sale in open market by a person who generally deals in such
goods). According to the usage of the market, the buyer acquires a good title to the goods,
provided he buys them in good faith and without notice of any defect or want of title on the
seller’s part.
9. Sale by finder of goods – Section 169, Indian Contract Act: According to Section 71, Indian
Contract Act, the finder of goods is subject to the same responsibility as the bailee. He is to take
due care of the goods while they are in his possession and also to return them when their owner
has been found. According to Section 169 of the Contract Act, however, if the owner cannot with
a reasonable diligence be found or if he refuses upon demand, to pay the lawful charges of the
finder, the finder may sell the goods:
a) When the thing is in danger of perishing or of losing the greater part of its value, or,
b) When the lawful charges of the finder, in respect of the thing found, amount to two-thirds of
its value.
When the finder of goods sells them under the circumstances stated above, the buyer of
such goods gets a good title to them.
10. Sale by Pawnee – Section 176, Indian Contract Act: Normally the pawnee of the goods is
under a duty to return them if the debt secured by such goods is paid back to him. He may
regain such goods until the debt and interest thereon and all necessary expenses incurred by
him in respect of the possession or for the preservation of the goods pledged are paid to him.
According to Section 176, Indian Contract Act, if the pawnor makes a default in the payment of
the debt, the pawnee may either sue him for the debt or may sell the goods pledged on giving
the pawnor reasonable notice of the sale. Upon such a sale being made by the pawnee the
buyer of such goods acquires a good title to them.

27
 Chapter-5

Performance of the contract

The parties to any contract are bound to perform their obligations under the contract. The parties
are free to provide in their contract as to how the performance of contract by each party is to be
made e.g. delivery by installments, payment of price in advance or by installments etc. However if
anything is not mentioned regarding the time of delivery in the contract then the rules laid down in
the sale of goods Act have to be complied with.

Duties of Seller and Buyer section 31:-It is the duty of the seller to deliver the goods and of the
buyer to accept and pay for them, in Accordance with the terms of the contract of sale.

Payment and delivery are concurrent conditions section 32:-Unless otherwise agreed, delivery
of the goods and payment of the price are concurrent conditions, this 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 buyer
shall be ready and willing to pay the price in exchange of the goods.

Delivery section 33:-Delivery of goods may be made by doing anything which the parties agree
shall be taken as delivery. Where a seller agreed to place a horse at a livery, the removal of the
horse to that place was a delivery. Again, delivery may be made by doing anything which has the
effect of putting the goods in possession of the buyer or of any person authorized to hold them on
his behalf.
Delivery may be of following kinds:-
1. Actual delivery:-When the seller delivers the goods to the buyer.
2. Symbolic delivery:-Where the seller gave the key of the room where the goods were but not
that of external enclosure that was held to be no good delivery.
3. Constructive delivery:-When goods are in the custody of a third person who in accordance
with the seller’s order acknowledge to hold them on the buyer’s behalf and buyer has
assented to it.

Part delivery Section 34:-Whether the delivery is part delivery of goods or delivery of the whole of
goods depends on the intention of the parties.
The effect of this provision is that the delivery of a part of the goods amounts to a delivery of
the whole for the purpose of passing the property provided that a part of goods are delivered in
progress of the delivery of the whole.
Illustration:-Where a wharfinger was ordered to deliver the goods to the buyer and the buyer
weighed and took away a part of them, that was held to be a delivery of the whole.

Effect of Part Delivery:-where a part of the goods is delivered with the intention of severing it from
the whole that does not amount to a delivery of the whole of the goods.

Illustration:-Where on a sale of a stack of hay the buyer was permitted to cut and remove a part of
the stack that did not amount to delivery of whole as permission related only to a part of the goods.

Duty of buyer to ask for delivery section 35:-Apart from any express contract, the seller of goods
is not bound to deliver them unless the buyer applies for delivery.

Rules as to delivery section 36:-The section lays down the following rules as to delivery:-
1. Place of delivery:-Whether it is for the buyer to take possession of goods or for the seller to
send them depends on the intention of the parties expressed in the contract. In the absence of
any contract to the contrary goods sold are to be delivered at the place at which they are at the
time of sale. In case of an agreement to sell where they are at the time of agreement or if they
are not then in existence, at the place where they are manufactured or produced.
2. Time of delivery:-Where the seller is bound to send the goods to buyer but no time is fixed for
sending then seller is bound to send them within a reasonable time and on failure to do so seller

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 will be guilty of breach even if the delivery is subsequently prevented by the intervention of war
or some government order.
3. Delivery by attornment:-Where the goods are in the possession of a third person there is no
delivery unless and until such third person acknowledge to the buyer that he holds the goods on
his behalf.
Once the third person does this, that amounts to delivery to the buyer and therefore the third
person can not afterwards refuse to deliver on the ground that the goods have to be paid for
or that the buyer has become insolvent.
4. Time for tender of delivery:-Goods sold must be demanded by the buyer at a reasonable hour.
Similarly, the seller should tender them at a reasonable hour what is a reasonable hour is a
question of fact.
Startup v. Macdonald
A quantity of oil sold was to be delivered in the last fornight of March. The seller tendered
delivery at 8:30 p.m on March 31. This was held to be a delivery within time and the buyer’s
refusal to accept it wrongful.
5. Expenses of delivery:- Unless otherwise agreed, the expenses of and incidental to putting the
goods in to a deliverable state shall be borne by the seller.

Delivery of wrong quantity section 37:-The section lays down rules as to the effects of delivery
of wrong quantity.
1. Short Delivery:-Where the seller delivers to the buyer a quantity of goods less than he
contracted to sell, the buyer may reject them (Brhrend & Co. V. Produce Brokers Co.)
The ship which brought cotton seed delivered only a part of it and left for other ports. It
returned three weeks afterwards to deliver the rest. The buyer was held entitled to reject.
A Buyer can reject on the ground of short delivery only if the misdelivery goes to the root of
contract.
The buyer can, however accept short delivery. In that case he shall have to pay for the
goods actually delivered at the contract price. He does not thereby lose his right to sue for
damages for short delivery.
2. Excess Delivery:-Where the seller delivers a quantity larger than he contracted to sell the
buyer may accept the goods included in the contract and reject the rest or he may reject the
whole. But where the excess is so small as to be negligible and the seller does not bill him
for the excess, the buyer may not reject.
3. Delivery of mixed goods:-Where the seller delivers the goods mixed with goods of a
different description not included in the contract the buyer may accept the goods which are
in accordance with the contract and reject the rest or may reject the whole.
Section 37 (4) declares that the rules as to delivery of wrong quantity are subject to any
usage of trade, special agreement or course of dealing between the parties.

Instalment deliveries section 38:-Instalment deliveries can be mode or demanded only if the
contract so provides. The contract to make instalment deliveries may be either express or implied.
Section 38 (2) where a contract for sale of goods provides for instalment deliveries which
have to be separately paid for , the problem arises as to what should happen if the seller fails to
deliver an insatalment or delivers defective goods in one insatalment or the buyer refuses to take as
pay for an instalments. The section thus leaves the whole matter to be determinded on merits of
each case in. Maple Flock Co. Ltd. V. Universal Furniture Products (Wembley) Ltd.
These was a contract for the supply of 100 tons of flock by instalments. The first fifteen deliveries
were satisfactory but the sixteenth instalment contained much more chlorine than was permitted.
The subsequent four deliveries were however satisfactory. This showed that there was no
probability of the default being repeated, yet the buyer sought to repudiate the whole of the
contract.
It was held that they were not entitled to do so. The delivery complained of amounts to no more
then 1½ tons out of a contract for 100 tons. The chance of the breach being repeated is practically
negligible.

Delivery to carrier or wharfinger section 39:-If a trademan orders goods to be sent by a carrier,
though he does not name any particular carrier, the moment the goods are delivered to the carrier it
operates as a delivery to the purchaser section 39 (1).

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Section 39 (2) The seller has to make with the carrier such contracts as may be reasonable regard
to the nature of the goods and other circumstances of the case. The purpose of this duty is to
secure for the buyer such contract of carriage as will enable the buyer to sue the carrier in case the
goods are lost. If the seller fails to make such a contract the buyer may refuse to treat the delivery
to the carrier as delivery to himself or may hold the seller liable in damages.
Clarke v. Hutchins
The carrier to whom the goods were delivered in this case notoriously required a notice that the
goods were over value of ₤5 otherwise he was not liable for loss. The seller gave no such notice. It
was held that he had failed in his duty of making a reasonable contract and therefore was liable for
the loss.
Section 39 (3) Where the goods have to be sent by sea transit where insurance is usual, the seller
should give to the buyer such notice as will enable him to insure the goods. If the seller fails to do
so, the goods shall be at his risk during the sea transit. But where the buyer has sufficient
information about the goods to enable him to insure, he can not insist on particular information.

Contract involving sea routes:-Contract which usually involve sea routes and which may be
“international sales” are of three kinds, namely:-
1. Free on board:-The seller has to place the goods on board a ship at his own expense. He
has only to bear the expenses of loading the goods. Thereafter the goods are at buyer’s risk
and he is responsible for freight, insurance and subsequent expenses.
2. Cost, Insurance and Fright:- It is a type of contract which is more widely and more
frequently in use than any other contract used for purposes of sea-borne commerce.
3. Ex-ship:-Under an “exship” contract the seller has to deliver the goods to the buyer at the
port of destination.

Risk where goods are delivered at distant place section 40:-Discussed earlier

Right of examination section 41:-

1. By accepting the documents of title the buyer is not deemed to have accepted the
goods. He still has the right of examining the goods on their arrival.
Heltbutt v. Hickson
In a sale of boots for the use of the French Army, the goods were delivered at a
wharf in London and the buyers redirected them to Lille for delivery to the French
authorities. The latter discovered paper in the sales, a defect which rendered them
useless for military purposes. It was held that the buyers had not had reasonable
opportunity for examining the goods at the wharf and therefore they had not
accepted them. They were entitled to refund of their price.
2. Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is
bound on request to afford the buyer a reasonable opportunity of examining the goods
for the purpose of ascertaining whether they are in conformity with the contract.

Acceptance Section 42:-A buyer can not reject the goods after he had accepted them. The buyer
is deemed to have accepted the goods in the circumstances given in section 42. They are as
follows:-
1. When he intimates to the seller that he has accepted them
2. when the goods have been delivered to him and he does any act in relation to them which is
inconsistent with the ownership of the seller.
3. when after the lapse of a reasonable time, he retains the goods without intimating the seller
that he has rejected them.

Duty after dejection section 43:-If the buyer wants to reject he must intimate the seller his
intention to reject. He is bound to do no more. He is not bound to return the goods to the seller. This
principle applies when the rejection is rightful and there is no agreement to the contrary.

Liability of buyer for refusing to receive goods section 44:-This section is based upon the
principle stated by “Lord Elfenborough” in Greaves V. Ashlin.

30
 If the buyer does not carry away the goods bought within a reasonable time, the seller may
charge him warehouse room:” or he may bring an action for not removing them, should he be
prejudiced by the delay. But the buyer’s neglect does not entitle the seller to put an end to the
contract.
The proviso to the section, however declares that this does not apply where the property in
the goods has not passed to the buyer or where the seller has a lien on the goods or where the
buyer’s refusal to take delivery amounts to repudiation of the contract entitling the seller to sue him
for damages for breach.

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 Chapter-6

RIGHTS OF UNPAID SELLER AGAISNT GOODS

DEFINITION OF UNPAID SELLER: SECTION 45

 An unpaid seller is a person to whom the whole of the price has not been paid or tendered.
 A seller partially unpaid stands at par with one wholly unpaid.
 If the price was paid through a Bill of Exchange or other negotiable instruments and such
instrument has been received as a conditional payment, and the condition cannot be fulfilled if
the same has been dishonoured, the seller is deemed to be an unpaid seller.
 The term “seller” includes any person who is in the position of a seller, as, for instance, an agent
of the seller to whom the bill of lading has been endorsed, or a consignor or agent who has
himself paid, or is directly responsible for, the price.

But this provision does not operate so as to convert a buyer into a seller. In J.L. Lyons & Co.
vs. May & Baker (1923) 1 KB 685, A sold certain goods to B, who resold them to C. The goods
were defective, and A agreed to take them back and refunded the price to B. B gave a cheque to C,
in refund of the price. This cheque was dishonoured and, therefore, C sought to retain the goods till
their price was refunded. It was held that he could not do so. He was held bound to return the
goods as the court refused to believe “that a person who has bought and paid for, and afterwards
rejected the goods, is a person like an unpaid seller”.

RIGHTS OF UNPAID SELLER: SECTION 46

i) A lien on the goods for the price while he is in possession of them.
ii) A right of stopping the goods in transit when the buyer becomes insolvent.
iii) A right of re-sale of goods.

RIGHT TO LIEN
‘Lien’ means – “retaining the goods or refusing to deliver them until the price in respect of them
has been paid by the buyer”.
Section 47(1) provides that the unpaid seller of goods who is in possession of them is entitled to
retain his possession until payment or tender of the price in the following cases – namely,
a) Where the goods have been sold without any stipulation – as to credit (i.e. on cash basis), or
b) Where the goods have been sold on credit, but the term of credit had expired, or
c) Where the buyer becomes insolvent (even if the goods are sold on credit and the term of credit
has not expired).
Example – On 1st January, A sells a horse to B. The buyer having a right to take the delivery at
any time he likes and the price is payable on 1st March. If the buyer has not taken the delivery of
the horse by 1st March and he demands the delivery after this date, the seller can refuse to part
with the horse until the buyer pays for them.
Here, the goods have been sold on credit, but the term of credit has expired.

LEGAL EFFECTS OF LIEN

1. Right of lien is linked with possession and not with title
Lien is a right to retain the possession. It is therefore necessary that seller is still in
possession of the goods.
Transfer of title does not affect the exercise of this right.
2. Right in lien is in respect of all those goods which are with the seller
Thus, if the buyer has made part payment of price he cannot insist that proportionate
amount of goods should be delivered to him.

3. Right of lien can be exercised only for non-payment of price

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 If some other charges e.g. the warehouse charges for keeping the goods, are due to the
seller, he cannot exercise the right of lien.
4. Lien and Part Delivery Section 48
E.g. where the buyer gets the whole of the goods weighed but takes away only a part of
them, the seller’s right of lien over the remaining goods would come to an end.
On the other hand, if out of 100 bags of wheat which were to be supplied by the seller to the
buyer, 20 have been already delivered to the buyer, the seller may exercise his right of lien over
the other 80 bags.
Part Delivery – Where an unpaid seller has made part delivery of the goods, he may
exercise his right of lien on the remainder, unless such part delivery has been made under such
circumstances as to show an agreement to waive the lien.
Where an unpaid seller has delivered a part of the goods, he may exercise his lien on the
remainder. In Grice vs. Richardson, the sellers had delivered a part of the three parcels of tea
comprised in the sale, and they had not been paid for the part which remained with them. They
are allowed to keep it till payment of the price. Where, however, a part of the goods are
delivered under circumstances which show an agreement to waive the lien, the seller cannot
then retain the remainder. In other words, where delivery of a part is intended as a delivery of
the whole, the lien is lost. “If both parties intend it as a delivery of the whole, then it is a delivery
of the whole; but if either of the parties does not intend it as a delivery of the whole, if either of
them dissents, then it is not a delivery of the whole.” The party, who alleges that part delivery
was intended to operate as delivery of the whole, has to prove that fact.
Where the contract envisages delivery of goods by instalments, the buyer’s default in paying
for one instalment does not entitle the seller to stop delivery of the rest of the instalments
unless: (1) the buyer has become insolvent, or (2) the buyer’s default amounts to repudiation of
the whole contract.
5. Exercise of right of lien does not automatically rescind the contract of sale.

Unpaid seller’s right of lien may be lost in any of the following ways section 49
i) By payment of price
The right of lien comes to an end when the seller ceases to be an unpaid seller i.e. when the
buyer pays or tenders the price to the seller.
Merely obtaining the decree does not mean the payment of the price.
ii) By delivery to carrier
Delivery of goods to a carrier for the purpose of transmission to the buyer is a delivery to the
buyer himself.
Thus, delivery to a carrier puts an end to lien, but the seller still has the right of stoppage in
transit.
iii) By buyer (or his agent) obtaining possession of goods
Lien comes to an end.
iv) By waiver
Right of lien of a seller can come to an end if he waives his right. It should be express or
implied.
v) Disposition of the goods by the buyer
Unpaid seller’s right of lien is not affected by any sale or other disposition of goods by the
buyer, unless the seller himself assents to a sub-sale or other disposition of goods by the buyer.

DISTINCTION BETWEEN LIEN AND PLEDGE

Lien Pledge
i) Right to retain possession until i) Right to retain goods as a security for the debtor’s
seller’s claim is satisfied. debt.
ii) Unpaid seller exercises the right ii) Pledgee keeps the goods of the debtor with the
against the buyer’s wishes. debtor’s consent.

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 iii) Lien terminates if price paid. iii) Pledge is redeemed if the debtor pays the debt.
iv) Does not authorise seller to resell. iv) Authorise the pledges to sell in case of default.

STOPPAGE IN TRANSIT: SECTION 50

Where the goods have been delivered to a carrier or other bailee for the purpose of
transmission to the buyer, who has become insolvent the seller may stop the goods as long as they
are in transit. Thus:
Following conditions are necessary for this right (Section 50):
a) Seller should be unpaid seller.
b) Buyer should have become insolvent.
c) The property (ownership) should have passed to the buyer.
d) The goods should be in the course of transit.

COMMENCEMENT AND END OF TRANSIT: SECTION 51

1. Delivery to the buyer – Section 51(1)
Goods should be in-course of-transmission. Transit ends when the goods delivered to the
buyer or his agent.
Case: G.I.P. Rly. Co. vs. Hanmandas [ILR (1899) 14 Bom.57] – The seller consigned the
goods with the Rly. Co. for transmission to the buyer. On arrival at the destination, the company
had delivered the goods to the buyer who had loaded them on his cart, but the car had not yet
left the railway compound when a telegram was received by the company to stop the goods. It
was held that the transit had ended as soon as the goods were handed over to the buyer (even
before that viz. when the railway receipt was endorsed by the buyer). The railway company was,
therefore, left with no power to stop them.
2. Interception by the buyer – Section 51(2)
The transit ends when the buyer or his agent takes delivery of the goods from the carrier
before their arrival at the appointed destination.
3. Acknowledgment to the buyer – Section 51(3)
When the goods have arrived at their appointed destination and the carrier acknowledges to
the buyer or his agent that he is now holding the goods on his behalf and continues in
possession of them as bailee for the buyer, the transit is at an end.
4. Rejection by the buyer – Section 51(4)
If the goods are rejected by the buyer and the carrier or other bailee continues in possession
of them, the transit is not at an end.
5. Delivery to ship chartered by the buyer – Section 51(5)
Where the goods are delivered to a ship chartered by the buyer, it is a question of fact in
each case whether the carrier is acting independently or as agent of the buyer. In later case,
transit ends as soon as the goods are loaded on board the ship.
6. Wrongful refusal to deliver – Section 51(6)
When the carrier wrongfully refused to deliver the goods to the buyer or his agent, the transit
is at an end.
7. Part delivery – Section 51(7)
Where the goods have been delivered in part, the seller may stop the remainder of the goods.
Example: A sells to B 100 bales of cotton; 60 bales having come into B’s possession and 40
being still in transit. B becomes insolvent; and A, being still unpaid stops the 40 bales in transit.
A is entitled to hold 40 bales until the price of the 100 bales is paid.
8. Carriage by more than one carrier – Section 51(8)
Where goods are to be carried by more than one carrier as part of the original contract, the
transit continues till the goods arrive at their ultimate destination.

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HOW STOPPAGE IN TRANSIT IS EFFECTED: SECTION 52
i) The unpaid seller may exercise his right of stoppage in transit either by taking actual possession
of the goods, or by giving notice of his claim to the carrier or other bailee in whose possession
the goods are. Such notice may be given either to the person in actual possession of the goods
or to his principal. In the latter case the notice, to be effectual, shall be given at such time and in
such circumstances, that the principal, by the exercise of reasonable diligence, may
communicate it to his servant or agent to prevent a delivery to the buyer.
ii) When notice of stoppage in transit is given by the seller to the carrier or other bailee in
possession of the goods, he shall re-deliver the goods to, or according to the directions of, the
seller. The expenses of such re-delivery shall be borne by the seller.
DISTINCTION BETWEEN LIEN AND STOPPAGE IN TRANSIT
Lien Stoppage in transit
i) Its essence is to retain possession of the i) Its essence is to regain or resume
goods. possession of goods.
ii) Seller’s possession of the goods is the sine ii) Its sine qua non is:
qua non. – Seller parting with possession of goods.
– Possession with a carrier.
– Buyer having not acquired possession.
iii) Lien exercisable so long the seller is in iii) It is exercisable as long as the goods in
possession. channel of transmission and before the
possession of vendee.
iv) When lien ends, right to stoppage in transit iv) It begins when the right of lien ends.
begins.
v) Lien starts when buyer is in default, v) Arises only when the buyer is insolvent.
whether he be solvent or insolvent.
C – RESALE: SECTION 54
If within a reasonable time after the exercise of right of lien or stoppage in transit, the buyer
does not pay the price the unpaid seller may re-sell them.
But seller has only limited right to resale.
Sale not generally rescinded by lien or stoppage in transit:
i) Subject to the provisions of this section, a contract of sale is not rescinded by the mere exercise
by an unpaid seller of his right of lien or stoppage in transit.
ii) Where the goods are of a perishable nature, or where the unpaid seller who has exercised his
right of lien or stoppage in transit gives notice to the buyer of his intention to re-sell, the unpaid
seller may, if the buyer does not within a reasonable time pay or tender the price, re-sell the
goods within a reasonable time and recover from the original buyer damages for any loss
occasioned by his breach of contract, but the buyer shall not be entitled to any profit which may
occur on the re-sale. If such notice is not given, the unpaid seller shall not be entitled to recover
such damages and the buyer shall be entitled to the profit, if any, on the re-sale.
iii) Where an unpaid seller who has exercised his right of lien or stoppage in transit re-sells the
goods, the buyer acquires a good title thereto as against the original buyer, notwithstanding that
no notice of the re-sale has been given to the original buyer.
iv) Where the seller expressly reserves a right of re-sale in case the buyer should make default,
and, on the buyer making default, re-sells the goods, the original contract of sale is thereby
rescinded, but without prejudice to any claim which the seller may have for damages.

Notice of resale – Section 54(2):

A seller may resell the goods without reference to the defaulting buyer if the goods are of a
perishable nature. In other cases, the seller should give a “notice” to the defaulting buyer of his
intention to resell.
If the buyer does not pay within reasonable time after receiving the notice, the seller may resell
the goods.

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Loss of profit on resale:
Unpaid seller can recover from original buyer damages for any loss occasioned by his breach of
contract but buyer not entitled to any profit which may occur on resale.
If reasonable notice not given to the defaulting buyer, unpaid seller not entitled to recover such
damages and the buyer shall be entitled to profit.

Resale when properly made:

Where the buyer not merely defaults in making payment, but repudiates the contract itself, then
the seller once again becomes the owner of the goods.
He then re-sells his own property.

Reservation of right of resale – Section 54(4):

The seller may expressly reserve the right of resale in case the buyer should make a default. In
such a case, no notice of sale is necessary.

Title of new buyer – Section 54(3):

Section 54(3) is an exception to the general rule of Section 27, that a seller cannot convey a
better title to his buyer than that of his own.

Relevant Case Law on ‘Unpaid Seller’:

i) Valpy v. Gibson – The goods sold were delivered to the buyer’s shipping agents, who had put
them on board a ship. But the goods were returned to the sellers for repacking. While they were
still with the sellers on this mission the buyer became insolvent and the sellers, being still
unpaid, claimed to retain the goods in the exercise of their lien.
It was held that, having lost their lien by delivery to the shipping agents, their refusal to
deliver was wrongful.
ii) James v. Griffin – On arrival of the goods at the port of destination in the river Thames, the
buyer sent his son to have the goods landed, but told him that, on account of his insolvency, he
did not intend to receive the goods and would like the seller to have them. When the goods
were so lying, the seller’s instruction to stop them was received. The buyer’s trustee in
bankruptcy claimed the goods.
It was held that the good were effectively stopped. The buyer having not accepted them they
were still in the course of transit.
iii) Lyons v. Honffnung – The buyer was at Sydney. He instructed the seller to send the goods to
Sydney from where they would be going to Kimberley and that he would go by the same ship
and would take the goods with him.
It was not known as a fact whether the buyer sailed in the ship, but he became insolvent and
the seller gave notice to stop. It was held that the notice was effective. It was not the buyer who
was carrying the goods. The carrier was carrying both, the goods and the buyer, and the transit
had not ended by the buyer’s entry into the ship.
iv) Whitehead v. Anderson – A quantity of timber sold was consigned on board a ship. The ship
arrived at the destination. The buyer was bankrupt at the time. Nevertheless his agent went on
board the ship, saw the timber and told the captain that he had come to take possession of it.
The captain said he would deliver it on freight being paid. Before this could be done, the seller
sent a notice to stop and consequently the goods were delivered to the seller’s agent.
It was held that the carrier was within his rights in returning the goods to the seller because
the transit had not ended. The captain’s agreement to deliver was conditional and the condition,
being not fulfilled, the buyer had not acquired constructive possession.
v) Bethel v. Clark – The goods sold were to be carried first by railway and then by ship to their
ultimate destination at Melbourne. The seller gave notice to the railway company to stop the
goods, but too late to prevent their shipment. The ship sailed away. The seller then gave notice
to the ship owner, before it arrived at Melbourne. The trustee of the bankrupt buyer demanded
the goods.
It was held that the notice was within time and, therefore, the goods were successfully
stopped. Lord Esher MR said:

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 There has been difficulty in some cases where the question was whether the original transit
was at an end, and a fresh transit has begun. The way in which that question has been dealt
with is this. Where the transit is a transit which has been caused either by the terms of the
contract or by the directions of the purchaser to the vendor, the right of stoppage in transitu
exists; but, if the goods are not in the hands of the carrier by reason either of the terms of the
contract or of the directions of the purchaser to the vendor, but are in transitu afterwards in
consequence of fresh directions given by the purchaser for a new transit, then such transit is no
part of the original transit and the right to stop is gone. So also if the purchaser gives orders that
the goods shall be sent to a particular place, there to be kept till he gives fresh orders as to their
destination to a new carrier, the original transit is at an end when they have reached that place,
and any further transit is a fresh and independent transit.
“It follows that in the ordinary way if the goods pass through successive stages of transit
from one carrier to another in pursuance of the contract or of later directions given by the buyer
to the seller, the transit continues and the seller retains his right to stop the goods until they
reach their ultimate destination.”
vi) Rosever China Clay Co. exp – The contract was for the sale of china clay at f.o.b. Fowey. The
buyer chartered a ship and instructed the seller to load the goods at Fowey, which was
accordingly done. The destination of the ship was not told to the sellers, nor any bill of lading
signed. The sellers gave notice stopping the goods.
The notice was held to be effective. “The principle is this,” said James L J, “when the vendor
knows that he is delivering the goods to someone as carrier, who is receiving them in that
character, he delivers them with the implied right of stopping them so long as they remain in the
possession of the carrier as carrier.”
vii) Bird v. Brown – This case shows when refusal to deliver is wrongful. The goods had arrived at
their destination. The buyer being insolvent, a merchant, acting for the seller but without his
authority, gave stop notice to the carrier. Subsequently to that the trustee of the bankrupt buyer
demanded the goods. The carrier refused to deliver the goods and handed them to the
merchant. Subsequently to this the seller ratified the unauthorised stop notice.
The court said: “There could be no valid stoppage in transitu after the formal demand of the
goods by Bird (Trustee). The goods had then arrived at Liverpool, the master was bound to
deliver the goods to Bird and he could not by his wrongful detainer of them prolong the transit
and so extend the time during which stoppage might be made.”
viii) Mordaunt Brothers v. British Oil and Cake Mills – An oil merchant sold a quantity of oil to B,
without appropriating any particular oil to the contract. B sold some of it to C and gave him a
delivery order. C lodged the delivery order with the merchant requesting him “to await his order”.
Meanwhile B failed to pay the merchant, who, therefore, became an unpaid seller.
It was held that the merchant’s lien on the goods for the price was not defeated by B’s sale
to C and he could retain the goods till the price was paid.
ix) D F Mount Ltd. v. Jay and Jay (Provisions) Co. Ltd. – The defendants purchased 500
cartons of tinned peaches and left them with a storage company. They then sold 250 of them to
one M for the purpose of resale by M to one of his customers. M told the defendants that they
would be paid out of the money which he received from the customer. The defendants gave him
delivery orders which he forwarded to the storage company. He gave his own delivery order to
the sub-buyer. The defendants were never paid and so they claimed lien on the goods.
It was held that their lien was defeated by the sale as the transaction was carried out with
their previous assent.
x) Ant Jurgens Margarine Fabrieken v. Louis Dreyfus & Co. – The defendants sold 2640 bags
of mowva seeds to one F & Co. and gave them delivery orders. F & Co. sent a cheque for the
price. F & Co. sold the goods to the plaintiffs by endorsing to them the delivery orders. F & Co.’s
cheque was dishonoured. Consequently, the defendants became unpaid sellers and claimed
lien on the goods.
It was held that their lien was lost when the delivery orders issued by them were transferred
to bona fide purchasers for value. The court thus equated delivery orders issued by the seller
with a bill of lading which is issued by the captain of a ship.

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SUIT FOR PRICE: SECTION 55
i) Where under a contract of sale the property in the goods has passed to the buyer and the buyer
wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the
seller may sue him for the price of the goods.
ii) Where under a contract of sale the price is payable on a day certain irrespective of delivery and
the buyer wrongfully neglects or refuses to pay such price, the seller may sue him for the price
although the property in the goods has not passed and the goods have not been appropriated to
the contract.

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.

DAMAGES FOR NON-DELIVERY: 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.

SPECIFIC PERFORMANCE: SECTION 58

Subject to the provisions of Chapter II of the Specific Relief Act, 1877 (1 of 1877), in any suit for
breach of contract to deliver specific or ascertained goods, the Court may, if it thinks fit, on the
application of the plaintiff, by its decree direct that the contract shall be performed specifically,
without giving the defendant the option of retaining the goods on payment of damages. The decree
may be unconditional, or upon such terms and conditions as to damages, payment of the price or
otherwise, as the Court may deem just, and the application of the plaintiff may be made at any time
before the decree.

REMEDY FOR BREACH OF WARRANTY: SECTION 59

i) 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 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.
ii) The fact that a buyer has set up breach of warranty in diminution or extinction of the price does
not prevent him from suing for the same breach of warranty if he has suffered further damage.

REPUDIATION OF CONTRACT BEFORE DUE DATE: SECTION 60

Where either party to a contract of sale repudiates the contract before the date of delivery, the
other may either treat the contract as subsisting or wait till the date of delivery, or he may treat the
contract as rescinded and sue for damages for the breach.

INTEREST BY WAY OF DAMAGES AND SPECIAL: SECTION 61

i) Nothing in this Act shall affect the right of the seller or the buyer to recover interest or special
damages in any case where by law interest or special damages may be recoverable, or to
recover the money paid where the consideration for the payment of it has failed.
ii) In the absence of a contract to the contrary, the court may award interest at such rate as it
thinks fit on the amount of the price:
a) to the seller in a suit by him for the amount of the price – from the date of the tender of the
goods or from the date on which the price was payable;
b) to the buyer in a suit by him for the refund of the price in a case of a breach of the contract
on the part of the seller – from the date on which the payment was made.

EXCLUSION OF IMPLIED TERMS AND CONDITIONS: SECTION 62

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 Where any right, duty or liability would arise under a contract of sale by implication of law, it may
be negatived or varied by express agreement or by the course of dealing between the parties, or by
usage, if the usage is such as to bind both parties to the contract.
Section.64:- of sale of Goods Act incorporates the provision regarding sale by auction. It inter-
alia provides that a right to bid may be reserved expressly by or on behalf of the seller and where
such rights is expressly so reserved but not otherwise. The seller or any person on his behalfmay
subject to the provisions hereafter contained bid at the auction.
Where the sale is not notified to be subject to a right to bid on behalf of the seller it shall not be
lawful for the seller to bid himself or to employ any person to bid at sale or for the auctioneer
knowingly to take any bid from the seller or any such persons. Any sale preventing this rule may be
treated as fraudment by the byer. The seller may be notified to be subject tp a reserved or upset
price. If the seller makes use of pretended bidding to raise the price. The sale is voidable at the
option of the buyer.

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 Chapter-1

Questions of Previous years

1. Enumerate the essentials of a contract of sale. How does contract of sale differ from
agreement to sell? Refer to decided cases. (Haryana PCS (JB)-2000)
2. What are the effects of goods perishing before sale but after agreement to sell? (Haryana
PCS (JB)-2000)
3. Distinguish between the following:-
(i) Sale and Hire purchase
(ii) Sale and Barter (Haryana PCS (JB)-2000)
4. A Contracts to sell to b all the grain that may be produced on his form. The entire crap is lost
due to failure of rains. Who shall suffer the loss? (Haryana PCS (JB)-1988)
5. A, the holder of the bill of lading re-sells the goods to B who pays money. Does B acquire
interest in the goods? Has the original seller any right of stoppage in transit. (Punjab PCS
(JB)-1998)

Chapter-2

Questions of Previous years

1. Carefully distinguish between a ‘condition’ and ‘warranty’ and enumerate the circumstances
in which condition can be treated as warranty. (Haryana PCS (JB)-2010)
2. Discuss the exceptions to the rule of ‘Caveat emptor’ under the Sale of Goods Act.
(Haryana PCS (JB)-2007)
3. X in Madras writes to Y at Bombay to send to X a packet of patent medicine. Y accordingly
sends the packet. X finds some defect in the medicines. Can X receive the price of
medicines from Y. (DJS-1991)
4. What is meant by sale by sample? What are the conditions implied in such a sale. (DJS-
1990)

Chapter-3

Questions of Previous years

1. ‘A’ contract to sell a heap of bones to ‘B’ weighs and delivers them at 100 rupees per ton.
Agrees to take and pay for them on a certain day. Part of the bones is weighed and
delivered to B. On whose risk does the residue lie? (Haryana PCS(JB)-2010)
2. “Risk Prima facie passes with the property”. Explain what are the exceptions to this
principle? (DJS-1991)
3. What are the rules regarding transfer of property in goods as per Sale of Goods Act. (DJS-
1996)
4. M entered into an agreement with S for the purchase of unascertained goods. S dispatched
the goods by train. Goods were act lost during transit. S filed a suit for the recovery of the
price of the goods against M. Decide giving reasons. (DJS-1979)
5. Explain when property in movable goods passes to the purchaser? (Punjab PCS (JB)-2003)

40
 Chapter-4

Questions of Previous years

1. X left his motor car with mercantile agent and authorized him only to receive offers and
not to sell. The agent obtained the possession of the registration sold the car to the
defendant. ;’Z’ can ‘Z’ acquire a good title to it? Discuss (Haryana PCS(JB)-2003)
2. “Nemo dat quod non habet” Explain. A buys a cow for Rs. 1500/- and makes payment
to B but does not take delivery. Subsequently B sold the cow to C for Rs.1800/- and
delivers it to C, B leaves his house and is untraceable. Can A sue C for recovery of
Cow ( DJS-1996)

Chapter-5

Questions of Previous years

1. When is a carrier presumed to be buyer’s agent to take delivery of goods from the seller?
(Haryana PCS (JB)-2006)
2. What is the effect of delivery of a part of goods.
3. What are the effects of delivery of goods in wrong quality or different description? (DJS-
2005)

Chapter-2

Questions of Previous years

1. What are the rights of unpaid seller against goods? How the right of unpaid seller will vary in
case of part delivery of goods? (Haryana PCS (JB)-2011)
2. Distinguish between seller’s right of lie and stoppage of goods in transit. (Haryana PCS
(JB)-2003,1998)
3. What are the legal remedies available remedies available to the buyer against the seller for
breach of contract under Sales of Goods Act 1930? (DJS-2005)
4. Is the auction sale voidable at the option of the buyer if the seller makes use of pretended
bidding to raise the price?
(Punjab PCS (JB)-2000

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