Pollock and Mullah, The Sale of Goods Act and The Partnership Act

Date and Time: Monday 17 January 2022 10:21:00 AM IST
Job Number: 161981554
Documents (100)
1. The Sale of Goods Act

Client/Matter: -None-
2. The Sale of Goods Act
3. S 1. Short title, extent and commencement.-
4. [s 2] Definitions –
5. S. 3. Application of provisions of Act 9 of 1872.-
6. S. 4. Sale and agreement to sell.-
7. S. 5. Contract of sale, how made.-
8. S. 6. Existing or future goods.-
9. S. 7. Goods perishing before making of contract.-
10. S. 8. Goods perishing before sale but after agreement to sell.-
11. S. 9. Ascertainment of price.-
12. S. 10. Agreement to sell at valuation.-
13. S. 11. Stipulations as to time.-
14. S. 12. Condition and warranty.-
15. S. 13. When condition to be treated as warranty.-
16. S. 14. Implied undertaking as to title, etc.-
17. S. 15. Sale by description.-
18. S. 16. Implied conditions as to quality of fitness.-
19. S. 17. Sale by sample.-
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20. S. 18. Goods must be ascertained.-
21. S. 19. Property passes when intended to pass.-
22. S. 20. Specific goods in a deliverable state.-
23. S. 21. Specific goods to be put into a deliverable state.-
24. S. 22. Specific goods in a deliverable state, when the seller has to do anything thereto in order to ascertain
price.-
25. S. 23. Sale of unascertained goods and appropriation.-
26. S. 24. Goods sent on approval or “on sale or return”.-
27. S. 25. Reservation of right of disposal.-
28. S. 26. Risk prima facie passes with property.-
29. S. 27. Sale by person not the owner.-
30. S. 28. Sale by one of joint owners.-
31. S. 29. Sale by person in possession under voidable contract.-
32. S. 30. Seller or buyer in possession after sale.-
33. S. 31. Duties of seller and buyer.-
34. S. 32. Payment and delivery are concurrent conditions.-
35. S. 33. Delivery.-
36. S. 34. Effect of part delivery.-
37. S. 35. Buyer to apply for delivery.-
38. S. 36. Rules as to delivery.-
39. S. 37. Delivery of wrong quantity.-
40. S. 38. Instalment delivery.-
41. S. 39. Delivery to carrier or wharfinger.-
42. S. 40. Risk where goods are delivered at distant place.-
43. S. 41. Buyer’s right of examining the goods.-
44. S. 42. Acceptance.-
45. S. 43. Buyer not bound to return rejected goods.-
46. S. 44. Liability of buyer for neglecting or refusing delivery of goods.-
47. S. 45. Unpaid seller defined.-
48. S. 46. Unpaid seller’s rights.-
49. S. 47. Seller’s lien.-
50. S. 48. Part delivery.-
51. S. 49. Termination of lien.-
52. S. 50. Right of stoppage in transit.-
53. S. 51. Duration of transit.-
54. S. 52. How stoppage in transit is effected.-
55. S. 53. Effect of sub-sale or pledge by buyer.-
56. S. 54. Sale not generally rescinded by lien or stoppage in transit.-
57. S. 55. Suit for price.-
58. S. 56. Damages for non-acceptance.-
59. S. 57. Damages for non-delivery.-
60. S. 58. Specific performance.-
61. S. 59. Remedy for breach of warranty.-
62. S. 60.
63. S. 61.
64. S. 62. Exclusion of implied terms and conditions.-
65. [s 63]
66. [s 64] Auction sale.-
67. [S. 64A. In contracts of sale, amount of increased or decreased taxes to be added or deducted.-
68. S. 65. Repeal.-
69. S. 66. Savings.-
70. The Indian Partnership Act (Act IX of 1932)
71. S. 1. Short title, extent and commencement.-
72. S. 2. Definitions.-
73. S. 3. Application of provisions of Act 9 of 1872.-
74. S. 4. Definition of “partnership,” “partner,” “firm,” and “firm name”.-
75. S. 5. Partnership not created by status.-
76. S. 6. Mode of determining existence of partnership.-
77. S. 7. Partnership at will.-
78. S. 8. Particular partnership.-
79. S. 9. General duties of partners.-
80. S. 10. Duty to indemnify for loss caused by fraud.-
81. S. 11. Determination of rights and duties of partners by contract between the partners.-
82. S. 12. The conduct of the business-
83. S. 13. Mutual rights and liabilities.-
84. S. 14. The property of the firm.-
85. S. 15. Application of the property of the firm.-
86. S. 16. Personal profits earned by partners.-
87. S. 17. Rights and duties of partners.-
88. S. 18. Partner to be agent of the firm.-
89. S. 19. Implied authority of partner as agent of the firm.-
90. S. 20. Extension and restriction of partner’s implied authority.-
91. S. 21. Partner’s authority in an emergency.-
92. S. 22. Mode of doing act to bind firm.-
93. S. 23. Effect of admissions by a partner.-
94. S. 24. Effect of notice to acting partner.-
95. S. 25. Liability of a partner for acts of the firm.-
96. S. 26. Liability of the firm for wrongful acts of a partner.-
97. S. 27. Liability of firm for misapplication by partners.-
98. S. 28. Holding out.-
99. S. 29. Rights of transferee of a partner’s interest.-
100. S. 30. Minors admitted to the benefits of partnership.-
The Sale of Goods Act
Mulla The Sale of Goods Act & The Indian Partnership Act, 11th ed
MullaK Kannan
Mulla The Sale of Goods Act & The Indian Partnership Act, 11th ed > Mulla The Sale of Goods Act &
The Indian Partnership Act, 11th ed > The Sale of Goods Act
Table Showing Corresponding Sections of the Indian and English Sale of Goods Act and the Indian Contract Act1
Sale of Goods Act, 1930 English Sale of Goods Acts, 1893*/1979 Contract Act, 1872
1(1) 64/64
2(1) & (2) 62(1)/61(1)
2(3) 62(4)/61(5)
2(4) 62(I)/61(l); 81(4) of the English Factors

Act, 1889
2(5) & (6) 62(1)/61(1)
2(7) 62(1)/61(1) 76
2(8) 62(3)/61(4) 96 Explanation
2(9) 1(1) of the English Factors Act, 1889
2(10) 1(1)/2(1)(2)
2(11), (12), (13) 62(1)/61(1)
&(14)
3 61(2)/62(2)
4 1/2 77
5(1) 78
5(2) 3/4 10
6 5/5 87,88
Page 2 of 5
7 6/6 20 illus. (a), (b) & (c)
8 7/7 56
9 8/8 89
10 9/9
11 10(1)/10(1) 55
12 ll(l)(b)/ll(3)
13(1) ll(l)(a)/ll(2) 118
13(2) ll(l)(c)/ll(4) 117
13(3) ll(6) 56, 62 to 67
14 12/12(1)(2)(3) 109
15 13/13(1)(2) 113
16(1) 14(1)/14 opening part 114,115
16(2) & (4) 14(2) & (4)/14(2)
16(3) 14(3)/14(4) 110
17 15/15 112
18 16/16 82
19(1) & (2) 17/17
19(3) 18 (opening paragraph) / 18 opening

Part.
20 18 Rule 1/18 Rule 1
21 18 Rule 2/18 Rule 2 80
22 18 Rule 3/18 Rule 3 81
23 18 Rule 5/18 Rule 5 79,83, 84
24 18 Rule 4/18 Rule 4 78, illus. (b)
25 19/19
26 20/20 86
Page 3 of 5
27 21(1)/21(1) 108 Exception 1
28 108 Exception 2
29 23/23 108 Exception 3
30 25/25
31 27/27
32 28/28
33 90
34 92
35 93
36(1) 29(l)/29(l)(2) 94
36(2),(3),(4) & (5) 29(2), (3), (4) & (5) 29(3), (4), (5)& (6)
37(1)&(2) 30(1) & (2)/30(1) (2) (3)
37(3) 30(3)/3()(4) 119
37(4) 30(4)/3()(5)
38 31/31
39(1) & (2) 32(1)&(2)/32(1)(2) 91
39(3) 32(3)/32(3)
40 33/33
41 34/34
42 35/35
43 36/36
44 37/37(1)(2)
45 38/38
46 39/39 95,99,107
47 41/41 95 to 97
Page 4 of 5
48 42/42 106 illus.
49
43/43
50 44/44 99
51 45/45 100
52 46/46 104,105
53(1) 47/47 98,101,102,103
53(2) new
54(1) 48(1)/48(1)
54(2) 48(3)/48(3) 107
54(3) 48(2)/48(2)
54(4) 48(4)/48(4)
55 49(1) & (2)/49(l)(2)
56 50(1)/50(1)
57 51(1)/51(1)
58 52/52
59(1) 53(1)/53(1)
59(2) 53(4)/53(4)
60 39,120
61(1) 54/54
61(2)(a) 49(3)/49(3)
61(2)(b)
62 55/55(1)
63 56/59 46 Explanation
Page 5 of 5
64(1) to (5) 58(1) to (4)/57(l) to (6) 122
64(6) 123
64A
65(Repealed)
66(1)(a) to (c)
66(l)(d) 61(3)/62(3)
66(1)(e) 61(2)/62(2)
66(2) 61(1)/62(1)
66(3) 61(4)/62(4)
1 * Note: English Sale of Goods Act, 1893 was repealed by the English Sale of Goods Act of 1979 [Section 63(2)].
End of Document
MullaK Kannan
The Indian Partnership Act, 11th ed > The Sale of Goods Act
Act No. III of 1930
[Passed by the Indian Legislature]
(Received the assent of the Governor-General on the 15 March, 1930)
An Act to define and amend the law relating to the sale of goods.
WHEREAS it is expedient to define and amend the law relating to the sale of goods; it is hereby enacted as follows:—
End of Document
S 1. Short title, extent and commencement.-
MullaK Kannan
The Indian Partnership Act, 11th ed > The Sale of Goods Act > Chapter I Preliminary
Chapter I Preliminary
(1) This Act may be called the 1[***] Sale of Goods Act, 1930.
2[(2) It extends to the whole of India 3[except the State of Jammu and Kashmir].]
(3) It shall come into force on the 1 day of July, 1930.

[s 1.1] Sale of Goods Act, 1930.—
The Sale of Goods Act, 1930 codifies in a separate enactment the law relating to the sale of goods which was
contained in sections 76 to 123 of the Indian Contract Act, 1872. Those sections have been repealed by the
present Act (vide section 65).
Despite the separate codification of the law relating to the sale of goods, the unrepealed provisions of the
Contract Act, 1872 continue to apply to the contracts relating to sale of goods (vide section 3). Some of the
expressions and words have not been defined in this Act and it is intended that such expressions and words
should be construed according to the meanings assigned to them in the Contract Act, 1872 (vide section 2(15)).
[s 1.2] History of the Sale of Goods Act, 1930.—
The existing law relating to the Sale of Goods contained in Chapter VII, of the Indian Contract Act, 1872
(sections 76 of 123) was found to be inadequate to deal with new situations arising due to increase in
mercantile transactions in the wake of rapid industrialisation. The Courts had to draw upon analogies from the
decisions of English Courts to meet the new situations. Hence, the legislature intervened by passing the
present Act incorporating therein the various provisions of the English Sale of Goods Act, 1893.
Page 2 of 6
[s 1.3] Date of commencement.—
The Act applies to all contracts entered into after 1 July 1930.
[s 1.4] Internationality of contracts and conflict of laws.—
In case of disputes among merchants residing in different countries, it becomes necessary to ascertain the rule
by which the validity, obligations and interpretation of their contracts are to be governed. Sometimes a person
contracts in one, is domiciled in another and is to perform the contract in a third, and the subject matter may be
situated in a fourth: each of the countries may have different and opposing laws affecting the subject matter. In
such circumstances, it becomes necessary to interpret the rights or remedies or the defences growing out of it.
Firstly, the parties are at liberty to subject the contract of sale to the law of the country of their choice. The
choice may have been expressly stated by the parties or may be determined by the Courts from the terms of
the contract and the other relevant circumstances surrounding the contract. Of the various circumstances, the
two important presumptions made by Courts are in favour of applying the law of the place of making the
contract (lex loci contractu) and the law of place where the contract is to be performed (lex loci solutions) or
where the parties have inserted an arbitration clause into their agreement, the proper law of the contract is the
law of the stipulated arbitration to govern their contract.
The transfer of property in goods under sales made in foreign countries is in general regulated by the law of the
place where the goods are situated at the time of the sale; the disposition is binding everywhere irrespective of
the mode of transfer.
Questions about the admissibility of evidence, the enforceability of the contract by action and other matters of
procedure belong in general to the “lex fori” or the law of the place where the action is brought.
In the absence of evidence to the contrary, the foreign law is presumed to be the same as the municipal law. If
the foreign law is different, and the difference is relied on, the party relying upon the foreign law must prove it as
a matter of fact.
[s 1.5] Contracts for the International Sale of Goods.—
The United Nations Convention on Contracts for the International Sale of Goods (CISG) adopted on 11 April
1980 adopted a text of law which declares through Article 1 that it is applicable to contracts of sale of goods
between parties whose places of business are in different States (a) when the States are Contracting States; or
Page 3 of 6
(b) when the rules of private international law lead to the application of the law of a Contracting State. The
provision further declares that the fact that the parties have their places of business in different States is to be
disregarded whenever this fact does not appear either from the contract or from any dealings between, or from
information disclosed by, the parties at any time before or at the conclusion of the contract. Neither the
nationality of the parties nor the civil or commercial character of the parties or of the contract is to be taken into
consideration in determining the application of this Convention.
This Convention does not apply to sales:
(i) of goods bought for personal, family or household use, unless the seller, at any time before or at the
conclusion of the contract, neither knew nor ought to have known that the goods were bought for any
such use;
(ii) by auction;
(iii) on execution or otherwise by authority of law;
(iv) of stocks, shares, investment securities, negotiable instruments or money;
(v) of ships, vessels, hovercraft or aircraft;
(vi) of electricity.
The explanatory note accompanying the Convention terms sets out the purpose and relevance:
Purpose.—The purpose of the CISG is to provide a modern, uniform and fair regime for contracts for the
international sale of goods. Thus, the CISG contributes significantly to introducing certainty in commercial
exchanges and decreasing transaction costs.
Why is it relevant?—The contract of sale is the backbone of international trade in all countries, irrespective of
their legal tradition or level of economic development. The CISG is therefore considered one of the core
international trade law conventions whose universal adoption is desirable.
Page 4 of 6
The CISG is the result of a legislative effort that started at the beginning of the 20th century. The resulting text
provides a careful balance between the interests of the buyer and of the seller. It has also inspired contract law
reform at the national level.
The adoption of the CISG provides modern, uniform legislation for the international sale of goods that would
apply whenever contracts for the sale of goods are concluded between parties with a place of business in
Contracting States. In these cases, the CISG would apply directly, avoiding recourse to rules of private
international law to determine the law applicable to the contract, adding significantly to the certainty and
predictability of international sales contracts.
Moreover, the CISG may apply to a contract for international sale of goods when the rules of private
international law point at the law of a Contracting State as the applicable one, or by virtue of the choice of the
contractual parties, regardless of whether their places of business are located in a Contracting State. In this
latter case, the CISG provides a neutral body of rules that can be easily accepted in light of its transnational
nature and of the wide availability of interpretative materials.
Finally, small- and medium-sized enterprises as well as traders located in developing countries typically have
reduced access to legal advice when negotiating a contract. Thus, they are more vulnerable to problems
caused by inadequate treatment in the contract of issues relating to applicable law. The same enterprises and
traders may also be the weaker contractual parties and could have difficulties in ensuring that the contractual
balance is kept. Those merchants would therefore derive particular benefit from the default application of the
fair and uniform regime of the CISG to contracts falling under its scope.4
Key provisions.—The CISG governs contracts for the international sales of goods between private businesses,
excluding sales to consumers and sales of services, as well as sales of certain specified types of goods. It
applies to contracts for sale of goods between parties whose places of business are in different Contracting
States, or when the rules of private international law lead to the application of the law of a Contracting State. It
may also apply by virtue of the parties’ choice. Certain matters relating to the international sales of goods, for
instance the validity of the contract and the effect of the contract on the property in the goods sold, fall outside
the Convention’s scope. The second part of the CISG deals with the formation of the contract, which is
concluded by the exchange of offer and acceptance. The third part of the CISG deals with the obligations of the
parties to the contract. Obligations of the sellers include delivering goods in conformity with the quantity and
quality stipulated in the contract, as well as related documents, and transferring the property in the goods.
Page 5 of 6
Obligations of the buyer include payment of the price and taking delivery of the goods. In addition, this part
provides common rules regarding remedies for breach of the contract. The aggrieved party may require
performance, claim damages or avoid the contract in case of fundamental breach. Additional rules regulate
passing of risk, anticipatory breach of contract, damages, and exemption from performance of the contract.
Finally, while the CISG allows for freedom of form of the contract, States may lodge a declaration requiring the
written form.5
Relation to private international law and existing domestic law.—The CISG applies only to international
transactions and avoids the recourse to rules of private international law for those contracts falling under its
scope of application. International contracts falling outside the scope of application of the CISG, as well as
contracts subject to a valid choice of other law, would not be affected by the CISG. Purely domestic sale
contracts are not affected by the CISG and remain regulated by domestic law.6
The CLOUT (Case Law on UNCITRAL Texts) system contains numerous cases relating to the application of
the CISG. A Digest of those cases is also available.7
[s 1.6] Internet sales platforms.—
There is seldom direct sale of fast moving consumer goods (FMCG) or consumer packaged goods (CPG).
Examples include non-durable goods such as packaged foods, beverages, toiletries, over the counter drugs
and other consumables. There is a large online market and the consumers are internet users. Fast-moving
consumer electronics are typically low-priced generic items or can easily be substituted. Examples of consumer
articles include: mobile phones, MP3 players, game players, earphones, headphones, OTG cables, digital
cameras, apparels, cosmetics, shoes and millions of articles of daily consumption including fruits and
vegetables. The FMCG majors market their products through internet portals, like Amazon, Flipkart, Jabong,
Myntra, etc. Apart from the warranties of wholesomeness and marketability of goods free of defects which the
packaging of the products themselves may contain, the online stores entice consumers by offering credit,
instant delivery and refund policy that assures consumers of return of goods without even assigning reasons.
The provisions of the Sale of Goods Act, 1930, Contract Act, 1872, Consumer Protection Act, 1986 and several
taxing statutes will govern the rights of parties. The interplay of these enactments will secure to the contracting
parties complex relationships for rights and liabilities. This book predominantly digests case law from the Sale
of Goods Act, 1930 and to a lesser extent incidence of tax under the Central and State sales tax regimes
brought through decisions of the Supreme Court and the High Courts. There may be a sprinkling of
consideration of provisions of other enactments mentioned above.
Page 6 of 6
1 The word “Indian” omitted by Act No. 33 of 1963, section 2 (w.e.f. 22-9-1963).
2 Subs. by the A.O. 1950, for sub-section (2).
3 Subs. by Act 3 of 1951, section 3 and Sch., for “except Part B States” (w.e.f. 1-4-1951).
4 Purpose, Relevance and Overview of the Convention available at http://www.uncitral.org/uncitral /en/uncitral_texts

/sale_goods/1980CISG.html (last accessed in November 2018)
5 Complete text of the convention as available at http://www.uncitral.org/pdf english/texts/sales/cisg/ V1056997-CISG-e-

book.pdf (last accessed in November 2018).
6 Status of Countries which have ratified the convention along with status of domestic legislations as available at
http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1980CISG_status.html; (last accessed in November 2018)
Scholarly articles: Shishir Dholakia, “Ratifying the CISG- India’s Options”: Article analysing the advantages and
disadvantages of CISG in the Indian context: as available at http://www.cisg.law.pace.edu/cisg/biblio/dholakia.html (last
accessed in November 2018); Christopher Shaeffer, The Failure of the United Nations Convention on Contracts for the
International Sale of Goods and a Proposal for a New Uniform Global Code in International sales law, as available at
http://www.cisg.law.pace.edu/cisg/biblio/sheaffer.html (last accessed in November 2018); Franco Ferrari, What Sources
of Law for Contracts for the International Sale of Goods? Why One has to Look Beyond the CISG, as available at
http://www.transnational.deusto.esp/ip2009old/academic/FERRARI,%20F.%20Sources.pdf (last accessed in November
2018).
7 A complete database related to the legislative history, case laws and other scholarly material is available at the Pace
Law School website at http://www.cisg.law.pace.edu/ (last accessed in November 2018).
End of Document
[s 2] Definitions –
MullaK Kannan
In this Act, unless there is anything repugnant in the subject or context,—
(1) “buyer” means a person who buys or agrees to buy goods;
(2) “delivery” means voluntary transfer of possession from one person to another;
(3) goods are said to be in a “deliverable state” when they are in such state that the buyer would under the
contract be bound to take delivery of them;
(4) “document of title to goods” includes a bill of lading, dock-warrant, warehouse keeper’s certificate,
wharfingers’ certificate, railway receipt, 8[multimodal transport document,] warrant or order for the
delivery of goods and any other document used in the ordinary course of business as proof of the
possession or control of goods, or authorising or purporting to authorise, either by endorsement or by
delivery, the possessor of the document to transfer or receive goods thereby represented;
(5) “fault” means wrongful act or default;
(6) “future goods” means goods to be manufactured or produced or acquired by the seller after the making
of the contract of sale;
(7) “goods” means every kind of movable property other than actionable claims and money; and includes
stock and shares, growing crops, grass, and things attached to or forming part of the land which are
agreed to be severed before sale or under the contract of sale;
(8) a person is said to be “insolvent” who has ceased to pay his debts in the ordinary course of business,
or cannot pay his debts as they become due, whether he has committed an act of insolvency or not;
Page 2 of 14
(9) “mercantile agent” means a mercantile agent having in the customary course of business as such
agent authority either to sell goods, or to consign goods for the purposes of sale, or to buy goods, or to
raise money on the security of goods;
(10) “price” means the money consideration for a sale of goods;
(11) “property” means the general property in goods, and not merely a special property;
(12) “quality of goods” includes their state or condition;
(13) “seller” means a person who sells or agrees to sell goods;
(14) “specific goods” means goods identified and agreed upon at the time a contract of sale is made; and
(15) expressions used but not defined in this Act and defined in the Indian Contract Act, 1872 (9 of 1872),
have the meanings assigned to them in that Act.
[s 2.1] Interpretations of definitions.—
The words in the principal part of this section “unless there is anything repugnant in the subject or context”
clearly imply that the definitions are general and may be interpreted having regard to their context and subject
in which such words may have been used.
The use of the word “includes” in the definitions indicate that the definition is not exhaustive. Where in an
interpretation clause it is stated that a certain term “includes” so and so, the meaning is that the term retains its
ordinary meaning and the clause enlarges the meaning of the term.9
The words which are not defined in this Act but are defined in the Contract Act, 1872, have to be construed
according to the meanings assigned to them in the Contract Act, 1872. The Sale of Goods Act, 1930 is largely
based on the English Sale of Goods Act, 1893 and so the English authorities on the interpretation of the
different sections, although not technically binding in India, would have great persuasive value.10
[s 2.2] Interpretation of a contract.—
The true nature of a transaction evidenced by a written agreement has to be ascertained from its covenants
and not merely from what the parties choose to call it. The Supreme Court has stated that for considering
whether a particular transaction is a sale or not the Court has to consider whether as a result of the transaction
the title to the property in the goods passed to another in return for price. It is the substance of the transaction
evidenced by the agreement which must be looked at.11 The substance of the matter must be ascertained by a
consideration of the rights and liabilities of the parties to be derived from a consideration of the whole of the
agreement.12
Page 3 of 14
Once the parties have reduced the terms of the contract into writing, no evidence can be allowed to be led with
regard to the negotiations which preceded the contract or those subsequent thereto. The court has to look to
the contract and construe it.
[s 2.3] Clause (1): Buyer.—
The definition of buyer in clause (1) of section 2 includes both a person who buys the goods as well as a person
who merely agrees to buy the goods. Similarly, the definition of a contract of sale in section 4 includes both a
sale and an agreement to sell. However, where an agreement (generally of a hire purchase agreement) merely
gives a person an option to buy the goods without imposing upon him any legal liability to buy the goods, such
a person is not a buyer.12 A person having agreed to buy goods means a person who has bound himself by
the agreement to buy the goods. But if a person has option to buy (or to return) the goods, until he exercises an
option to purchase, he has neither bought nor agreed to buy the goods.12
[s 2.4] Clause (2): Delivery.—
This definition involves the transaction of a transfer of possession but this transfer should be voluntary. The
word “voluntary” is significant; it is intended to show that the transfer of possession should not be under fraud,
duress or coercion or criminal offence. The transfer of possession must be as a result of volition. The law
presumes in favour of honest dealing.13 A possession obtained by a thief or a robber is not voluntary; the word
“possession” is intended either to enable the buyer to exercise his right of ownership or to enable the carrier to
carry the goods and deliver them to the person entitled thereto. As a general rule delivery of goods may be
made by doing anything which has the effect of putting the goods in the possession of the buyer or of any
person authorised to hold them on his behalf. Delivery may be actual or constructive. It is actual when the
goods themselves are delivered to the buyer or the key of a warehouse containing the goods is handed over to
him. Delivery is constructive when it is effected without any change in the custody or actual possession of the
thing as in the case of delivery by attornment (acknowledgment) or symbolic delivery. Delivery by attornment
may take place in three cases14:—
(i) seller may be in possession of the goods, but after the sale he may attorn (acknowledge) to the buyer,
and continue to hold the goods as his (buyer’s) bailee,
(ii) the goods may be in the possession of the buyer before sale, but after sale he may hold them in his
own account,
(iii) the goods may be in the possession of a third person, eg, warehouseman as bailee for the seller, and
after sale such third person attorns to the buyer, i.e., the third person agrees to hold the goods as
bailee for the buyer.
Page 4 of 14
Another method of constructive delivery of goods is by symbolic delivery, i.e, delivery of goods in course of
transit may be made by handing over documents of title to goods, like bill of lading15 or railway receipt or
delivery orders.
In constructive delivery of goods there is a change in the character of the possession of the goods previously
held though there is no change in the actual physical custody of the goods.
The rules relating to delivery of goods are contained in sections 33 to 39 of the Sale of Goods Act, 1930.
[s 2.5] Clause (3): Deliverable state.—
See sections 20, 21, 22, 23 and 36(5) of the Sale of Goods Act, 1930.
[s 2.6] Clause (4): Documents of title.—
There were different expressions used in the Contract Act, 1872 to convey the same idea.16 The present Sale
of Goods Act, 1930 uses a uniform expression throughout, namely, “document of title to goods.” It is to be
observed from the use of the word includes that the definition of “documents of title to goods” is inclusive and
not exhaustive.17 Besides the documents mentioned in this sub-clause, any other document can fall under this
sub-clause provided (a) it represents the goods, and (b) in the ordinary course of business (i) it serves as a
proof of possession or control of goods, or (ii) it entitles the possessor of such document to transfer or receive
the goods represented thereby. This gives effect to the ruling of the Privy Council in Ramdas v Amarchand.18
What was held in that case was that possession of goods covered by a railway receipt may be transferred by
endorsement of the receipt. The last endorsee is entitled to the delivery of the goods.19 An unendorsed railway
receipt does not entitle a mere holder thereof to receive the goods and hence, it will not be his document of title
to the goods. If a consignee endorses a railway receipt to another person, the inference is that he appoints that
other person as his agent to take delivery of the goods from the railway.20
A document of title to goods may refer to even unascertained goods.21 In that case delivery order was given by
defendant (seller) to F (buyer’s agent) for 2640 bags of mowra seed which formed part of a consignment of
6400 bags. F gave defendant cheque and he endorsed delivery order to the plaintiffs who took it in good faith
and for value. As F’s cheque was dishonoured, defendant refused to give delivery of seeds to plaintiffs. It was
held that delivery order was a document of title to goods which had been transferred by F to plaintiffs who took
Page 5 of 14
it in good faith and for value and so defendant’s right of lien as unpaid vendor was lost. Further, the delivery
order was valid notwithstanding that it related to goods which were not specific.
A “bill of lading” is a receipt for goods shipped on board a ship, signed by the person who contracts to carry
them, or his agent, and incorporates the terms on which the goods were delivered to and received by the
ship.22
Sometimes as a matter of convenience, shipowners may issue to shippers receipts in triplicate, for the goods
delivered at the warehouse for shipment. Such receipts may be accepted by shippers in place of bill of lading
and forwarded to consignee and these receipts are accepted by shipowner’s agent at port of delivery as
entitling the consignee to delivery. But these receipts are no evidence of shipment and so they are not bill of
lading.
A bill of lading is regarded as a symbol of the goods which it represents. Possession of the bill of lading is
regarded as constructive possession of the goods. Transfer of the bill of lading transfers constructive
possession of the goods to which it refers23 without any need for an attornment by a person in actual
possession of the goods. The common law drew a distinction between bill of lading and other documents of
title. The lawful transfer of the bill of lading operated as a delivery of the goods themselves, because, while the
goods were at sea, they could not be otherwise dealt with.24 But the transfer of a delivery order or dock warrant
operated only as a token of authority to take possession and not as a transfer of possession. A bill of lading in
law and in fact represents the goods. It is a key which in the hands of a rightful owner is intended to unlock the
door of the warehouse in which the goods may be.25
Secondly, a bill of lading is a negotiable instrument in a limited sense. A bill of lading, like a cheque, is
transferable by endorsement and delivery or if it is endorsed in blank, by delivery. But unlike negotiable
instrument, a transferee of a bill of lading only acquires such interests as the transferor had in the goods and
the transferee cannot take the goods free from defects which the transferor of bill of lading may be having with
respect of goods.26
If a bill of lading is stolen from a shipper or transferred without his authority, a subsequent bona fide transferee
for value cannot make title under it, as against the shipper of the goods. The bill of lading only represents the
goods: and in this instance the transfer of the symbol does not operate more than a transfer of what is
represented.26 Mate’s receipt is a document entitling the person named therein to receive the bill of lading; it
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does not represent the goods and so it is not a document of title of goods. It is simply a document which
acknowledges the receipt of the goods signed by the mate of vessel where the goods are put on board. Hence,
its transfer does not pass property in the goods nor is its possession equivalent to possession of the goods.27
The Supreme Court treated in one case a mate’s receipt on par with a delivery order.28 It is submitted that this
ruling is contrary to the aforesaid Privy Council’s decision. A delivery order is a document of title and the
transferee of it acquires a title to goods to which it relates. The delivery order passes from hand to hand by
endorsement.29
[s 2.7] Clause (7): Goods.—
“Goods” means every kind of movable property other than actionable claims and money. “Movable property” is
defined in the General Clauses Act, 1897, section 3(34) as property of every description except immovable
property. Lottery tickets are movable property and so “goods” under the Sale of Goods Act, 1930.30
Shares as goods.—The definition of “goods” in the Sale of Goods Act, 1930 specifically includes stocks and
shares. A share represents a bundle of rights which includes, inter alia, the rights (i) to elect directors; (ii) to
vote on resolutions at meetings of the company; (iii) to enjoy the profits of the company, if and when dividend is
declared and distributed; and (iv) to share in the surplus, if any, on liquidation.31 It is not, however, the same
thing as saying that the shareholder becomes at once on the acquisition of share entitled to the property in the
company. The true position of a shareholder is that on buying shares an investor becomes entitled to
participate in the profits of the company in which he holds the shares if and when the company declares,
subject to the Articles of Association, that the profits or any portion thereof should be distributed by way of
dividends among the shareholders. He has undoubtedly a further right to participate in “the assets of the
company which would be left over after winding up”.32
Exim scrips.—Export-import licences have their own intrinsic value and could be freely bought and sold at their
market value. There is also a ready market for the sale and purchase of replenishment licences. When they are
transferred or assigned by the holder/owner to a third person for consideration, they would attract sales tax.
However, the position would be different when replenishment licences or Exim scrips are returned to the
grantor or the sovereign authority for cancellation or extinction. In this process, as and when the goods are
presented, the replenishment licence or Exim scrip is cancelled and ceases to be a marketable instrument. It
becomes a scrap of paper without any innate market value. Where, therefore, the State Bank of India was
merely acting as per the directions of RBI, as its agent and as a participant in the process of cancellation, to
ensure that the replenishment licences or Exim scrips were no longer transferred, the intent and purpose was
not to purchase goods in the form of replenishment licences or Exim scrips, but to nullify them. Saying that the
object was to mop up and remove the replenishment licences or Exim scrips from the market, the Supreme
Court said that in the particular context there was no sale.33
Page 7 of 14
Electricity.—Gas and electricity are not goods.34 In Associated Power Co Ltd v Ram Taran Roy, the Calcutta
High Court has held that “electricity” is “goods”.35
Things attached to movable property.—The words “growing crops, grass and things attached to or forming part
of land which are agreed to be severed before sale” are intended to show that the things attached to immovable
property would be movable property where they are agreed to be severed from the land or immovable property
before sale. Thus, “standing timber” on land agreed to be severed from the land before the sale was held to fall
under this definition.36
Interest of Partners.—Similarly interest of the partners in the partnership assets consisting of immovable
property has been held to be movable property.37
Specific, unascertained and future goods.—Goods may be specific, as where there is a contract for the sale of
a specified ring or a watch or a horse. Or they may be unascertained as where there is a contract for the sale of
50 cwts. of sugar out of 1000 cwts. lying in the seller’s warehouse. The goods exist in bulk, but they are not
ascertained until 50 cwts. are set aside and appropriated to the contract. Goods again may be future goods, as
where they do not exist at the time of the contract, but are to be manufactured or produced or acquired by the
seller after the making of the contract of sale.
Actionable claim.—Actionable claim is defined in section 3 of the Transfer of Property Act, 1882. The
expression used in the English Law is “chose in action” or “thing in action”. “Thing in action” is where a person
has not the enjoyment of the thing, but merely a right to recover it by a suit or action. Money due from a party is
a thing in action or an actionable claim. It is, therefore, not “goods” which could be delivered by one person to
another and hence an actionable claim has been excepted from the definition.
“Money” means current money. Current money is not “goods”. “Current money” means a legal tender. In case
of an exchange of one form of legal tender for another it is not possible to say that one is the price of the other
and hence current money is excluded from the definition of “goods”. Further, the word “price” has been defined
as the consideration in money. Hence, money has been deliberately excluded from the definition. However, old
and rare coins38 which have ceased to be current money or legal tender may become “goods” and be the
Page 8 of 14
subject matter of sale. The mode of transfer of an actionable claim and the rights of the transferee of such a
claim are dealt with in section 130 et seq. of the Transfer of Properly Act, 1882.
Miscellaneous.—Where a building contractor supplies goods in execution of the construction of a building, it is

not a sale of goods.39 A complex contract involving a right to cut and take forest produce or tendu leaves to
make bricks on the soil, to prune and burn tendu trees and a right to build and occupy land for business has
been held to be not a contract for sale of goods simpliciter. These rights were spread over many years and
were not so simple as buying leaves in a shop.40
Sugarcane supplied to sugar factory are “goods” within the meaning of section 2(7) of the Sale of Goods Act,
1930.41
[s 2.8] What are not “goods”.—
The case papers entrusted to lawyers by clients are not goods.
It is not possible to extrapolate the word “goods” mentioned under section 171 of the Indian Contract Act, 1872
in the context of bailment to have any relevance for understanding this definition. Consequently, files containing
copies of records entrusted to a lawyer cannot come within this definition.42 “Goods” to fall within the purview
of section 171 of the Contract Act, 1872 should have marketability and the person to whom they are bailed
should be in a position to dispose of them in consideration of money. In other words the goods referred to in
section 171 of the Contract Act, 1872 are saleable goods. There is no scope for converting the case files into
money, nor can they be sold to any third party.
Lottery tickets.—By a lottery ticket, the purchaser would have a claim to a conditional interest in the prize
money which is not in the purchaser’s possession. The right would fall squarely within the definition of an
actionable claim and would, therefore, be excluded from the definition of “goods” under the Sale of Goods Act,
1930 and the sales tax statutes. To the extent that the sale of a lottery ticket involved a transfer of the right to
claim a prize depending on chance, it was an assignment of an actionable claim.43
[s 2.9] Clause (8): Insolvent.—
It is not necessary to constitute a person an “insolvent” within the meaning of the Sale of Goods Act, 1930 that
he should have committed an act of insolvency. Under the Presidency-Towns Insolvency Act, 1909, and the
Provincial Insolvency Act, 1920, a person cannot be adjudicated and insolvent unless he has committed an act
of insolvency. A list of the acts of insolvency is given in section 9 of the Presidency-Towns Insolvency Act, 1909
Page 9 of 14
and in section 6 of the Provincial Insolvency Act, 1920. Under the Sale of Goods Act, 1930 a person is said to
be insolvent if he has ceased to pay his debts in the ordinary course of business or cannot pay them as they
become due, whether he has committed an act of insolvency or not.
[s 2.10] Clause (9): Mercantile agent.—
This definition is taken from the English Factors Act, 1889, section 1(1). The word “his” which occurs in that
section before the word “business” seems to have been omitted by a printer’s mistake in this clause of the Sale
of Goods Act, 1930. See note to section 27 below, “Mercantile agent.” The words “in the customary course of
business as such agent” are very material; if a person is not carrying on business as such agent, he would not
fall under this definition, thus a caretaker, a warehouseman, a carrier or a servant and a friend would be
excluded.44
[s 2.11] Clause (10): Price.—
The two essential elements of a contract of sale are (1) goods and (2) price. Price is the money consideration
for the sale. A resale of goods is also a sale of goods and the money consideration for such resale is the price
payable in respect of such resale. When a person purchases goods he may sell them. Such second sale is
generally referred to as a resale. The money consideration for such second sale would be the price of goods
resold.45
In Coffee Board v Commr of Comm Taxes, Karnataka,46 though under the Coffee Act, 1942 a grower of coffee
must sell coffee to the Board at a price fixed by the Coffee Act, 1942, the payment of the said price to grower
was a sale price under section 4(1) of the Sale of Goods Act, 1930. A compulsory delivery of coffee by its
grower to the Coffee Board was a sale transaction under the Sale of Goods Act, 1930.
According to the Supreme Court, even in such compulsory delivery of coffee all the four essential elements of
sale were present, viz.: (1) competency of the parties, (2) mutual assent, (3) passing of property in the goods
supplied to the buyer, and (4) payment or promise of payment of price.
Price of work done cannot be made applicable to professions where professionals merely provided services for
fee.47
[s 2.12] Clause (11): Property.—
Property in the Sale of Goods Act, 1930 means the general property in goods and not special property. If A who
owns goods pledges them for raising money to B, A has the general property in the goods, while B (pledgee,
Page 10 of 14
person with whom goods are pledged) has a special property or interest in them, e.g., pledgee has a right to
retain the pledged goods until he is paid by A (pledgor) the entire amount of his loan with interest.
Property means ownership. When it is said in the Sale of Goods Act, 1930 that the property in the goods is in a
certain person it means that person is the owner of the goods. When it is said that the property in the goods has
passed from the seller to the buyer, it means that the goods have ceased to be the property of the seller and
have become the property of the buyer. The general rule is that, unless otherwise agreed, the goods remain at
the seller’s risk until the property therein is transferred to the buyer. When the property therein is transferred to
the buyer, the goods are at the buyer’s risk whether delivery of the goods has been made to the buyer or not. In
sale the general property in the goods passes to the buyer. As to the passing of property, see sections 18–24
and as to the passing of risk, see section 26.
[s 2.13] Clause (14): Specific goods.—
The expression “specific” goods is used in contradistinction to generic or unascertained goods. If the goods are
identified at the time of sale, they are specific goods; if the goods are not identified at the time of the sale, they
are unascertained goods. A sale of a motorcycle in a person’s possession is a sale of a specific goods. A sale
of a motorcycle from a showroom containing different models of motorcycles is a contract for sale of
unascertained goods. Similarly, in a transaction where the buyer expected timber of particular girth of two feet
to be supplied, a mere contract to supply timber cut from the trees would only mean that the goods are still in
an unascertained state. In such a situation, where there was no contract to sell the entire timber from the forest
belonging to a jagirdar, the sale does not fructify.48 There can be no oral contract with reference to
unascertained goods because it is not possible to effect delivery of such goods.49 It is the appropriation of
goods in a deliverable state that renders the contract complete.50 The goods must be actually identified: it is
not sufficient that they are capable of identification.51 Where the contract is in respect of existing stock of bidi
leaves in the godowns of the seller at a particular place and the price is fixed at a lump sum for the amount of
the stock, the sale is of specific goods although the buyer may not have seen the goods.52 In Lalchand v
Baijnath, the Calcutta High Court said that specific goods is not identical with ascertained goods. It does not
mean goods examined by the buyer.53 The distinction between specific and unascertained goods is important
as will be seen from the notes under section 18 and subsequent sections. “Ascertained goods” is not defined
and it is helpful to think in terms of “un-ascertained goods”: If I have 20 chairs of the same kind and 1 offer to
sell 10 particular chairs, the goods are unascertained till 10 particular chairs be appropriated towards the
contract. On appropriation the goods become ascertained. If the identity of contract goods is not established by
appropriating them towards the contract, the contract remains in respect of unascertained goods.54 A sale of
existing stock of particular goods (e.g., tobacco) in the specified godowns in which kept is clearly specified and
identified as a plot of land is specified by describing its boundaries.55
Page 11 of 14
8 Ins. by Act 28 of 1993, section 3 and Sch, Pt. III (w.e.f. 16-10-1992).
9 Official Assignee of Bombay v Firm of Chandulal Chimanlal, 76 IC 657 : AIR 1924 Sind 89 .
10 Consolidated Coffee Ltd v Coffee Board, Bangalore, AIR 1980 SC 1468 [LNIND 1980 SC 187] : (1980) 3 SCC 358
[LNIND 1980 SC 187] .
11 Khedut Sahakari Ginning & Pressing Society v State of Gujarat, AIR 1972 SC 1786 [LNIND 1971 SC 465] : (1922) 1
SCR 714 .
12 Helby v Matthews, 1895 AC 471 .
13 Madholal v Official Assignee (Bombay), (1950) AEC 21 : 1949 FCR 441.
14 See Chalmers’ Sale of Goods Act, 17th Edn, p 277.
15 JV Gokal & Co Ltd v Asst Collector of Sales Tax, AIR 1960 SC 595 [LNIND 1960 SC 18] : (1960) 2 SCR 852 [LNIND
1960 SC 18] .
16 Ramdas v Amarchand, (1916) 40 Bom 630, documents of title and instruments of title.
17 Official Assignee of Bombay v Firm of Chandulal, (1926) 76 IC 657 : AIR 1924 Sind 89 .
18 Ramdas v Amarchand, (1916) 43 IA 164 : 40 Bom 630.
19 Mulji Deoji v UOI, AIR 1957 Ngp 31 .
20 Sheo Prasad v Dominion of India, AIR 1954 All 747 [LNIND 1954 ALL 16] : 1954 AWR (NULL) 24232.
Page 12 of 14
21 Ant Jurgens v Louis Dreyfus & Co, (1914) 3 KB 40 , cf. Anglo India Jute Mills v Omademull, (1911) 38 Cal 127 : 10 IC
859.
22 Nissim Isaac Bekhor v Haji Sultanali Shastary & Co, (1916) 40 Bom 11, 18.
23 Ramdas v Amarchand, (1916) 40 Bom 637 : AIR 1916 PC 7 : (1916) ILR 40 Bom 630.
24 Sanders v Maclean, (I883) 11 QBD 327, 341; Biddell Brothers v E Clemens Horst Co, (1911) 1 KB at 956.
25 18 Bowen LJ Sanders v Maclean, (I883) 11 QBD 327, p 341.
26 Gurney v Behrend, (1854) 3 E&B 622 : 188 ER 1275.
27 Nippon Yusen Kaisha v Ramjibhan, 65 IA 263 : 40 Bom LR 799 : (1938) A PC 152.
28 Duni Chand Rataria v Bhuwalka Bros Ltd, AIR 1955 SC 182 [LNIND 1954 SC 170] : (1955) 1 SCR 1071 [LNIND 1954
SC 170] .
29 Anglo Indian Jute Mills Co v Omademull, (1911) ILR 33 Cal 127 : 10 IC 859.
30 H Anraj v Govt of TN, AIR 1986 SC 63 [LNIND 1985 SC 319] , 71 : (1986) 1 SCC 414 [LNIND 1985 SC 319] .
31 Hindustan Lever Employees’ Union v Hindustan Lever Ltd, AIR 1995 SC 470 [LNIND 1994 SC 994] : (1995) Supp. 1
SCC 499.
32 Bacha F Guzdar v CIT, AIR 1955 SC 74 [LNIND 1954 SC 145] : (1955) 25 Com Case 1 (SC) ; See also section 82 of
the Companies Act, 1956.
33 CTO v SBI, 2016) 10 SCC 595 [LNIND 2016 SC 541] : 2017 (1) SCJ 211 : 2016 (10) Scale 551 .
Page 13 of 14
34 Rash Behari Shaw v Emperor, (1936) 41 Cal WN 225 : (1936) AC 753.
35 Associated Power Co Ltd v Ram Taran Roy, AIR 1970 Cal 75 [LNIND 1969 CAL 8] : 73 Cal WN 701.
36 State of Maharashtra v Champalal Kishanlal Mohta, AIR 1971 SC 908 [LNIND 1970 SC 142] : (1970) 1 SCC 611
[LNIND 1970 SC 142] .
37 Addanki Narayanappa v Bhaskara Krishnappa, AIR 1966 SC 1300 [LNIND 1966 SC 27] : (1966) 3 SCR 400 [LNIND
1966 SC 27] .
38 Re Mathur Lalbhai, (1901) 25 Bom 702.
39 State of Madras v Gannon Dunkerley & Co (Madras) Ltd, AIR 1958 SC 560 [LNIND 1958 SC 39] : (1959) SCR 379
[LNIND 1958 SC 39] .
40 Mahadeo v State of Bombay, AIR 1959 SC 735 [LNIND 1959 SC 29] : (1959) Supp. 2 SCR 339 : (1959) SCJ 1021
[LNIND 1959 SC 29] .
41 UP Co-op Cane Unions Federations v West UP Sugar Mills Assn, AIR 2004 SC 3697 [LNIND 2004 SC 623] : (2004) 5
SCC 430 [LNIND 2004 SC 623] .
42 RD Saxena v Balram Prasad Sharma, AIR 2000 SC 3049 [LNIND 2000 SC 1141] : (2000) 7 SCC 264 [LNIND 2000 SC
1141] .
43 Sunrise Associates v Govt of NCT, AIR 2006 SC 1908 [LNIND 2006 SC 324] : (2006) 5 SCC 603 [LNIND 2006 SC
324] ; UOI v Martin Lottery Agencies Ltd, (2009) 12 SCC 209 [LNIND 2009 SC 1107] : (2009) 8 SCR 946 [LNIND 2009
SC 1107] : JT (2009) 11 SC 151 [LNIND 2009 SC 1107] : (2009) 4 Scale 34 [LNIND 2009 SC 1107] ; State of Kerala v
Mini Shamsudin, (2009) 3 SCC 466 [LNIND 2009 SC 219] : [2009] 1 SCR 723 [LNINDORD 2009 SC 442] : JT (2009)
14 SC 369 [LNINDORD 2009 SC 442] : (2009) 3 Scale 143 [LNINDORD 2009 SC 442] : (2009) 3 UJ 1296 (SC).
44 Lowther v Harris, (1927) 1 KB 393 ; Budberg v Jerwood & Ward, (1934) 51 TLR 99 .
Page 14 of 14
45 Gopalkrishna Pillai v Mani, AIR 1984 SC 216 : (1984) 2 SCC 83 .
46 Coffee Board v Commr of Commercial Taxes, Karnataka, AIR 1988 SC 1487 [LNIND 1988 SC 313] : (1988) 3 SCC
263 [LNIND 1988 SC 313] . See Vishnu Agencies Pvt Ltd v Commercial Tax Officer, AIR 1978 SC 449 [LNIND 1977
SC 352] : (1978) 1 SCC 520 [LNIND 1977 SC 352] .
47 Dharmarth Trust J and K, Jammu v Dinesh Chander Nanda, (2010) 10 SCC 331 [LNIND 2010 SC 842] : [2010] 10 SCR
1101 [LNIND 2010 SC 842] ,.
48 Ram Narain Mahto v State of MP, (1970) 1 SCC 25 [LNIND 1969 SC 342] : (1970) 2 SCR 445 [LNIND 1969 SC 342] :
1970 Mh LJ 770 (SC).
49 20th Century Finance Corp v State of Maharashtra, AIR 2000 SC 2436 [LNIND 2000 SC 2429] : (2000) 6 SCC 12
[LNIND 2000 SC 867] .
50 Juggilal Kamlapat v Pratampal Rameshwar, AIR 1978 SC 389 [LNIND 1977 SC 325] : (1978) 1 SCC 69 [LNIND 1977
SC 325] .
51 Kursell v Timber Operators & Contractors Ltd, (1927) 1 KB 298 , 314.
52 Harnarain Ramchandra Jaiswal v Firm, Radhakisan Narayandas, AIR 1949 Ngp 178 : [1948] ILR Nag 543.
53 Lalchand v Baijnath, AIR 1937 Cal 140 .
54 Harnarain Ramchandra Jaiswal v Firm, Radhakisan Narayandas, AIR 1949 Ngp 178 : [1948] ILR Nag 543.
55 Harnarain Ramchandra Jaiswal v Firm, Radhakisan Narayandas, AIR 1949 Ngp 178 , 179 : [1948] ILR Nag 543.
End of Document
S. 3. Application of provisions of Act 9 of 1872.-
MullaK Kannan
The unrepealed provisions of the Indian Contract Act, 1872, save in so far as they are inconsistent with the
express provisions of this Act, shall continue to apply to contracts for the sale of goods.
[s 3.1] Application of provisions of Contract Act, 1872.—
Though the law relating to the sale of goods is enacted in a separate Act, the unrepealed provisions of the
Contract Act, 1872 are to continue to apply to contracts for the sale of goods. The rules of law laid down in the
Contract Act, 1872 relating to capacity of a party to enter into contract, disability of persons incompetent to
contract, unlawful consideration or object of a contract, void contracts, damages, fraud, misrepresentation, etc.,
will be applicable to a contract of sale as well.
End of Document
S. 4. Sale and agreement to sell.-
MullaK Kannan
The Indian Partnership Act, 11th ed > The Sale of Goods Act > Chapter II Formation of the Contract >
Contract of Sale
Chapter II Formation of the Contract
Contract of Sale
(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property
in goods to the buyer for a price. There may be a contract of sale between one part-owner and
another.
(2) A contract of sale may be absolute or conditional.
(3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the
contract is called a sale, but where the transfer of the property in the goods is to take place at a future
time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell.
(4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to
which the property in the goods is to be transferred.
[s 4.1] Examples.—
This section may be explained by the following illustrations:
(1) A agrees to buy B a haystack on B’s land with liberty to go to B’s land to take it away. This is a sale.1
Page 2 of 23
(2) 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.2
(3) A agrees to buy from B 20 tons of oil from B’s cisterns. B held the cisterns for A’s accommodation charging
rent per ton per week. B had several cisterns at several places. This is an agreement to sell until the oil is
separated.3
[s 4.2] English law.—
This section corresponds to section 2 of the English Sale of Goods Act, 1979. Section 3 of the said Act deals
with capacity to buy and sell but the Indian counterpart does not contain such a specific provision but states in
general terms through section 3 that the unrepealed provisions of the Indian Contract Act, 1872 save so far as
they are inconsistent with the express provisions of the Indian Act shall continue to apply to contracts for the
sale of goods.
[s 4.3] Sub-section (1): Contract of Sale.—
The term “contract of sale” is a generic term. It includes an agreement to sell as well as a sale, formerly, known
as a “bargain and sale.”
The essence of sale is the transfer of the general property in the goods from the seller to the buyer for a price.
When under a contract of sale the property in the goods is transferred from the seller to the buyer, so that the
seller ceases to be the owner of the goods and the buyer becomes the owner, the contract of sale is called a
sale. But where the transfer of the property in the goods is to take place at a future time or subject to some
condition thereafter to be fulfilled, the contract is called an agreement to sell. An agreement to sell becomes a
sale when the time elapses or the conditions are fulfilled. Addressing the issue of whether a particular contract
in which the terms provided that resin sold will remain at purchasers risk from the date of acceptance its bid and
the seller will not be responsible for any loss and damage which may occur from any cause whatsoever, the
property was held to have vested in purchaser as a result of subject contract and consequently the contractual
terms were treated as conveyance for the purpose of stamp duty.4
A sale is sometimes described as an executed contract of sale. An agreement to sell is sometimes described
as executory contract of sale.
Page 3 of 23
The words “transfer the property” indicate that there should be two persons i.e. seller and purchaser. A man
cannot buy his own goods. Moreover, if merely title to the goods passes but not as a result of any contract
between the parties, express or implied, there is no sale.5
There is no sale of goods when meals are served either to the casual visitors in a restaurant located in a hotel
or to the residents of the hotels in which lodging and meals are provided.6 The court emphasized that the
supply of meals was essentially in the nature of service provided to them and could not be identified as sale
transaction.
Similarly a person, who does not own the goods either fully or partially, cannot transfer the property, fully or
partially, as the case may be.
The words “for a price” are intended to refer to a consideration in money or legal tender. The said words are
intended to exclude barters. Exchange of one form of legal lender for another is not a sale as it is not possible
to say that one is the price of the other.
[s 4.4] Seller.—
“Seller” means a person who sells or agrees to sell his goods; see section 2(13). This is in conformity with the
definition of a contract of sale which includes an agreement to sell as well as a sale.
[s 4.5] Buyer.—
“Buyer” means a person who buys or agrees to buy goods belonging to another. An option to buy, however, is
not the same thing as an agreement to buy. The agreement comes into existence only when the option is
exercised.7
[s 4.6] Property.—
See note below, “Sale and Agreement to sell.”

[s 4.7] Sale by part owner to another.—
We have seen above that the seller must own the goods in order to be the seller and transfer the properly. The
second part of the definition permits a person who owns the goods partially to sell goods and transfer the
ownership to that extent.
[s 4.8] Sub-section (2): Absolute and conditional contracts of sale.—
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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 annexed to the contract by the
parties. These conditions may be conditions precedent or conditions subsequent. Where an agreement to sell
is to become a sale on the fulfilment of a particular condition, the condition is a condition precedent. Instances
of conditions precedent are given in the note under sub-section (3) below. Where there is an actual sale
passing the property to the buyer, but subject to defeasance on the happening of some specified event, the
case is one of a condition subsequent. 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. In such a case there is an actual sale
passing the property to the buyer, but if the buyer does not pay, the sale goes off, and the property in the goods
revests in the seller.8 For sale of a car, the registration of the vehicle in the name of the purchaser is taken as a
post sale event and sale itself will be taken as complete by delivery.9
[s 4.9] Meaning of “sale”.—
The word “sale” is a nomen juris. It is the name of a consensual contract.10 It was held in Agricultural Market
Committee v Shalimar Chemical Works Ltd,11
The Indian Sale of Goods Act is based largely upon the English and American Acts. Under these Acts, namely,
the English Sale of Goods Act, the American Uniform Sales Act and the Indian Sale of Goods Act, the relevant
factor for determining where the sale takes place is the intention of the parties. A contract of sale, like any other
contract, is a consensual act inasmuch as parties are at liberty to settle, amongst themselves, any terms they
may choose.
In Malnad Areca Processing & Mktg Ltd v CCT,12 the Supreme Court pointed out that a sale and a purchase
are two different aspects of the same transaction.
[s 4.10] Sub-section (3): Sale and Agreement to sell.—
As stated above, where the property in the goods is transferred from the seller to the buyer, the transaction is
one of sale. But when the transfer of property is to take place at a future time or it is to take place subject to
some conditions thereafter to be fulfilled, the transaction is an agreement to sell. The conditions may have to be
fulfilled by the seller or may have to be fulfilled by the buyer. Thus where the goods have to be weighed or
measured by the seller for the purpose of ascertaining the price, the transaction is an agreement to sell; but it
becomes a sale and the property in the goods passes to the buyer when the goods are weighed or measured
and the buyer has notice thereof (section 22). Similarly, if goods are delivered to the buyer on approval i.e., “on
sale or return.” the transaction is an agreement to sell, but it becomes a sale and the property in the goods
passes to the buyer where the buyer signifies his approval or acceptance to the seller (section 24). These are
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cases of conditions precedent referred to in the preceding note. The agreement to sell becomes a sale on the
fulfilment of the conditions. In Sanket Timber Mart v Conservator of Forest (South Chandrapur) Forest
Division,13
Clause No. 11 in the agreement which was the bone of contention between both the parties contained a recital, “after
bid is accepted, timber shall continue to lie in the depot premises at total risk of auction purchaser and if it is destroyed
in fire, flood, theft etc., the Government will not be responsible for the same”. The petitioners contended that this clause
only envisaged the exemption to Government from paying any compensation to petitioners in case of loss of timber
between the date on which the bid is accepted and the date on which the complete amount/price therefor was paid by
the petitioners or till timber was shifted by them. According to them, this clause would not enable the Government to
claim unpaid price of destroyed/lost goods from the petitioners.
The Court ruled that the terms and conditions clearly showed that unless and until complete sale price is
received by the Government, the auction purchaser was not authorised to and could not remove the forest
produce/timber purchased by him. Referring to the clause that if the purchaser did not remove the forest
produce within 90 days of the date of auction or the date of receipt of communication of acceptance of his bid
after depositing its complete price, the ownership therein would go back to State Government, the Court
reasoned that it showed that the Government retained control till the complete sale price was received by it and
its ownership was again restored. The intention of parties therefore as apparent from the document was only to
pass property to auction purchaser if he paid complete price thereof. In the particular facts of the case, it was
apparent that balance 3/4th [75%] of the bid amount offered by the petitioners was not even paid by them till
when the case was filed and hence the sale had not fructified. The Court therefore accepted the contention of
the petitioners that the clause 11 did not authorise State Government to call upon petitioners to pay
unpaid/balance price of 75%. It only prohibited petitioners from seeking any refund of money paid by them,
either in full or in part, in case before removal of timber the same was destroyed, damaged or lost. It protected
the government from any liability in that contingency.
[s 4.11] Contract of sale and an agreement of sale.—
The essence of sale is the transfer of the property in a thing from one person to another for a price. As per the
Section, the contract of sale includes an agreement to sell. It is not necessary that contract of sale must be
absolute. It may be conditional as well. The essential feature that distinguishes the contract of sale from an
agreement to sell is that in a contract of sale the property in the goods is transferred from the seller to the buyer
immediately whereas in an agreement to sell property is transferred on a future date/dates. An agreement to
sell becomes a sale on fulfilment of the conditions or when the time provided in the agreement elapses.14
[s 4.12] Points of distinction between a sale and an agreement to sell.—
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A contract of sale is different from an agreement to sell and unlike other contracts, operates by itself and
without delivery to transfer the property in the goods sold. The word “sale” connotes both a contract and a
conveyance or transfer of property. Thus, the essential ingredients of the “sale” are agreement to sell movables
for a price and property passing therein pursuant to an agreement. The following are some of the important
points of distinction between a sale and an agreement to sell:
(1) A sale effects a transfer of the general property in the goods to the buyer, in other words, it creates a
jus in rem.15 An agreement to sell there is no transfer of property13 but it gives to either party a
remedy against the person and general estate of the other for any default in fulfilling his part of the
agreement, in other words, it creates a jus in personam.
(2) If there has been a sale, and the buyer fails to pay for the goods, the seller may sue for the price: see
section 55 (suit for price). Where there is merely an agreement to sell, and the buyer fails to accept
and pay for the goods, the seller can only sue for damages; see section 56 (damages for non-
acceptance).
(3) If there is an agreement to sell, and the seller commits a breach, the buyer has only a personal remedy
against the seller, namely, a claim for damages. The goods are still the property of the seller, and he
can dispose of them as he likes. But if there has been a sale, and the seller commits a breach, the
buyer has not only a personal remedy against the seller, but also the remedies which an owner has in
respect of the goods themselves, such as a suit for conversion or detinue. In many cases, too, he can
follow the goods in the hands of third persons. The reason is that on a sale the property in the goods
passes to the buyer, and he becomes the proprietor or owner of the goods.
(4) If there is an agreement to sell, and the goods are destroyed, the loss (unless otherwise agreed) falls
on the seller, while, if there has been a sale, the loss (unless otherwise agreed) falls upon the buyer,
though the goods may never have come into his possession.16 See section 26 below.
[s 4.13] Contract of sale and contract of work.—
If a contract involves the sale of movable property as movable property, it would constitute a contract for sale.
On the other hand, if the contract primarily involves carrying on of work involving labour and service and the
use of materials is incidental to the execution of the work, the contract would constitute a contract of work and
labour. One of the circumstances which is of relevance is whether the article which has to be delivered has an
identifiable existence prior to its delivery to the purchaser upon the payment of a price. If the article has an
identifiable existence prior to its delivery to the purchaser, and when the title to the property vests with the
purchaser only upon delivery, that is an important indicator to suggest that the contract is a contract for sale
and not a contract for work. In India, the distinction between the two categories is elucidated by the Sale of
Page 7 of 23
Goods Act, 1930. Sub-section (1) of section 4 provides that a contract of the sale of goods is a contract,
whereby a seller transfers or agrees to transfer the property in goods to the buyer for a price. Where, under a
contract of sale, the property in goods is transferred from the seller to the buyer, the contract is that of sale, but
where transfer of property in the goods is to take place at a future time, or subject to some condition thereafter
to be fulfilled, the contract is not a sale but is an agreement to sell. A contract of sale is made by an offer to buy
or sell goods for a price and the acceptance of the offer. Under section 5(1) the contract may provide for
immediate delivery of the goods or immediate payment of the price or postponement of delivery or payment of
the price by installments.17 This distinction becomes crucial in taxing statutes for the incidence and quantum of
tax will depend on whether the sale is of “goods” or “service”.
[s 4.14] Sub-section (4): Agreement to sell becoming a sale.—
In relation to sale of a motor vehicle, the provisions of the Motor Vehicles Act, 1988 contain conditions of
registration and third party insurance before the vehicle is put to use in a public place. This sub-section
contemplates that an agreement to sell fructifies and becomes a sale when the conditions are fulfilled subject to
which the property of the goods is to be transferred. The possession can also be handed over only at or near
the office of the registering authority, normally at the time of registration. In case there is a major accident when
the dealer is taking the motor vehicle to the registration office and the vehicle can no longer be ascertained or
declared fit for registration, clearly the conditions for transfer of property in the goods do not get satisfied or
fulfilled.18
See also note above under sub-section (3), and note to section 26, “Analysis of sections relating to passing of
property.”
[s 4.15] Mortgage, pledge and hypothecation of goods.—
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. See section 66(3).
A mortgage of goods is a transfer of the general property in goods from the mortgagor to the mortgagee to
secure a debt.19 A pledge is a bailment of goods by one person to another to secure payment of a debt.20 A
mortgage of goods may be created without delivery of possession, but a pledge cannot be created without such
delivery. A mortgage passes the general property in the goods, while a pledge passes a special property only.
A hypothecation of goods is an equitable charge on goods, without possession, but not amounting to a
mortgage.
Question whether a particular Contract is one of the Sale of Goods or that of work and labour depends on the
Page 8 of 23
intention of the parties which is to be determined by looking at the entire terms of the Contract. So, to answer
this question it is necessary to find out the intention of the parties from the terms and conditions which are
agreed upon by the parties.21 However, it must be kept in mind that the word “contractor” appearing in the
contract is not decisive on the question whether it is a contract of sale or work contract—the entire document
with all the relevant clauses throwing light on the real intention of the parties must be given due weight in
coming to a conclusion one way or the other.18
Generally a contract to make a chattel and deliver it, when made, is a contract of sale, but not always. One test
would seem to be whether the thing to be delivered has any individual existence before delivery as the sole
property of the party and further the property therein passes only under the contract relating thereto to the other
party who is to deliver it. But, where the real substance of the contract is the performance of work by A for B, it
is a contract for work and materials notwithstanding that the performance of the work necessitates the use of
certain materials and that the property in those materials passes from A to B under the Contract.
Illustrations
(1) A promises to make a set of false teeth for B with materials, wholly of A, and B promises to pay for them
when made. This is a contract for sale of Goods.22
(2) A promises to paint a picture for B. A uses the paint and canvas which are of small value and B promises to
pay for the picture as a work of art. This is a contract for work and labour and not the sale of goods.23 The
substance of the contract is skill and labour should be exercised for producing the portrait and it is only ancillary
to the contract that there would pass paint and canvas from the artist to his customer.
(3) A contract to build a house according to specification is a contract for work and labour. This is not a contract
to sell materials.24 In building contract the property in the materials used does not pass to other party as
movable property. The materials in the construction of building become the property of the other party to
contract by theory of accretion.
Halsbury’s Laws of England25 is often quoted for the test to distinguish these two types of contract.
Page 9 of 23
A contract of sale of goods is a contract whose main object is the transfer of property in, and delivery of the possession
of, a chattel as a chattel to the buyer.
Where the main object of work undertaken by the payee of the price (e.g., the contractor) “is not the transfer of
a chattel qua chattel, the contract is one for work and labour.” In contract of sale the primary intention of the
parties to the contract is the passing of the property in the goods from the seller to the buyer under their
agreement. In contract of sale, the thing produced as a whole has individual existence as the sole property of
the party who produced it at some time before delivery and the property therein passes only under the contract
relating thereto to the other party for a price. Mere transfer of property in the goods used in the performance of
contract is not sufficient to constitute a sale there must be an agreement express or implied relating to the sale
of goods and completion of agreement by passing of title in the very goods contracted to be sold.
On the other hand in contract of work, there is in the person performing work or rendering service no property in
the thing produced as a whole notwithstanding that a part or even the whole of the materials used by him may
have been his property.26
Where the main object of contract is transfer of property in a chattel as a chattel to buyer, it is still a contract of
sale though some work may be required to be done under the contract as ancillary or incidental to the sale. So
a contract for supply of an Air Conditioner may provide that a supplier of an Air Conditioner will fix it up in the
buyer’s premises. Such a contract would be a contract for sale as the work of fixing it up would be incidental to
sale.27
By the aforesaid discussion, it would be noticed, that illustration (1) dealing with false teeth is a contract for sale
of goods as it is a contract for a chattel or goods to be made and delivered. But in illustration (2) the substance
of contract undertaken by the painter is bestowing his skill and labour for the production of the portrait and it is
only ancillary to the contract that passes paint and canvas.
However to paint a picture is different from taking a photograph.
But the sale of enlarged photograph as reproduced on paper of a particular quality and size is a separate
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contract to sell it as such. The Supreme Court in Asst. Sales Tax Officer v B.C. Kame,28 held that where a
photographer undertakes to take photograph, develop negative or do other photographic work and thereafter
supplies the prints to the customers, he cannot be said to enter into a contract for sale of goods. It is a contract
for use of skill and labour by the photographer—except when he sells the goods purchased by him—is
essentially one of skill and labour. In view of this, it is submitted that the decision of Patna High Court in M.
Ghosh case is considerably weakened.
So a contract of sale is a contract whose main object is the transfer of the property in and the delivery of the
possession of, chattel as a chattel to the buyer. In contract of sale the contract is for the supply of finished
goods. If the substance of contract is the production of something to be sold as a chattel, it is a contract of sale
of goods.
In Commissioner of ST MP v Purshottam Premji,29 under a contract with S.E. Rly., the Respondent was to
quarry stones from quarries belonging to Railway and break the stones into pieces and convert them into
ballast of specific size and supply them to Railway Administration at specified rates. Under the contract the
Respondent had to remove from Railway premises all rejected ballast and had to pay certain royalty.
Respondent received Rs 40,000 from S.E. Rly. and the question was whether there was sale in the supply of
ballast to Railway under the contract within section 2(n) M.P. Gen. Sales Tax Act, 1958. The Supreme Court
answered in negative as the property in the ballast, at all relevant times, was with S.E. Rly. and ballast was
never the property of Respondent; there was no question of Respondent transferring any property in it to
Railway.
In Sentinel Rolling Shutters and Engineering Co Pvt Ltd v Commr, ST,30 an assessee respondent company
entered into a contract with B company for fabrication, supply erection and installation of Rolling Shutters in the
Sugar factory of B Company and completed the said contract.
Question arose as to whether it was a contract of sale or contract of work and labour. The Supreme Court
analysed the contract and pointed out that not only are the Rolling Shutters to be manufactured as per
specifications, designs, drawings and instructions provided in the contract but they are also to be erected and
installed at the Company’s premises. The erection and installation of Rolling Shutters is as much an essential
part of contract as fabrication and supply. It is only on erection and installation of Rolling Shutters that the
contract would be fully executed.
Page 11 of 23
According to the Supreme Court a Rolling Shutter consisted of several component parts and the component
parts do not constitute a Rolling Shutter until they are fixed and erected on the premise. It is only when
component parts are fixed on the premise and fitted into one another that they constitute a Rolling Shutter as a
commercial article and till then they are merely component parts and cannot be said to constitute a Rolling
Shutter. The erection and installation of the Rolling Shutter cannot therefore be said to be incidental to its
manufacture and supply. It is a fundamental and integral part of contract because without it the Rolling Shutter
does not come into being.31 The contract for fabrication, supply and erection of Rolling Shutter was held
contract for work labour and not for sale. Similarly, in State of Rajasthan v Man Industrial Corp Ltd,32
Respondent carried on business of fabricating steel doors, windows entered into a contract with Rajasthan
Government, to prepare window leaves as per specifications and to fix them to building, within a specified time.
It was held on consideration of the terms of contract that it was a contract of service and not for sale, as the
primary undertaking was not merely to supply windows but to fix them to building. The fixing of windows in the
stipulated manner required special skill and so it was not incidental to sale of the windows. It was only upon
fixing of window leaves and after the window leaves had become the part of building construction that property
passed. The contract was a contract for work, as only upon the fixing of the windows as stipulated, the contract
could be fully executed and the property in the windows passed on the completion of work and not before. It
was not a contract of sale as their contract was not for transfer of property in the window leaves as window
leaves. It was a contract for providing and fixing windows and windows could come into existence only when
the windows leaves were fixed to building by bestowing labour and skill.
Similarly in Carl Still v State of Bihar,33 Appellants, a foreign company, entered into a contract with Sindri
Fertilizers and Chemicals Pvt Ltd, known here as owner for assembling and installing machineries, plants and
accessories for a coke oven, battery and by-products plant at Sindri in the State of Bihar for Rs 2,31,50,000.
The arrangement provided appellant to supply all the materials and labour required for the erection of the works
the clause provided that all materials in connection with the coke brought by the contractor on site shall become
the owner’s property. This clause, as the Supreme Court interpreted, meant to ensure that materials of right
sort were used in construction and nothing else. The Supreme Court justified the above conclusion as the
second part of the said clause provided that if materials were destroyed by fire, tempest or otherwise, the loss
would fall not on the owner which must be the result if property is transferred to him, but on the contractor.
Further according to the Supreme Court, this last clause meant that property in the materials had not been
absolutely transferred to owner. Ultimately, the court opined that it was a contract for construction of specified
works for a lumpsum and not a contract of sale.
However, it should not be understood that every contract providing for fixing of a chattel to another chattel is
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always a works contract. It may be sale of goods, e.g., A requiring new motor tyres for his car goes to a dealer
and asks for tyres. Though fixing of tyres to the car may not be an easy operation and may require an expert
hand, yet it is a contract of sale of goods.34 Thus, it would be seen that there is no general proposition of law
that whenever a contract provides for fixing of a chattel it is no sale of goods but works contract.
Rather, it depends on construction of a contract which has to be made by ascertaining the real intention of the
parties to be gathered by looking at their contract as a whole. If the intention of parties is that a chattel should
be produced and transferred as a chattel, it is a contract of sale of goods and not a works contract. In Patnaik
and Co v State of Orissa,35 the contract provided that Government was to supply chassis and the Appellants
were to fix the bus bodies on the chassis supplied by the Government. The Appellants were to construct the
bus bodies in workmanlike and in strict compliance with the specifications. Examining their terms of contract the
Supreme Court found that the contractor was responsible for safe custody of chassis supplied by Government
from the date of its receipt till the delivery to Government and the contractor had to take insurance. Further if
before delivery the bus bodies were destroyed, the loss would fall on the contractor as their agreement
provided for insurance of chassis but not for bus bodies and till the delivery is made the bus bodies remain the
property of the contractor. Significantly, under the contract property in the bus body did not pass to Government
till the chassis with the bus body is delivered at the destination named by Government. Further, their contract
expressly provided that completed bus body shall be delivered to Government on or before specified day. On
these, it was held by the Supreme Court that it was a Sale of Goods as the property in the bus body did not
pass on being placed or constructed on the chassis but when the whole vehicle including the bus body was
delivered. This aspect of Patnaik case was highlighted in subsequent Supreme Court decision of State of
Gujarat Variety Body Builders where it observed:36
Property in the materials used by assessees (Patnaik & Co.) in constructing the bus bodies never passed to their
customers during the course of construction and that it was only when the complete bus with the body fitted to the
chassis was delivered to the customer that the property in the bus body passed to the customer.
The Appellant contractor had to deliver the specific goods i.e., finished bus body built under the specifications
prescribed by Government and at the destination named by Government. In Patnaik case (supra), there were
circumstances for the Sale of Goods as the contractor had agreed to and did supply motor-bus body.37 The
bus body spoken of here is a composite thing or unit to be put on chassis and the composite body consists not
only of things actually fixed on chassis but movable things like seat cushions or other things which can be
detached.
Page 13 of 23
State of Gujarat v Kailash Engineering Co Pvt Ltd,38 is also an interesting case as it explains the basis of the
earlier Supreme Court decision of Patnaik case (supra) referred to earlier.
In Kailash case, the Respondents contracted with the Railway Administration for the performance of the works
of building, erecting and furnishing three broad gauge passenger coaches over the chassis supplied to them by
the Railway Administration. The respondents constructed the broad gauge passenger coaches, received the
money and argued before the Sales Tax authority to hold that this was a works contract and they were not
liable to pay Sales Tax as the transaction, in respect of which they received the money did not amount to sale.
The Appellant relied on Patnaik case (supra) and argued that the transaction was a sale and the Respondents
were liable to pay sales tax. Rejecting the Appellant’s contention the Supreme Court found the following three
main circumstances of terms in Patnaik case (supra) for holding the transaction a sale which did not find in
contract before them.
(1) In Patnaik case, the bus bodies were throughout the contract spoken of as a unit or as a composite thing to
be put on the chassis. This composite body consisted not only of things actually fixed on chassis but movable
things like seat cushions and other things which could be easily detached. But in the case before them the
coach bodies are not separately described as units or components to be supplied by the Respondents to
Railway. The Respondents under their contract were bound to construct, erect and furnish-coach bodies on the
underframes supplied to them. At no stage, does the contract mention that ready coach bodies were to be
delivered by the respondents (Kailash Engineering Company) to the Railway. In fact, even during the process
of construction of the coach bodies, the unfinished bodies in process of construction were treated as the
property of the Railway under the terms of the contract.
(2) If some work was not satisfactorily done and the contractor on receipt of a written order did not dismantle or
replace the defective work or materials at his own cost within seven days the controller was entitled to get the
balance of the work done by another agency and recover the difference in the cost from the contractor. But in
the case before them, the unfinished bodies of the coaches were from the earliest stage treated as the property
of the Railway and there was no question of ownership of the unfinished body not passing to Railway.
(3) In order that the liability of loss or damage of the bus bodies due to fire is fastened the contract stipulated for
insurance of the chassis but it did not provide regarding insurance of the bus bodies. The Court thus inferred
that till delivery was made the bus bodies remained the property of contractor on whom the loss would fall. On
the other hand, in the case before them as discussed earlier the terms envisaged the property in the unfinished
Page 14 of 23
bodies vesting in the Railway. However, as the unfinished bodies were to be in charge of the contractor during
the construction a special provision had to be made making contractor responsible for the loss and throwing
upon him the liability to reimburse the Railway for loss by fire etc. So in Kailash case the Supreme Court found
that the contractor was not to become the owner of the ready-coach bodies and that the property in the bodies
vest in Railway even during process of construction and there never involved a question of delivery of the
finished goods to the other party to the contract and therefore it was a works contract and not a sale of
passenger coach by the contractor to Railway. Indeed the contract provided that as soon as plant and materials
were brought on the site where the coaches were to be constructed the ownership in them would vest in
Railway.
In State of Gujarat v Variety Body Builders,39 question was whether three contracts for construction of coaches
on the under-frames supplied by Western Railway Administration were contracts for Sale of goods or works
contract. To answer this question the Supreme Court examined the terms of contract between the parties to
find out whether their contract intended the contractor to transfer any completed Railway coach to Railway
Administration. If that was so, it meant that the parties intended to enter into contract of sale which required the
seller of an article must be its owner, i.e., the Railway Coach when constructed must be as a unit the property
of the contractor. The Supreme Court inquired whether it was possible to conclude consistent with the terms of
the contract that what was contracted was to sell to Railway the Railway Coach constructed by the contractor.
On examining the terms of the contract the Supreme Court found that the contractor was not to become the
owner of railway coach when constructed completely because not all the materials, labour and skill came from
the contractor for building the railway coach but the Railway Administration as well supplied men and materials
(e.g., electrical fittings, Railway staff worked in association with the contractor’s staff for installation of electrical
equipment). Moreover, under the terms the railway coach was to be constantly supervised by the Railway
Administration while being constructed. Further, under the clause of the contract in the event of contractor’s
death or insolvency, his legal representative had no interest in the contract save for claim for money due for
work done under the contract and for return of security deposit. All this found the Supreme Court to go to show
that the predominant element in the contract was works contract as it was not possible to hold from the material
terms of the contract that the parties intended that the contractor should transfer property in the railway coach
to Railway Administration after its completion.
A contract to embroider where a saree is supplied by a customer and the embroiderer employing his jari in
embroidering is a contract for skill and labour.40
Though hire or hire purchase is a method of sale of goods, there are material differences between hire
purchase and sale of goods. In sale property the goods passes from seller to buyer. In Hire Purchase, the hirer
Page 15 of 23
(person who secures goods on hire purchase) initially only gets possession over the goods but not ownership
over it. He gets ownership over the goods when under the Hire Purchase agreement he exercises an option to
buy the goods. From this it follows that hirer cannot pass ownership over the goods to any subsequent person
from him when he has not secured ownership over the goods. But in sale, the buyer being already the owner of
goods can transfer his ownership over the goods when he makes sale. In Johar case,41 the Supreme Court
observed that in sale—even if—price is to be paid by instalments, the property passes as soon as sale is made.
The essence of sale is that properly is transferred from seller to buyer for a price, whether paid at once or later
by instalments. On the other hand, the Hire Purchase agreement, as the name implies, has two aspects. First
aspect is bailment of goods subjected to Hire Purchase agreement and then an element of sale which fructifies
when option to purchase is exercised by intending purchaser. The intending purchaser is known as the hirer so
long as option to purchase is not exercised. The essence of Hire Purchase agreement is that property in the
goods does not pass at the time of agreement but remains in the intending seller and passes later when the
option is exercised by intending purchaser.
[s 4.16] Controlled sales.—
As a result of the regulations relating to the control of prices and control of movement and supply of goods,
complicated questions arise as to whether in a given case it is a sale or not. In such cases bargains are
regulated and controlled and freedom of contract becomes a matter of Hobson’s choice.42
In New India Sugar Mills Ltd v Commr. S.T.,43 Appellant owned a sugar factory in Bihar, dispatched sugar to
Provincial Government of Madras in compliance with the lawful directions issued by the controller in exercise of
powers under the Sugar Control Order. The question arose whether it amounted to sale of goods or not. The
majority view represented by Shah J (as he then was) held it not a sale as sugar was dispatched pursuant to
valid directions of the controller. There was manifestly no offer to purchase sugar by Government and no
acceptance of any offer by the manufacturer. The manufacturer had no option but to dispatch the sugar as he
would be punished for declining to carry out the order. Thus, the sugar was dispatched pursuant to the
directions of the controller and not in acceptance of any offer by Madras Government. Further, in calling upon
the manufacturer to supply sugar, the controller was not the agent of Madras Government to purchase the
sugar as he acted under his statutory authority. Hidayatullah J (as he then was) dissented and construed the
transaction sale. He fell that the Province of Madras, on obtaining the permit telegraphed instructions to
dispatch sugar and mills dispatched it, a contract emerged and consent must be implied on both sides.
The majority view of Shah J in the above case has not secured the approval in two subsequent Supreme Court
Cases. In Andhra Sugar Ltd v State of A.P., Bachawat J speaking for the unanimous view of the court
cautioned44 that the majority judgment in New India Sugar Mills case “should not be treated as an authority for
the proposition that there can be no contract of sale under compulsion of the statute.” The case was decided on
Page 16 of 23
its special facts. In the second case of Vishnu Agencies Pvt Ltd v Commr. Tax Officer,45 the Supreme Court
did not approve the majority view of Shah J but preferred the minority view of Hidayatullah J in New India Sugar
case (supra) discussed above.
In Vishnu Agencies case, the Supreme Court held that a transaction which is effected in compliance with the
obligatory terms of a statute may be sale if mutual assent, express or implied, is not totally excluded. So in that
case an act of appellant to supply cement to various allottees in pursuance of allotment order issued by
appropriate authority was held sale. In Andhra Sugar Ltd v State of AP,46 cited earlier, under AP Sugarcane
(Regulation of Supply and Purchase) Act, 1961 the sugarcane grower was free to make or not to make an offer
of sale of sugarcane to occupier of factory but the latter was bound to accept the offer, if made by sugarcane
grower. In spite of such legal compulsion upon occupier of factory to enter into agreement, their agreement,
according to Supreme Court, was valid and enforceable as the consent of occupier of factory was not vitiated
by coercion (the compulsion of law to accept the offer is not coercion under the law of contract), undue
influence, fraud, misrepresentation, and mistake. To constitute a “sale” under the Sale of Goods Act, 1930 there
must be an agreement for sale of goods for a price and the passing of property pursuant to agreement which
conditions were satisfied in the facts of Andhra Sugar case (supra). The Supreme Court emphasised that unlike
New India Sugar Mills case (supra), here (Andhra Sugar case) the cane grower made an offer to occupier of
factory directly and the latter accepted though under compulsion of law, but a direct Privity of contract between
the parties was established. On the other hand in New Sugar Mills case the dispatch of the goods in
compliance with the directions of the controller was not acceptance by the manufacturer of any offer nor could it
be deemed to be an offer by manufacturer to supply the goods. On this special fact the majority held that no
contract of sale resulted.
The Supreme Court in Andhra Sugar case examined the purpose of A.P. Act of 1961 which was to regulate
purchase of sugarcane by factory owners who enjoyed almost monopoly and could dictate their own terms
upon the sugarcane growers who were scattered over the country and so the Act intervened to help
canegrowers who had weaker bargaining position. In Coffee Board v Commr. of Commercial Taxes,
Karnataka,47 coffee growers had an option or volition to enter into coffee growing trade. Coffee growing was
not compulsory. Further, the Board under the Act had a right to reject coffee if it was below standard. No time
was fixed for delivery of coffee to Board under the Act. The Supreme Court held that the compulsory delivery of
coffee by coffee growers to Coffee Board was sale as the consent though minimal was not totally absent
especially when coffee growing was not compulsory but optional. Under the Coffee Act, 1942 almost the entire
coffee produced was regularised through the modality of compulsory delivery and corresponding obligation on
the Coffee Board to purchase compulsorily. The Supreme Court observed that the limitations imposed by
Control Order under the Coffee Act, 1942 on the normal rights of dealers and consumers to supply and obtain
goods, the obligations and penalties imposed by Orders are quite in harmony with the idea that parties must be
Page 17 of 23
deemed to have completed the transaction under agreement by which one party binds itself to supply the
seated quantity of goods at a price not higher than the notified price and the other party consents to accept on
conditions mentioned in the order issued by the concerned authority.
So 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. It is now increasingly realised about the economic disparity between the contractual parties
and so the policy of legislatures and the attitude of the courts towards the contract have changed significantly.
In Khedut Sahakari Ginning and Pressing Society Case,48 the farmers’ Co-operative Society was authorised by
its bye laws to pool cotton of its members (farmers), grade it if necessary and then sell it either after ginning or
without ginning and pay the sale price to them in the manner prescribed by bye laws. The Supreme Court held
that the transaction of accepting cotton by Society from its members was not a sale by members to the society
as the bye law of society clearly indicated that the members of the society were merely entrusting their cotton to
society. Further, the society was empowered to advance loans up to 75% of the estimated value of goods so
entrusted when served as a security for the advance. Had the said transaction been a sale by members to the
society, there could be no question of entrustment nor can society advance money on the security of its own
goods.
[s 4.17] What are not sales.—
For sale there must be two parties, i.e., buyer and seller and transfer from firm (of whom a partner is a
constituent) to partner does not qualify for the same.49
A hire-purchase agreement is not a sale, as no property passes in such a transaction until the option to
purchase is exercised and the other terms of the agreement are fulfilled. Taking possession of the vehicle by
the financier by the person, who has availed of loan for securing a vehicle on hire purchase, on the ground of
non-payment of instalment has always been upheld to be a legal right of the financier.50 If the Reserve Bank of
India has issued a circular that right of re-possession must be clearly spelt in the contract and that no force
shall be used by the financier, any use of force for taking possession of the vehicle will be liable for court’s
intervention to the benefit of the hirer.51
Page 18 of 23
A building contract involves a composite transaction of supply of goods and services. It is indivisible and there
involves no sale of goods.52 It is contract of works. Article 366 of the Constitution had been amended to include
clause 29A tax on the sale or purchase of goods, “a tax on the transfer of property in goods (whether as goods
or in some other form) involved in the execution of a works contract”. Various amendments were made in the
sections of the Finance Act, 1987 by which “works contracts” which were indivisible and composite were split so
that only the labour and service element of such contracts would be taxed under the heading “service tax”. In
Kone Elevator India Pvt Ltd v State of TN,53 the issue was whether contract of sale of elevators will constitute a
sale of goods or a works contract. In case of the former, the entire sale consideration would be taxable under
the sales tax or value added tax enactments of the State Legislatures, whereas in the latter case, the
consideration payable or paid for the labour and service element would have to be excluded from the total
consideration received and sales tax or value added tax would be charged on the balance amount. The majority
in the Constitution Bench reasoned that after the Constitutional amendment the ‘dominant intention test of sale
of goods or works contract was not material. The Court listed out the four concepts as emerging out of
discussion: (i) the works contract is an indivisible contract but, by legal fiction, is divided into two parts, one for
sale of goods, and the other for supply of labour and services; (ii) the concept of “dominant nature test” or, for
that matter, the “degree of intention test” or “overwhelming component test” for treating a contract as a works
contract is not applicable; (iii) the term “works contract” as used in clause (29-A) of Article 366 of the
Constitution takes in its sweep all genre of works contract and is not to be narrowly construed to cover one
species of contract to provide for labour and service alone; and (iv) once the characteristics of works contract
are met with in a contract entered into between the parties, any additional obligation incorporated in the
contract would not change the nature of the contract.
A transaction between a hotelier and a resident customer is one of “service” and is not taxable as “sale of
goods”, if there is a consolidated charge for boarding and lodging.
Supply of electricity to a consumer by a statutory board is not sale.54
Goods provided in rendering medical service do not qualify as “sale”. A transaction of supply of medicines,
surgical items, x-ray films and plates etc. for the treatment of the indoor patients does not come under the
purview of “sale” because the hospital treating the patient is not selling those items to the indoor patients but in
fact they are being consumed, utilised, administered to those indoor patients, which are essentially required for
their treatment.55
[s 4.18] Interpretation of “sale occasions import” occurring Central Sales Tax Act, 1956.—
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Answering the question of what meaning should be given to the expression “sale occasions import”, occurring
in section 5(2) of the Central Sales Tax Act, 1956 (CST Act), the Supreme Court observed in the State of
Maharashtra v Embee Corporation,56 that it was almost settled by numerous decisions that the expression
“sale occasions import” was to be interpreted in the same manner in which the expression “occasions the
movement of goods” occurring in section 3(a) of the Act has received interpretation. In other words, the
expression “sale occasions import” has to be given the same meaning which the expression “occasions the
movement of goods” has received by the Courts.
The definition of “sale” in the CST Act shows that the word “sale” has been given a very wide meaning so as to
include not only the sale of goods, but also the transaction, namely, a transfer of goods or hire purchase
system. Further, the use of words “sale of goods” in section 3 of the CST Act and the words “contract of sale”
occurring in section 4(2) of the Sale of Goods Act have been assigned the same meaning which is wider to the
meaning of sale in the general law. In such a situation the word “sale” defined in section 2(g) of the CST Act
and employed in section 3 and other sections of the CST Act would embrace not only completed contract, but
also the contract of sale or agreement of sale if such contract of sale or agreement of sale provides for
movement of goods or movement of goods as incident of the contract of sale. This matter may be examined
from another angle. An agreement to transfer goods to the buyer for a price is an important element of sale and
the same is also borne out from section 4 of Sale of Goods Act. If section 4 of the Sale of Goods Act, 1930 is
read along with section 3 and 4 of the CST Act, it would mean an agreement to sell would also be a sale, which
stipulates for transfer or movement of goods or movement of goods as incident of the contract of sale and in
that case, such movement of goods would be deemed to be occasioned by the sale. It is immaterial that actual
sale does not take place at the time of movement of goods and takes place later on. This interpretation of
section 3(a) of the CST Act if applied to sub-section (2) of section 5 of the CST Act, would mean that if an
agreement for sale stipulates import of goods or import of goods is incident of contract of sale and goods have
entered the import stream, such import would fall within the expression “sale occasions import”.
[s 4.19] Test whether the transaction is inter-state or branch transfer exigible to tax under Central Sales Tax,
1956.—
It is an accepted position in law that a mere transfer of goods from a head office to a branch office or an inter-
branch transfer of goods, which are broadly brought under the phrase “branch transfers” cannot be regarded as
sales in the course of inter-state trade, for the simple reason that a head office or branch cannot be treated as
having traded with itself or sold articles to itself by means of these stock transfers.57
[s 4.20] Under Customs law.—
Where the goods are not brought in to the customs frontiers of India before sale actually takes place outside
India, say by purchase in a duty-free shop outside India, they cannot be said to be brought “in the course of
Page 20 of 23
import” for the purpose of levy of customs duty. Transfer of documents of title itself may be irrelevant in certain
cases, for after all. Transfer of documents of title may only be one of the modes of transfer. A mere delivery of
goods could constitute the transfer.58
1 Wood v Manley, (1839) 11 A&E 34 : 52 RR 271.
2 Johnson v Macdonald, (1842) 9 M & W 600 : 60 RR 838.
3 White v Wilks, (1813) 5 Taunt 176 : 23 RC 252 (Eng Com Law Reps., vol 1).
4 State of Uttaranchal v Khurana Brothers, AIR 2011 SC 224 [LNIND 2010 SC 1056] : 2011 (84) ALR 779 : 2011 2 All
WC 1467 SC : (SC Suppl) 2011 (2) CHN 153 : JT 2010 (12) SC 323 [LNIND 2010 SC 1056] : 2011 (1) Kant LJ 16 :
2011-1-LW 97 : (2011) 3 Mad LJ 999(SC) : 2011 (1) Pat LJR 26 : 2010 (4) RCR (Civil) 945 : 2011 112 RD 504 : 2010
(11) Scale 348 [LNIND 2010 SC 1056] : 2010 (2) U.D. 393 : 2010 (10) UJ 5103 .
5 State of Madras v Gannon Dunkerley and Co, AIR 1958 SC 560 [LNIND 1958 SC 39] at 567, para 16 : 1959 SCR 379
[LNIND 1958 SC 39] .
6 See Northern Indian Caterers (India) Ltd v Lt Governor of Delhi, AIR 1978 SC 1591 [LNIND 1978 SC 228] : [1978] 4
SCR 36 ; State of HP v Associated Hotels of India Ltd, AIR 1972 SC 1131 [LNIND 1972 SC 5] : (1972) 1 SCC 472
[LNIND 1972 SC 5] .
7 Helby v Mathews, (1895) AC 471 ; Belsize Motor Supply Co v Cox, (1914) 1 KB 244 .
8 Chalmers’ Sale of Goods, 10th Edn, pp 6, 7.
9 CCT v KTC Automobiles, AIR 2016 SC 805 [LNIND 2016 SC 45] : (2016) 4 SCC 82 [LNIND 2016 SC 45] : 2016 (1)
Scale 702 [LNIND 2016 SC 45] .
10 Assn of Leasing & Financial Service Companies v UOI, (2011) 2 SCC 352 [LNIND 2010 SC 1047] : 2010 (11) Scale
461 [LNIND 2010 SC 1047] .
11 Agricultural Market Committee v Shalimar Chemical Works Ltd, AIR 1997 SC 2502 [LNIND 1997 SC 1759] : (1997) 5
SCC 516 [LNIND 1997 SC 1759] .
12 Malnad Areca Processing & Mktg Ltd v CCT, (2008) 11 SCC 536 [LNIND 2008 SC 772] : 2008 (4) Scale 829 [LNIND
2008 SC 772] .
13 Sanket Timber Mart v Conservator of Forest (South Chandrapur) Forest Division, 2010 (6) All WC 5459 : [2010] 10
SCR 1101 [LNIND 2010 SC 842] : IV (2010) BC 632 : 2010 (5) Bom CR 891 .
14 State of Uttaranchal (now known as State of Uttarakhand) v Khurana Brothers, AIR 2011 SC 224 [LNIND 2010 SC
1056] : 2011 (1) Pat LJR 26 : 2010 (11) Scale 348 [LNIND 2010 SC 1056] : 2010 (10) UJ 5103 (SC).
Page 21 of 23
15 Sales Tax Officer v Budh Prakash Jai Prakash, AIR 1954 SC 459 [LNIND 1954 SC 82] : [1955] 1 SCR 243 [LNIND
1954 SC 82] .
13 Sanket Timber Mart v Conservator of Forest (South Chandrapur) Forest Division, 2010 (6) All WC 5459 : [2010] 10
SCR 1101 [LNIND 2010 SC 842] : IV (2010) BC 632 : 2010 (5) Bom CR 891 .
16 Chalmers’ Sale of Goods Act , 10th Edn, p 9.
17 The Commissioner of Income Tax-TDS v Glenmark Pharmaceuticals Ltd, (2010) 231 CTR (Bom) 105 : [2010] 324 ITR
199 [LNIND 2010 BOM 1104] (Bom).
18 CCT v KTC Automobiles, AIR 2016 SC 805 [LNIND 2016 SC 45] : (2016) 4 SCC 82 [LNIND 2016 SC 45] : 2016 (1)
Scale 702 [LNIND 2016 SC 45] .
19 Keith v Burrows, (1876) 1 CPD 722 , 731.
20 Indian Contract Act, 1872, section 172.
21 State of Gujarat v Variety Body Builders, AIR 1976 SC 2108 [LNIND 1976 SC 191] : (1976) 3 SCC 500 [LNIND 1976
SC 191] ; Asst Sales Tax Officer v BC Kame, AIR 1977 SC 1642 [LNIND 1976 SC 487] : (1977) 1 SCC 634 [LNIND
1976 SC 487] .
22 Lee v Griffin, (1861) 1 B&S 272 : (1861) 121 ER 716 ; Baretto v Pruce, AIR 1939 Ngp 19 .
23 Robinson v Graves, (1935) 1 KB 579 .
24 State of Madras v Gannon Dunkerley & Co Ltd, AIR 1958 SC 560 [LNIND 1958 SC 39] : 1959 SCR 379 [LNIND 1958
SC 39] .
25 Halsbury’s Laws of England, 3rd Edn, vol 34, para 3, p 6.
26 Commr, ST MP v Purshottam Premji, (1970) 26 STC 38 at 41 (SC). See also State of Gujarat v Variety Body Builders,
AIR 1976 SC 2108 [LNIND 1976 SC 191] : (1976) 3 SCC 500 [LNIND 1976 SC 191] .
27 See Sentinel Rolling Shutters & Engineering Co Pvt Ltd v The Commr, ST, AIR 1978 SC 1747 [LNIND 1978 SC 240]
at 1750 : (1978) 4 SCC 260 [LNIND 1978 SC 240] .
28 Asst Sales Tax Officer v BC Kame, AIR 1977 SC 1642 [LNIND 1976 SC 487] : (1977) 1 SCC 634 [LNIND 1976 SC
487] .
29 Commissioner of ST MP v Purshottam Premji, (1970) 26 STC 38 (SC).
30 Sentinel Rolling Shutters and Engineering Co Pvt Ltd v Commr, ST, AIR 1978 SC 1747 [LNIND 1978 SC 240] : (1978)
4 SCC 260 [LNIND 1978 SC 240] .
31 See Sentinel Rolling Shutters and Engineering Co Pvt Ltd v Commissioner of ST, AIR 1978 SC 1747 [LNIND 1978 SC
240] at 1751, para 6 : (1978) 4 SCC 260 [LNIND 1978 SC 240] .
Page 22 of 23
32 State of Rajasthan v Man Industrial Corp Ltd, AIR 1969 SC 1245 [LNIND 1969 SC 36] : (1969) 1 SCC 567 [LNIND
1969 SC 36] .
33 Carl Still v State of Bihar, AIR 1961 SC 1615 [LNIND 1961 SC 187] : [1962] 2 SCR 81 [LNIND 1961 SC 187] .
34 See Patnaik & Co v State of Orissa, AIR 1965 SC 1655 [LNIND 1965 SC 10] and 1662, para 21 : [1965] 2 SCR 782
[LNIND 1965 SC 10] .
35 Patnaik and Co v State of Orissa, AIR 1965 SC 1655 [LNIND 1965 SC 10] : [1965] 2 SCR 782 [LNIND 1965 SC 10] .
36 State of Gujarat v Variety Body Builders, AIR 1976 SC 2108 [LNIND 1976 SC 191] at 2115, para 45 : (1976) 3 SCC
500 [LNIND 1976 SC 191] .
37 See State of Rajasthan v MI Corp, AIR 1969 SC 1245 [LNIND 1969 SC 36] at 1248, para 11 : (1969) 1 SCC 567
[LNIND 1969 SC 36] .
38 State of Gujarat v Kailash Engineering Co Pvt Ltd, AIR 1967 SC 547 [LNIND 1966 SC 211] : [1967] 1 SCR 543
[LNIND 1966 SC 211] .
39 State of Gujarat v Variety Body Builders, AIR 1976 SC 2108 [LNIND 1976 SC 191] : (1976) 3 SCC 500 [LNIND 1976
SC 191] .
40 A Jariwala v State of Gujarat, AIR 1965 Guj 253 [LNIND 1964 GUJ 13] : (1965) 16 STC 942 [LNIND 1964 GUJ 13]
Guj.
41 KL Johar & Co v Dy. Commercial Officier, AIR 1965 SC 1082 [LNIND 1964 SC 317] : [1965] 2 SCR 112 [LNIND 1964
SC 317] .
42 Indian Steel & Wire Products v State of Madras, AIR 1968 SC 478 [LNIND 1967 SC 263] : [1968] 1 SCR 479 [LNIND
1967 SC 263] ; Andhra Sugar Ltd v State of A.P., AIR 1968 SC 599 [LNIND 1967 SC 290] : [1968] 1 SCR 705 [LNIND
1967 SC 290] (both cases held to be of contracts of sale); New Indian Sugar Mills v Sales Tax Commissioner, Bihar,
AIR 1963 SC 1207 : 1963 Supp (2) SCR 459 (held to be not a case of contract of sale).
43 New India Sugar Mills Ltd v Commr. S.T., AIR 1963 SC 1207 : 1963 Supp (2) SCR 459 .
44 Andhra Sugar Ltd v State of AP, AIR 1968 SC 599 [LNIND 1967 SC 290] at 606, para 8 : [1968] 1 SCR 705 [LNIND
1967 SC 290] .
45 Vishnu Agencies Pvt Ltd v Commr. Tax Officer, AIR 1978 SC 449 [LNIND 1977 SC 352] : (1978) 1 SCC 520 [LNIND
1977 SC 352] .
46 Supra fn 44.
47 Coffee Board v Commr of Commercial Taxes, Karnataka, AIR 1988 SC 1487 [LNIND 1988 SC 313] : (1988) 3 SCC
263 [LNIND 1988 SC 313] .
48 Khedut Sahakari Ginning & Pressing Society v State of Gujarat, AIR 1972 SC 1786 [LNIND 1971 SC 465] : (1971) 3
SCC 480 [LNIND 1971 SC 465] .
49 Synthetic Suppliers v The Commissioner of Sales Tax, (2010) 30 VST 632 (Bom).
Page 23 of 23
50 Sardar Trilok Singh v Satya Deo Tripathi, AIR 1979 SC 850 : (1979) 4 SCC 396 : 1979 SCC (Cri) 987 has
categorically held that under the hire-purchase agreement, the financier is the real owner of the vehicle, therefore, there
cannot be any allegation against him for having the possession of the vehicle. This view was again reiterated in KA
Mathai v Kora Bibbikutty, (1996) 7 SCC 212 : 1996 SCC (Cri) 281 ; Jagdish Chandra Nijhawan v S.K. Saraf, (1999) 1
SCC 119 [LNIND 1998 SC 1053] : 1999 SCC (Cri) 20 and Charanjit Singh Chadha v Sudhir Mehra, (2001) 7 SCC 417
[LNIND 2001 SC 2906] : 2001 SCC (Cri) 1557 [LNIND 2001 SC 2906] following the earlier judgment of this Court in
Sundaram Finance Ltd v State of Kerala, AIR 1966 SC 1178 [LNIND 1965 SC 345] ; Lalmuni Devi v State of Bihar,
(2001) 2 SCC 17 [LNIND 2000 SC 1890] : 2001 SCC (Cri) 275 [LNIND 2000 SC 1890] and Balwinder Singh v CCE,
(2005) 4 SCC 146 : 2005 SCC (Cri) 1092 . See for the same position, also Suryapal Singh v Siddha Vinayak Motors,
(2012) 12 SCC 355 : (2013) 2 SCC (Civ) 373 : (2013) 4 SCC (Cri) 665 .
51 ICICI Bank Ltd v Prakash Kaur, (2007) 2 SCC 711 [LNIND 2007 SC 237] ; Citicorp Maruti Finance Ltd v S. Vijayalaxmi,
(2012) 1 SCC 1 [LNIND 2011 SC 1153] .
52 Gannon Dunkerley and Co v State of Rajasthan, (1993) 1 SCC 364 [LNIND 1992 SC 838] : 1992 (3) Scale 173 . See
also CCE & Customs v Larsen & Toubro Ltd, (2016) 1 SCC 170 [LNIND 2015 SC 467] : 2015 (9) JT 245 .
53 Kone Elevator India Pvt Ltd v State of TN, (2014) 7 SCC 1 [LNIND 2014 SC 102] : 2014 (7) Scale 226 [LNIND 2014
SC 102] : 2014 (7) SCJ 7 [LNIND 2014 SC 102] .
54 Karnataka Power Transmission Corp v Ashok Iron Works Pvt Ltd, AIR 2009 SC 1905 [LNIND 2009 SC 270] : (2009) 3
SCC 240 [LNIND 2009 SC 270] .
55 Tata Main Hospital v The State of Jharkhand, 2008 (2) JCR 174 (Jhr) : (2007) 9 TMI 599.
56 State of Maharashtra v Embee Corp, JT 1997 (7) SC 472 [LNIND 1997 SC 1110] : (1997) 107 STC 196 .
57 CCT v Desai Beedi Co, (2015) 17 SCC 13 [LNINDORD 2015 SC 3066] : 2015 SCC OnLine SC 1508 following
Hyderabad Engg. Industries v State of AP, (2011) 4 SCC 705 [LNIND 2011 SC 260] : (2011) 2 SCC (Civ) 433 .
58 Indian Tourist Dev Corp Ltd v CCT, (2012) 3 SCC 204 [LNIND 2012 SC 100] : (2012) 2 SCC (Civ) 67 .
End of Document
S. 5. Contract of sale, how made.-
MullaK Kannan
Formalities of the Contract
Formalities of the Contract
(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.
Sub-section (2) of this Act corresponds to section 4 of the English Sale of Goods Act, 1979. The English Act,
however, excludes the applicability of the provisions to law relating to corporations.
[s 5.2] Contract of sales how made.—
This section provides for bare formalities for making of “contracts of sale”.
(A) Formation of the contract—

Page 2 of 5
(i) An offer to sell or buy goods and acceptance of such offer.
(ii) Provision for delivery of goods./Delivery may be immediate, simultaneous, by instalments or in

future.
(iii) Provision for payment of price. Payment of price may be immediate, simultaneous, by instalments
or in future.
Besides the above bare requirements, a contract of sale may contain other terms as the nature
of the case may require.
(B) How made—
(i) May be in writing.
(ii) May be by word of mouth.
(iii) May be partly in writing and partly oral.
(iv) May be implied from the conduct of parties or by course of their business.
(v) In case of Government and certain statutory corporations, law provides for formal written
instruments under seal. This category is covered by words “subject to the provisions of any law for
the time being in force.”
[s 5.3] Ingredients of contract of sale.—
The section provides that a contract of sale is made by an offer to buy or sell goods for a price and the
acceptance of such offer. These provisions show that price is an essential element of sale of goods. In
Poppatlal Shah v State of Madras,59 it was held by a Constitution Bench of the Supreme Court that the
expression “sale of goods” is a composite expression consisting of various ingredients or elements. There are
the elements of a bargain or contract of sale, the payment or promise of payment of price, the delivery of goods
and the actual passing of title and each one of them is essential to a transaction of sale though the sale is not
completed or concluded unless the purchaser becomes the owner of property. In State of Madras v Gannon
Dunkerley & Co (Madras) Ltd,60 it was observed that according to the law both of England and of India, in
order to constitute a sale it is necessary that there should be an agreement between the parties for the purpose
Page 3 of 5
of transferring title to the goods which, of course, presupposes capacity to contract, that it must be supported by
money consideration and that as a result of the transaction property must actually pass in the goods. Unless all
these elements are present, there can be no sale. The law is, therefore, well settled that in a matter relating to
sale of movable property or goods, price is an essential element of the transaction.
What constitutes real price has an important bearing on excise levies. In CCE, Noida v Accurate Meters Ltd,61
the issue was actual valuation of products whose components seemed to include freight and insurance
charges. The ex-factory price was known and the value of impugned electric meters was to be fixed as at the
factory gate. The freight and the insurance charges, were to be charged on an average basis and not on actual.
To the query whether “freight” and “insurance charges” constituted the value of the goods for the purpose of
computation of excise duty, it was considered in the context of the facts that under normal circumstances, a
place where excisable goods are sold could be a place of removal. The manufacturer was bound to transport
the goods from the factory gate to the place of buyers at the rates specified in the tender. Prior thereto, the
buyers were to make inspection of impugned goods. The court reasoned that there were two separate
contracts; one for sale of impugned goods, which was governed by the provisions of the Sale of Goods Act, and
the other governing transportation of the goods. Hence, amount claimed by way of transportation charges and
insurance could not be considered for determining the value of the impugned goods supplied.
In Dresser Rand SA v Bindal Agro Chem Ltd,62the issue of price came under the following terms: Clause B
mentioned the total price exclusive of taxes and duties payable and provided that the letter of credit should be
opened by 31 August 1991 by a bank acceptable to Dresser Rand S.A. (DR). Clause D provided that delivery
date shall be 15½ months from the date of receipt of the letter of intent by DR. Clause F stated that “this letter
of intent shall serve as DR’s authorisation to proceed with this order”. Clause L stated that:
This contract will come into force upon receipt of this letter of intent by supplier.
DR contended that as the letters of intent were referred to as “this order” and “this contract” in clauses F and L,
and as clause F authorised DR to proceed with the order, the letters of intent were, in fact, purchase orders.
Harmoniously reading the clauses, the Supreme Court held that what was clear was that letters of intent merely
required the supplier to keep the offer open till 31 August 1991 with reference to the price and delivery
schedule. They also made it clear that if the purchase orders were not placed and letter of credit was not
opened by 31 August 1991, DR was at liberty to alter the price and the delivery schedule. In other words, the
Page 4 of 5
effect of letters of intent was that if the purchase orders were placed and LCs were opened by 31 August 1991,
DR would be bound to effect supply within 15½ months, at the prices stated in the letter of intent. Therefore, the
Court reasoned that it might not be possible to treat the letters of intent as purchase orders.
[s 5.4] Absence of a written agreement is irrelevant.—
State of UP v Combined Chemicals Co Pvt Ltd,63 the contract was being entered on behalf of Governor, UP for
supply of 200 metric tones Zinc Sulphate of Agriculture Grade for a certain price and the terms and conditions
mentioned in the acceptance letter, tender form and the agreement forms were treated as part of the contract.
The schedule of supply was also indicated in the acceptance letter. Clause 10 of the terms and conditions
embodied in the acceptance letter did speak of formal agreement, but the same was to be executed only if
required. Undisputedly, the respondent completed all the formalities inasmuch as it deposited the security
money and dispatched a duly signed agreement to the Directorate of Agriculture, which was to take the supply
of Zinc Sulphate, and also sent letters for placing the supply order. Thus, a contract had come into existence
between the parties and the fact that the Director of Agriculture did not sign the formal agreement sent by the
respondent could not lead to an inference that the contract had not been executed, in terms of section 5 (1) of
the Sale of Goods Act, 1930. The Court pointed out that:
Sub-section (1) whereof lays down that a contract of sale is made by an offer to buy or sell goods for a price and the
acceptance of such offer. The sub-section, further lays down that 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 installments, or that the
delivery or payment or both shall be postponed. Sub-section (2) of section 5 lays down that 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.
[s 5.5] Earnest.—
Very often, an agreement to sell is concluded by payment of earnest money. Such a payment serves two
purposes, if the purchase is carried out, it goes in part payment of the price and if the purchase is not carried
out because of the failure of the seller, the seller is bound to pay it to the purchaser and if the purchase had
fallen through by reason of the fault of the purchaser, the earnest is forfeited to the seller who is entitled to
retain the same.
Page 5 of 5
59 Poppatlal Shah v State of Madras, AIR 1953 SC 274 [LNIND 1953 SC 38] : [1953] 4 SCR 677 [LNIND 1953 SC 38] :
1953 Cr LJ 1105 .
60 State of Madras v Gannon Dunkerley & Co (Madras) Ltd, AIR 1958 SC 560 [LNIND 1958 SC 39] : [1959] 1 SCR 379
[LNIND 1958 SC 39] .
61 CCE, Noida v Accurate Meters Ltd, (2009) 6 SCC 52 [LNIND 2009 SC 503] : [2009] 3 SCR 1146 [LNIND 2009 SC 503]
: JT 8009 (3) SC 481 .
62 Dresser Rand S.A. v Bindal Agro Chem Ltd, (2006) 1 SCC 751 [LNIND 2006 SC 23] : AIR 2006 SC 871 [LNIND 2006
SC 23] : [2006] 1 SCR 308 [LNIND 2006 SC 23] .
63 State of U.P. v Combined Chemicals Company Pvt Ltd, JT 2011 (1) SC 179 [LNIND 2011 SC 15] : 2011 (1) Scale 85
[LNIND 2011 SC 15] : (2011) 2 SCC 151 [LNIND 2011 SC 15] : 2011 (1) UJ 245 (SC).
End of Document
S. 6. Existing or future goods.-
MullaK Kannan
Subject-matter of Contract
(1) The goods which form the subject of a contract of sale may be either existing goods, owned or
possessed by the seller, or future goods.
(2) There may be a contract for the sale of goods the acquisition of which by the seller depends upon a
contingency which may or may not happen.
(3) Where by a contract of sale the seller purports to effect a present sale of future goods, the contract
operates as an agreement to sell the goods.
This section corresponds to section 5 of the English Sale of Goods Act, 1979.
[s 6.2] Sub-section (1): Existing or future goods.—
The goods which form the subject of a contract of sale may be goods owned by the seller or possessed by the
seller as agent, mortgagee. Goods may be existing or goods to be manufactured or acquired or produced by
the seller after the making of a contract of sale, called future goods. [See section 2(6) Future goods].
A contracts on the 1 January 1930 to sell to B shares in a certain company, to be delivered and paid for on the
Page 2 of 3
1 March 1930. A, at the time of making the contract, is not in possession of any shares. This is a valid contract,
though A can acquire the shares only by purchase.
[s 6.3] Sub-section (2): Acquisition of goods depending on a contingency.—
A agrees to sell hemp to B to be delivered “on arrival per Fanny and Almira.” If the ship arrives, but with no
hemp on board, the seller is not liable, for the contract is to deliver the goods only if the goods should arrive.64
But if A agrees to sell “50 cases of tallow to be delivered on the safe arrival of the ship Elgin,” and the ship
arrives, but with no goods on board, the seller is liable in damages to the buyer, for the contract is to deliver the
goods if the ship should arrive, whether the goods were on board or not.65 The distinction between the two
classes of cases is this,
where there is an agreement to deliver to the vendor on a certain condition and the condition (without any fault of the
vendor) never comes to pass, it is plain that he will not be liable for a non-delivery. But where the agreement is
absolute or conditional on an event which happens, the vendor will be liable for a breach, although he could not help
the non-performance; for it is his own heedlessness if he runs the risk of undertaking to perform an impossibility, when
he might have provided against it by his contract.66
In India, mere agreement to sell tangible immovable property would not confer an equitable interest to the
purchaser.67
[s 6.4] Sub-section (3): Present sale of future goods.—
When by a contract of sale the seller purports to effect a present sale of future goods, the contract operates as
an agreement to sell the goods. Though the seller may purport to effect a present sale of future goods, the
transaction is not a sale, but an agreement to sell. The reason is that “a man cannot in equity, any more than at
law, assign what has no existence.” But a man can agree to assign property which is to come into existence in
the future. Such a contract at law creates only a personal obligation to pass the property; it does not create any
real right or jus in rem. In equity, however, the buyer is in a better position, and such a contract would, when the
goods come into existence, give him a good title thereto against all persons excepting anyone who, in the
meantime and bona fide, may have had the property transferred to him. The lessee of a mill covenants with his
landlord that he would assign to the landlord all machinery which might thereafter be brought into the mill. The
lessee brings new machinery into the mill. Before any assignment to the landlord is made, a creditor who has
obtained a decree against the lessee attaches the new machinery in execution of the decree. The landlord is
entitled to the new machinery as equitable assignee and the attachment should be raised. It was so held in
Holroyd v Marshall,68 which is the leading case on assignment of after-acquired property.
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64 Boyd v Siffkin, (1809) 2 Camp 326.
65 Hale v Rawson, (1858) 27 LJ CP 189 : 4 CBNS 85.
66 Hale v Rawson, (1858) 27 LJ CP 189, at p 191.
67 See Satyabrata Ghose v Mugneeram, AIR 1954 SC 44 [LNIND 1953 SC 101] at p 49 : 1954 SCR 310 [LNIND 1953
SC 101] ; Section 54 of the Transfer of Property Act, 1882.
68 Holroyd v Marshall, (1862) 10 HLC 191 : (1861–73) All ER Rep. 414 . See also Collyer v Isaacs, (1881) 19 Ch D 342 ;
Tailby v Official Receiver, (1888) 13 App Cas 523 (543, 547).
End of Document
S. 7. Goods perishing before making of contract.-
MullaK Kannan
Where there is a contract for the sale of specific goods, the contract is void if the goods without the knowledge
of the seller have, at the time when the contract was made, perished or become so damaged as no longer to
answer to their description in the contract.
[s. 7.1] English law.—
[s. 7.2] Specific goods perishing before making of contract.—
This section is confined to the case of specific goods. Specific goods mean goods identified and agreed upon at
the time a contract of sale is made [section 2(14)]. The section says that if the goods without the knowledge of
the seller have perished at the time when the contract was made, the contract is void. The section is founded
on the rule that where both the parties to a contract are under a mistake as to a matter of fact essential to the
contract, the contract is void; see Contract Act, section 20.
This section goes further and relies upon the ignorance of the seller only. The words “without the knowledge of
the seller” refer to the ignorance of the seller only and not to that of the purchaser. The ignorance of the seller is
the important consideration under this section.
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Illustrations
(a) A agrees to sell to B a specific cargo of goods, supposed to be on its way from England to Bombay. It turns
out that, before the day of the bargain, the ship conveying the cargo had been cast away and the goods lost.
Neither party was aware of the facts. The contract is void.
(b) A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of the bargain,
though neither party was aware of the fact. The contract is void.
[s. 7.3] Unascertained goods perishing before making of contract of sale.—
This section, as stated above, applies only to specific goods. It does not apply to unascertained goods. A
agrees to sell to B 50 bales of Bengal cotton out of 3,000 bales in his godown. The godown had, at the time of
the contract, been destroyed by fire unknown to A. Here the sale is not of specific goods, but of a certain
quantity of unascertained goods. The contract is not void, and A must procure 50 bales of Bengal cotton
elsewhere or pay damages for the breach.
[s. 7.4] Where goods have become damaged.—
The section also says that if the goods without the knowledge of the seller have become so damaged as no
longer to answer to their description in the contract, the contract is void. A agrees to sell to B a specific cargo of
corn while at sea. It turns out that, before the day of the bargain, the ship had stranded and the corn had been
so damaged as not to answer to its description in the contract. The contract is void.69 But if the goods, though
damaged, answer to the description, the buyer must, apart from the warranty express or implied, take the risk
as to their quality and condition and must pay the price. The contract is not void in such a case.70 See in this
connection section 62 below.
[s. 7.5] Where part of the goods have perished.—
This section applies where the contract is one and indivisible and part of the goods have perished at the time
when the contract was made. Thus, if A agrees to sell to B a parcel of 700 bags of groundnuts lying at a
particular place, and at the date of the contract there were not 700 bags in the parcel but only 591 bags, the
remaining 109 bags having been abstracted by a third party before the date of the contract without the
knowledge of the seller, the contract is void under this section.71 It was held that the section was applicable
even when a part of the goods have perished at the time when contract was made. As it was a contract for
parcel of 700 bags and not for 591 bags, the subject matter of bargain did not exist as the entire parcel of 700
bags had to be delivered to buyer. A contract for a parcel of 700 bags is different from a contract for 591 bags.
The Court thought that position was no way different from what it would have been if the whole 700 bags had
ceased to exist. Further, as the contract was void the buyer who had given bills in payment of the price of the
whole 700 bags was entitled to repudiate the whole contract and cannot be compelled to accept what was left
Page 3 of 3
with the seller. Similarly, the seller also could not be compelled to deliver what was left with him. But if the
contract is divisible the destruction of the part will not avoid the contract for the remainder of the goods.
[s. 7.6] Knowledge of the parties.—
The Seller’s knowledge is relevant. If the Seller knowing the goods to have perished agreed to sell them, he
would be liable for damages according to the High Court of Australia. In Australia a well-known case of McRae
v Commonwealth Disposals Commission,72 the defendant commission advertised for sale an oil tanker which
was described as stranded at a named reef off the coast of New Guinea. The plaintiff accepted the offer and
incurred expenses in salvage operation to rescue the stated oil tanker. In fact, there was no tanker at all in the
stated locality. The plaintiff was successful in claiming the salvage cost from the defendant in his action for non-
delivery of the goods as the defendant seller by representation had warranted that there was a tanker in
existence to be rescued.
69 Couturier v Hastie, (1856) 5 HLC 673 : 10 ER 1065 : (1856) Int Com LR 06/26.
70 Barr v Gibson, (1838) 3 M & W 390.
71 Barrow, Lane & Ballard, Ltd v Phillip Phillips & Co, (1929) 1 KB 574 .
72 McRae v Commonwealth Disposals Commission, (1951) 84 CLR 377 : [1951] HCA 79.
End of Document
S. 8. Goods perishing before sale but after agreement to sell.-
MullaK Kannan
Where there is an agreement to sell specific goods, and subsequently the goods without any fault on the part of
the seller or buyer perish or become so damaged as no longer to answer to their description in the agreement
before the risk passes to the buyer, the agreement is thereby avoided.
[s. 8.2] Goods perishing before sale but after agreement to sell.—
Section 7 relates to the case where the goods have perished, etc. at the time when the contract was made. The
present section deals with the case where the goods perish, etc., after the agreement to sell is made and
before the risk passes to the buyer. Under section 7, the contract is void ab initio while under this section the
agreement is avoided. The rule is based on the ground of impossibility of performance. See the Indian Contract
Act, 1872, section 56.
As regards risk, the general rule is that the goods remain at the seller’s risk until the property therein is
transferred to the buyer but when the property therein is transferred to the buyer, the goods are at the buyer’s
risk whether delivery has been made out (section 26).
[s. 8.3] Unascertained goods.—
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This section, like section 7, applies only to the sale of specific goods. If the sale is of a certain quantity of
unascertained goods, the perishing of the whole quantity of such goods in the possession of the seller will not
relieve him of his obligation to deliver. See note to section 7, “Unascertained goods perishing before making of
contract of sale.”
[s. 8.4] Specific goods.—
See definition section 2(14).

[s. 8.5] C.I.F. Contract.—
In this form of contract, the sale of goods is to be performed by delivering documents representing the goods
i.e., of documents giving the right to have the goods delivered or the possible right, if they are lost or damaged,
of recovering their value from the shipowner or from underwriters. The provisions of sections 7 and 8 relating to
sale of specific goods do not apply to C.I.F. contract as the contract is effected by delivering the documents.
End of Document
S. 9. Ascertainment of price.-
MullaK Kannan
The Price
The Price
(1) The price in a contract of sale may be fixed by the contract or may be left to be fixed in manner thereby
agreed or may be determined by the course of dealing between the parties.
(2) Where the price is not determined in accordance with the foregoing provisions, the buyer shall pay the
seller a reasonable price. What is a reasonable price is a question of fact dependent on the
circumstances of each particular case.
[s. 9.2] Ascertainment of Price.—
In section 4, price is an essential condition of a contract of sale of goods. The question is as to the mode of
fixing the price. This section says down four modes i.e. (i) fixed by the contract, (is) to be fixed in a manner
agreed upon (such as market price prevailing on a particular date), (iii) by the course of dealings between the
parties (such as usual manufacturing cost, market price or reasonable price), and (iv) reasonable price.
Price may be fixed by control orders issued by government73 or the market authorities.
Page 2 of 3
[s. 9.3] When price is not fixed at the time of transfer.—
Section 4 read with section 2(10) of the Sale of Goods Act, 1930 requires that the contract of sale must provide
for the payment of money as a consideration for the transfer of goods, or to put it differently, that a price must
be paid. But section 9 of the 1930 Act allows the parties not to fix the price at the time of the transfer and to
leave the determination of the amount of consideration to a later date. An agreement which provides for the
future fixation of price either by the parties themselves or by a third party is capable of being made certain and
is not invalid as provided under section 29 of the Indian Contract Act, 1872. [See Illustration (e)] In the particular
case in MS Madhusoodhanan v Kerala Kaumudi Pvt Ltd,74 drawing a distinction between English law and the
Indian law which provides under section 9 for determination of price post sale, the Court ascertained the fact
that the first stage of the agreement for the immediate transfer of shares was executed. As regards the question
as to what would be the reasonable price for the shares, the Court considered the aspect that the parties had
been at loggerheads and that it was unlikely that they would mutually agree to the price to be paid for the
transferred shares or to a mutually acceptable their party in terms of the agreement. The article of association
provided that fair value of shares could be fixed by the company by a resolution and might refer the dispute in
that regard to arbitrators. Having regard to the language of section 9(2), the Court held that it would be
appropriate to decree the suit for specific performance of sale and to give directions for appointment of
arbitrators by the parties to determine fair value of shares for ascertaining the amount of consideration.
In Claude-Lila Parulekar v Sakal Papers Pvt Ltd,75 there existed a pre-emptive right to purchase some shares
left behind by a deceased shareholder of a company in favour of his widow and the articles of the company
provided for a valuation to be determined by a named auditor, the moment the price is determined and the pre-
emptor exercises the willingness to purchase but still raises a dispute with regard to the valuation, the contract
becomes complete. The Supreme Court held price is required to be fixed under the terms of an agreement by a
third party, the moment the price is fixed and did not depend upon the payment of price, which was an
independent obligation for the widow as a pre-emptor to perform.
73 Indian Steel and Wire Products Ltd v State of Madras, AIR 1968 SC 478 [LNIND 1967 SC 263] : [1968] 1 SCR 479
[LNIND 1967 SC 263] ; Coffee Board v Commr of Commercial Taxes, Karnataka, AIR 1988 SC 1487 [LNIND 1988 SC
313] : (1988) 3 SCC 263 [LNIND 1988 SC 313] .
74 MS Madhusoodhanan v Kerala Kaumudi Pvt Ltd, (2004) 9 SCC 204 [LNIND 2003 SC 626] : [2003] Supp 2 SCR 107 :
(2003) 6 Scale 191 [LNIND 2003 SC 626] .
Page 3 of 3
75 Claude-Lila Parulekar v Sakal Papers Pvt Ltd, AIR 2005 SC 4074 [LNIND 2005 SC 295] : (2005) 11 SCC 73 [LNIND
2005 SC 295] : JT 2005 (3) SC 523 [LNIND 2005 SC 295] .
End of Document
S. 10. Agreement to sell at valuation.-
MullaK Kannan
The Price
The Price
(1) Where there is an agreement to sell goods on the terms that the price is to be fixed by the valuation of
a third party and such third party cannot or does not make such valuation, the agreement is thereby
avoided:
Provided that, if the goods or any part thereof have been delivered to, and appropriated by the
buyer, he shall pay a reasonable price therefor.
(2) Where such third party is prevented from making the valuation by the fault of the seller or buyer, the
party not in fault may maintain a suit for damages against the party in fault.
[s. 10.2] Agreement to sell at valuation.—
This section declares the consequences flowing from non-fixation of the price by valuation by a third party.
Page 2 of 2
Where the third party is not willing to value the price, the contract is avoided provided the goods are not
delivered to the buyer.
Where the third party is unable for any reason to value the price, the contract is avoided provided the goods are
not delivered to the buyer,
Where the third party is prevented from valuing the price as a result of the fault of the seller or buyer, the party
in fault is liable to pay damages to the party not in fault.
Where, however, the goods are delivered to buyer before the price is valued, the buyer is liable to pay to the
seller reasonable price for the goods delivered. Such reasonable price may be fixed by the Court or by
arbitrator. The liability to pay reasonable price and the liability to pay damages are two distinct remedies
contemplated by this section.
There is a difference between arbitration and valuation.76 The former is in the nature of a judicial proceeding
while the latter is not in the nature of a judicial proceeding. For the definition of “fault,” see section 2 (5) above.
76 Bos v Helsham, LR (1866) 2 Ex. 72 : 36 LJ Ex 20; Stewart v Williamson, (1910) AC 455 : (1910) VKHL 2.
End of Document
S. 11. Stipulations as to time.-
MullaK Kannan
Conditions and Warranties
Unless a different intention appears from the terms of the contract, stipulations as to time of payment are not
deemed to be of the essence of a contract or sale. Whether any other stipulation as to time is of the essence of
the contract or not depends on the terms of the contract.
This section corresponds to section 10(1) and (2) of the English Sale of Goods Act, 1979. Sub-section (3) of the
English Act specifically says that the term “month” prima facie means calendar month.
[s. 11.2] Under Contract Act.—
The general rule of law as contained in section 55 of the Indian Contract Act, 1872 is that where a party to a
contract promises to do a certain thing at or before a specified time and (fails to do it at or before the specified
time, the contract becomes voidable at the option of the promisee, if the intention of the parties was that time
should be of the essence of the contract. But if it was not the intention of the parties that time should be of the
essence of the contract, the contract does not become voidable by the failure to do the thing at or before the
specified time, and the remedy of the promisee is in damages for any loss occasioned to him by the failure.
[s. 11.3] Contract for sale of immovable property.—
In the case of contracts for the sale of immovable property, time is not, unless a contrary intention appears, of
the essence of the contract.77 Thus, if A agrees to sell and B agrees to buy a house belonging to A, and the
contract provides that the sale should be completed on or before a specified day, time is not of the essence of
Page 2 of 4
the contract. The result is that neither party is entitled to avoid the contract merely because of the failure of the
other to perform his part of the contract at or before the specified time, and the Court may at the suit of either
party enforce specific performance of the contract if such party offered to perform his part of the contract within
a reasonable time after the expiry of the period fixed by the contract.78
[s. 11.4] Contract of sale of goods.—
The law, however, is different as regards contracts for the sale of goods. Section 11 of the Sale of Goods Act,
1930 contemplates that unless a different intention appears from the terms of the contract, stipulation as to time
of payment is not deemed to be the essence of a contract of sale. The question whether time is the essence of
the contract depends on the terms of the contract.79
Though section 11 makes it clear that stipulations as to time of payment would ordinarily be not of the essence of
contract for sale of goods, yet on the question whether the time of delivery of goods would also be not of the essence
of the contract the section merely says that it depends on the terms of the contract. In ordinary commercial contracts
for sale of goods time is prima facie of the essence with respect to delivery. When forward contracts are entered into
by parties who are anticipating fluctuations in prices, in the absence of any evidence to the contrary, the prima facie
view that in commercial transactions of this type time is of essence of delivery may be accepted. The parties who are
gambling on fluctuations in prices must obviously have intended that time was of the essence of contract.80
Though the Act does not lay down any general rules the courts have done so. “In ordinary commercial contracts
for the sale of goods the rule clearly is that time is prima facie of the essence with respect to delivery”.81 This
rule applies not only when the seller is under obligation to dispatch the goods to the buyer but also when the
buyer has to collect the goods from the seller. Thus, section 11 makes a distinction between stipulations as to
time of payment and other stipulations as to time. Prima facie the former is not the essence of contract but
regarding the other stipulations as to time, the law raises no prima facie presumption. The words “not deemed
to be of the essence of a contract of sale” would mean that the failure by the buyer to pay the price in time
would not as a rule entitle the seller to treat the contract as repudiated.82
The words “unless a different intention appears from the terms of the contract” would cover the case of a sale of
perishable cargo C.I.F. wherein it was stipulated that the payment should be made in exchange of bill of lading
and insurance policy. In such a contract, time for payment is of the essence of the contract the buyer is under
an obligation to pay within a reasonable time after the shipping documents are tendered to him even if at that
time of tender of shipping documents the goods have not arrived at the port of delivery.83 The defendant
company agreed to manufacture and deliver to plaintiff 50 Rly. wagons of certain specifications. These wagons
were to be delivered in six months from the date of receipt by the defendant company of an order for wagons.
Regarding payment, the plaintiff should pay 1/3 of the price on the order for wagons being given, other 1/3 of
Page 3 of 4
the price when under frames of the wagons should be wheeled and the remaining 1/3 when wagons should be
delivered. The contract contained no provision regarding extension of time for delivery of wagons. It was held
that as the price was to be paid at certain times; that the manufacture of wagons involved considerable
expenditure of men and materials and that it might be difficult to enforce payment against His Highness—the
plaintiff—, hence the time of payment was of the essence of the contract and so when the plaintiff failed to pay
the second instalment, the defendant company became entitled to repudiate the contract. But the defendant
company by delivering eight wagons treated the contract as a subsisting contract and the defendant company
was not on that delivery of eight wagons entitled to insist on payment for them as the contract price was not
payable until 50 wagons had been delivered.84 As regards the other stipulations of time it may be stated that if
time is specified for delivery of goods or for doing any other act, delivery must be made or the act done at the
specified time. Thus, if A agrees to sell and deliver goods to B on a certain day, he must deliver them on that
day. If he fails to do so B is entitled to put an end to the contract. The leading English case on the subject is
Reuter v Sala.85 In that case A agreed to sell to B 25 tons of pepper of October shipment, and to declare the
name of the vessel and other particulars to B within 60 days of the bill of lading. Only 20 tons were declared
within the 60 days, the remaining 5 tons having been declared subsequently. B refused to accept the goods,
and it was held that he was justified in doing so.
Where time is of the essence of the contract and is extended, the extended date is also of the essence of the
contract.86 In a Calcutta case,87 on 1 October 1910 plaintiff engaged the defendants elephant up to 31 March
1911 to capture wild elephants at a certain price. Defendant agreed to deliver to plaintiff on 1 October 1910 but
obtained extension of time till 6th of that month for delivery of elephants. The defendant did not deliver elephant
till 11 October 1910. It was held that parties intended that time should be of essence of contract. Defendant
asked for extension of time for delivery of elephant, which showed that time was of the essence of the contract
and so defendant was liable for breach of the contract.
As regards the relative obligations of the seller to deliver and of the buyer to pay the price, see section 32
below. Payment and delivery are concurrent conditions.
[s. 11.5] Any other stipulation as to time.—
As regards the time for payment, the first part has provided.
As regards the time for performing any other part of the contract, whether the stipulation as to time is of
essence of the contract or not, one has to refer to and construe the terms of the particular contract. Such
intention is to be gathered from (i) the language used on the contract, (ii) nature of the goods sold, (iii) conduct
of the parties such as extending the date of performance, and (iv) surrounding circumstances at the time of
making of the contract.88 A provision for default clause and providing a penalty may not be sufficient.82
Page 4 of 4
77 Pakharshing v Kishansingh, AIR 1974 Raj. 112 : 1973 WLN 630 .
78 Jamshed v Burjorji, (1916) 43 IA 26 : 40 Bom 289.
79 Sharma Enterprises v Hotel Leelaventure Ltd, CS(OS) No. 2254 of 1989, decided on 13.04.2009 (Delhi HC)
80 Ramdhan Das v Kishori Chand, AIR 1954 Ori. 254 [LNIND 1954 ORI 35].
81 Hartley v Hymans, (1920) 3 KB 475 at 484.
82 Martindale v Smith, (1841) 1 QB 389 : 55 RR 285.
83 Ryan v Ridley & Co, (1902) 8 Com Cas 105 .
84 Bunt & Co v HH Shri Lukhdhiraj of Morvi State, AIR 1925 PC 188 : 90 Ind Cas 52.
85 Reuter v Sala, (1879) 48 LJCP 492 (Sale of pepper) : (1879) 4 CPD 239 (249).
86 Orissa Textile Mills v Ganesh Das, AIR 1961 Pat. 107 .
87 Bhudar Chandra Goswami v Betts, AIR 1916 Cal 901 : 33 Ind Cas 347.
88 Pakharsingh v Kishansingh, AIR 1974 Raj. 112 : 1973 WLN 630 .
End of Document
S. 12. Condition and warranty.-
MullaK Kannan
(1) A stipulation in a contract of sale with reference to goods which are the subject thereof may be a
condition or a warranty.
(2) 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.
(3) 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.
(4) 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.
The English law that excludes Scotland for its applicability is contained in section 11 of the English Sale of
Goods Act, 1979. It includes the provision as contained in section 13 of the Indian counterpart.
[s. 12.2] Condition and warranty explained.—
During negotiation parties exchange many statements regarding the subject matter of the contract. Whatever
the parties say during the course of such negotiation leading to the formation of the contract may or may not
become the part of the contract. These statements may be classified either as the term of the contract or as
Page 2 of 4
mere representation not forming the term of the contract. If a statement is a mere representation which cannot
be called a term of the contract, it cannot be either a condition or a warranty. It is only if it is a term of a
contract, then it can be either a condition or a warranty. When the statement becomes the term of the contract
of sale, the obligations on the seller under a contract of sale are not all of equal importance. There are some
which go so 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. Such obligations are called conditions. In a contract to sell peas, if the seller sends anything
else in their stead it is a breach of a condition.89 On the other hand, there are other 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. These are called warranties.90
[s. 12.3] Commendation by seller of his goods.—
Mere words of commendation used by a seller in reference to his wares do not constitute a warranty in respect
of those wares.91
[s. 12.4] Remedies of buyer arising from breach of condition and breach of warranty.—
The remedies of the buyer arising from a breach by the seller of a condition and a breach of a warranty are
different. In both cases the buyer is entitled to damages. But in the case of a breach of a condition he has the
option of another remedy, namely, of treating the contract as repudiated and rejecting the goods altogether,
provided he has not accepted the goods or any part thereof, or, in the case of specific goods, the property has
not passed to him (see section 13).
In Svenska Handelsbanken v Indian Charge Chrome,92 the contract stipulated a condition for establishing a
power plant of 108 mw capacity. There was a breach of condition. Therefore, the plaintiff could have repudiated
the contract as provided in section 12(2) of the Sale of Goods Act, 1930 or treated as a warranty by waiving the
condition or elect to treat the breach of the condition as a breach of warranty and not as a ground for treating
the contract as repudiated. The plaintiff had not repudiated the contract. In fact, the plaintiff was working with
the power plant and, therefore, the breach of condition had been treated by the plaintiff as a breach of warranty
and in view of section 12(3) of the Sale of Goods Act, 1930 the breach of warranty only gave a right to claim for
damages but not to a right to reject the goods and treat the contract as repudiated.
In CN Anantharam v Fiat India Ltd,93 the buyer of a car had complained of major manufacturing defect. The
buyer had sought for replacement of vehicle and refund of cost. The National Commission before which the
case was prosecuted directed delivery of vehicle to petitioner after having the same properly checked by
independent technical expert who would have to certify that vehicle was free from any defect when it was
delivered. The question was whether a manufacturing company and by extension dealer/agent was under any
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compulsion to replace vehicle itself when engine of vehicle from which certain noises were allegedly emanating
had been replaced. The National Commission took note of the fact the vehicle had done only 800 kilometres
and had found that apart from complaint relating to noise from engine and gear box, there was no other major
defect which made vehicle incapable of operation, particularly when engine was replaced with new one. The
Court directed that if independent technical expert was of opinion that there were inherent manufacturing
defects in vehicle, the petitioner would be entitled to refund of price of vehicle and lifetime tax and EMI along
with interest at the rate of 12% per annum.
[s. 12.5] Express or implied conditions and warranties.—
Conditions and warranties are either express or they are implied by law. Conditions and warranties implied by
law are enumerated in sections 14 to 17 below.
[s. 12.6] Construction of condition and warranties.—
As regards express conditions and warranties, no particular form of words is necessary to create a condition or
warranty. The question in such a case is what the parties intended, whether they intended that a term or
stipulation should operate as a condition entitling the buyer to treat the contract as repudiated and to reject the
goods if the stipulation is not fulfilled, or that it should operate as a mere collateral contract or warranty for the
breach of which the remedy of the buyer is an action for damages. Where the contract is in writing, and it is not
ambiguous, it is conclusive evidence of their intention, and to put a meaning on the contract is simply a
question of construction for the Court. If the contract is ambiguous, so that the intention cannot be read on the
face of the document, the Court may look at the surrounding facts and circumstances to determine what the
parties intended.94 A stipulation may be a condition, though called a warranty in the contract. It is important to
note that an express condition or warranty does not negative a condition or warranty implied by the Act unless
inconsistent therewith [section 16(1)].
89 Lord Arbinger, C.B. in Chanter v Hopkins, (1838) 4 M & W at p 404 : 51 RR at p 654; Drummond v Van Ingen, (1887)
12 App Cas 284 .
90 Wallis v Pratt, (1910) 2 KB 1003 , 1012 : (1911) AC 394 .
91 Bannerman v White, (1861) 31 LJCP 28 : 142 ER 685 : 10 CB (NS) 844.
92 Svenska Handelsbanken v Indian Charge Chrome, (1994) 1 SCC 502 : AIR 1994 SC 626 : JT 1993 (6) SC 189 .
93 CN Anantharam v Fiat India Ltd, AIR 2011 SC 523 [LNIND 2010 SC 1134] : JT 2011 (1) SC 202 [LNIND 2010 SC
1134] : 2011 (1) RCR (Civil) 246 : 2010 (12) Scale 359 [LNIND 2010 SC 1134] : (2011) 1 SCC 460 [LNIND 2010 SC
1134] : 2011 (1) UJ 205 (SC).
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94 See Behn v Burness, (1863) 32 LJQB 304 . See also the Indian Evidence Act, 1872, sections 91 and 92.
End of Document
S. 13. When condition to be treated as warranty.-
MullaK Kannan
(1) 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 and not as a ground for
treating the contract as repudiated.
(2) Where a contract of sale is not severable and the buyer has accepted the goods or part thereof 95[***]
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 and treating the contract as repudiated, unless there is a term
of the contract, express or implied, to that effect.
(3) Nothing in this section shall affect the case of any condition or warranty fulfilment of which is excused
by law by reason of impossibility or otherwise.
This section corresponds to sections 11(2), (4) and (6) of the English Sale of Goods Act, 1979.
[s. 13.2] Sub-section (1): Waiver of condition.—
Where a contract is subject to a condition to be fulfilled by the seller, the buyer may waive the condition. If he
does so waive, he cannot afterwards insist on its fulfilment. A buyer may accept either defective goods or
beyond stipulated time. Waiver may be express or implied.
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[s. 13.3] Election by buyer to treat breach of condition as breach of warranty.—
Where a contract of sale is subject to any condition to be fulfilled by the seller, and the seller commits a breach
of the condition, the buyer may treat the contract as repudiated and refuse to accept the goods. He is not,
however, bound to do so. He may accept the goods and, treating the breach of the condition as a breach
merely of a warranty, set up against the seller the breach of the warranty in diminution of the price, or he may
sue the seller for damages for breach of warranty. A buyer who has used the goods cannot repudiate the
transaction and demand a free replacement even without payment of price. The buyer who wants the benefit of
the bargain shall act as per the terms of the contract stipulations as regards payment, if he could complain of
breach of warranty to sustain a claim for damages.96 See note to section 12 above “Remedies of buyer arising
from breach of condition and breach of warranty.” See also section 56 below.
[s. 13.4] Sub-section (2): Where goods accepted or property in goods has passed.—
The substance of the rule contained in this sub-section is that the right which the buyer has to treat the contract
as repudiated on the breach of a condition by the seller cannot be exercised if he has accepted the goods, the
remedy of the buyer is confined to damages.
This gives rise to the following question:—
When is the buyer deemed to have accepted the goods?
The buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted them, or
when the goods have been delivered to him and he does any act in relation to them which is inconsistent with
the ownership of the seller, e.g., reselling the goods without examination or, where he uses them, or where,
after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected
them; see section 42 (acceptance). Where goods are sold subject to a “condition” to be fulfilled by the seller,
and the buyer has accepted the goods, he is not entitled to reject the goods, unless there is a term of the
contract to that effect. He can only treat the breach of the condition as a breach of warranty and claim
damages. This is so even in the case of specific goods, the property in which has passed to the buyer. The
rules as to the passing of property are laid down in Chapter III. Instances of both these classes of cases are
given in the notes under section 16 below (implied conditions as to quality or fitness).
The words “or where the contract is for specific goods the property in which has passed to buyer” are omitted
by section 3 of the Indian Sale of Goods (Amendment) Act, 33 of 1963 as these words (now omitted) gave rise
Page 3 of 3
to some difficulty which may be explained here. Under section 20 of the Sale of Goods Act, 1930 property in the
specific goods in a deliverable state passes when the contract is made. Under section 17(2) of the Sale of
Goods Act, 1930 when there is a contract for the Sale of Specific Goods by sample, it is required that the bulk
to correspond with the sample in quality. Though by section 20 of the Act the property (i.e., ownership) passes
to the buyer when the contract is made, it may happen that the goods are subsequently delivered and they may
not correspond with the sample. Therefore, before the amendment in 1963 the position came to be that an
implied condition raised by section 17(2)(a) had to be treated as warranty under section 13(2). While breach of
condition entitled the buyer to repudiate the contract and breach of warranty entitled him to claim only
damages. To resolve this conflict between section 13(2) (as it originally stood before amendment in 1963) and
section 17(2)(a), it was felt that section 13(2) be amended by deleting the case of sale of specific goods and
this amendment was made. So the amendment allows a buyer an option to choose between repudiation of
contract or to claim simply damages.
[s. 13.5] Sub-section (3).—
This sub-section saves the right of the seller, in appropriate cases, to rely upon the impossibility as an excuse
to himself, if sued by the buyer. The words “excused by law … or otherwise” are wide enough to cover
provisions of other statutes and notification97 and the conduct of buyer as well. See the Indian Contract Act,
1872 section 56 [Agreement to do impossible act, etc.], and sections 62 to 67 [Contracts which need not be
performed].
95 The words “or where the contract is for specific goods the property in which has passed to the buyer” omitted by
section 3 of the Indian Sale of Goods (Amendment) Act (Act 33 of 1963) (w.e.f. 22-9-1963).
96 See Kailash Sharma v The Patna Municipal Corp, AIR 2009 Pat. 10 [LNINDORD 2008 PAT 777] : 2008 (57) BLJR 97
[LNINDORD 2008 PAT 777] : 2009 (2) Pat LJR 378 .
97 Esposito v Bowden, (1857) 7 E&B 763 (781) : (1857) 119 ER 1430 ; United States v Pelly, (1899) 15 Tax LR 166 : 4
Commercial Cases 100 (1899) (Declaration of War).
End of Document
S. 14. Implied undertaking as to title, etc.-
MullaK Kannan
In a contract of sale, unless the circumstances of the contract are such as to show a different intention there
is—
(a) 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;
(b) an implied warranty that the buyer shall have and enjoy quiet possession of the goods;
(c) an implied warranty that the goods shall be free from any charge or encumbrance in favour of any third
party not declared or known to the buyer before or at the time when the contract is made.
This section corresponds to sections 12(1) to (3) of the English Sale of Goods Act, 1979.
[s. 14.2] Implied conditions and warranties.—
As has already been stated, conditions and warranties are either express or they are implied by law. See notes
to section 12, “Express conditions and warranties.” Sections 14 to 17 deal with implied conditions and
warranties.
[s. 14.3] Implied condition as to title.—
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In every 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.
Thus, if A sells to B tins of condensed milk labelled “Nissly brand,” and this is proved to be an infringement of N.
Company’s trade mark, it is a breach of the implied condition that A had the right to sell. In the Court of Appeal
Scrutton LJ thought that defendants could have been restrained by injunction from selling them (tins of
condensed milk) because they were infringing the rights of third persons. If a vendor can be stopped by process
of law from selling, he has not the right to sell. B may therefore reject the goods, or take off the labels, and
claim damages for the reduced sale value.98 Defendants had broken also the implied condition that the goods
should be merchantable quality [mentioned in section 16(2) of our Act] and implied warranty that buyers should
have and enjoy quiet possession of the goods [mentioned in section 14(b) of our Act].
If the seller has no title, and the buyer has to give up the goods to the real owner, he is entitled to a return of the
price.99 The circumstances, however, of the contract may be such as to show that there was no condition as to
title. Thus, where goods seized under a distress warrant are sold by public auction and the buyer knows that
they are sold under a distress, the auctioneer is not liable if the warrant turns out to be invalid and the buyer
has to return the goods. The same principle applies in case of sale held by the sheriff in execution of the
decree.100 The buyer in such a case takes the risk of the warrant turning out invalid.101
[s. 14.4] Implied warranty of quiet possession.—
In every contract of sale, unless the circumstances of the contract are such as show a different condition, there
is an implied warranty that the buyer shall have and enjoy quiet possession of the goods. If there is a breach of
this warranty, the seller is liable to the buyer in damages.
[s. 14.5] Implied warranty that goods are free from encumbrances.—
There is also an implied warranty on the part of the seller that the goods are free from any charge or
encumbrance. If the goods are afterwards found to be subject to a charge in favour of a third party, the seller is
liable to the buyer in damages.
98 Niblett v Confectioners’ Materials Co, (1921) 3 KB 387 .
99 Rowland v Divall, (1923) 2 KB 500 : (1922) R 2746 (Case of stolen goods).
100 Dorab Ally v Executors Khajah Moheeoodeen, 3 Cal 806 (PC) : (1878) ILR 3 Cal 806.
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101 Payne v Elsden, (1900) 17 Tax LR 161 .
End of Document
S. 15. Sale by description.-
MullaK Kannan
Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall
correspond with the description; and, if the sale is by sample as well as by description, it is not sufficient that
the bulk of the goods corresponds with the sample if the goods do not also correspond with the description.
[s. 15.1] Implied condition in sales by description.—
In the case of a sale of goods by description there is an implied condition that the goods shall correspond with
the description. It is a condition which goes to the root of the contract and the breach of it entitles the buyer to
reject the goods whether the buyer is able to inspect them or not.102 “If you contract to sell peas, you cannot
oblige a party to take beans. If the description of the article tendered is different in any respect, it is not the
article bargained for, and the other party is not bound to take it.”103
[s. 15.2] What is a sale by description.—
The term “Sale of Goods by description” applies to all cases—unascertained goods, future goods and also
specific goods—where the purchaser has not seen the goods but is relying on the description alone.104 The
expression “description” usually means a particular class or kind of goods (e.g., Fair Bengal Cotton, Java
Sugar) but it also includes any statement which may be essential to the identity of the goods as contracted for
i.e., the quality or fitness, place of shipment, time of dispatch or delivery, time of shipment, mode of packing.
Falsity of description renders the goods substantially different amounting to failure of consideration.105 Where
goods are bought by description, there is an implied condition that goods shall be of merchantable quality. The
“merchantable” is not defined in the Act. Merchantable quality is fulfilled when goods do not differ from the
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normal quality of the goods described. The goods should be immediately saleable under the description by
which they are known in the market.106 When goods are sold by description it is an implied term of the
contract that they shall answer the description and so it is not much essential to inquire whether buyer had
opportunity to inspect the goods or not.107 A sale in a shop could become a sale by description so long as it is
sold not merely as the specific thing but as a thing corresponding to a description e.g., woollen undergarments
or a hot water bottle.108 Buyer can reject goods for breach of condition although he suffers no damage as the
goods may be of merchantable quality.109
A buyer may also rely on his alternative remedy and sue for damages for breach of warranty.110
Illustrations
(a) A, at Calcutta, sells to B 12 bags of “waste silk” then on its way from Murshidabad to Calcutta. There is an
implied condition that the silk shall be such as is known in the market as “waste silk.” If it is not, B is entitled to
reject the goods.
(b) A agrees to sell to B “Calcutta linseed,” then on its way from Calcutta to England. Linseed sent to England
from Calcutta contains about two or three per cent of other seeds, while the seed tendered to B contains about
15 per cent, and is not saleable in the market as Calcutta linseed. B may refuse to accept the goods. But if he
accepts them, he can only claim damages as on a breach of warranty.111 [Section 13(2).]
(c) A sells to B 50 parcels of sawn lath to be of “about the specification” mentioned in the contract. Thirty-three
per cent of the laths shipped under the contract are not of “about” the specification nor commercially within its
meaning. The buyer is entitled to reject the whole consignment.112
(d) A agrees to sell to B rice “to be shipped at Madras during the months of March and/or April, about 300 tons,
per Rajah of Cochin.” Part of the cargo is shipped in February and part in March. B may refuse to accept any of
the rice, the goods not corresponding with the description.113
(e) Plaintiff agreed to sell to the defendant tea in chests containing 80 pounds of tea. Plaintiff tendered tea
chests containing 76 pounds of tea. The defendant was entitled to reject the goods114 as any statement in
contract for sale of goods as to mode of packing also forms part of description.
(f) A agrees to sell and B agrees to buy a reaping machine which B has never seen and which is represented
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by A to have been new the previous year and used to cut only 50 to 60 acres. After delivery B finds that the
machine does not correspond with A’s representations. B is entitled to return the machine.115 The mere fact
that B has taken delivery does not constitute acceptance (see section 42). In the case last cited Channell J,
said in the course of his judgment: “The term sale of goods by description must apply to all cases where the
purchaser has not seen the goods, but is relying on the description only.” But, as stated by Chalmers,116 it
may apply even where he has seen the goods if the deviation of the goods from the description is not apparent.
(g) In a contract for sale by description Defendant agreed to sell to PI “damangan Toor Dal” which was
recognised as of the best quality. Plaintiff never examined the goods. Defendant loaded the goods in rain and
even R/R contained note that when goods were loaded in train, they were drenched by rain. So when the goods
arrived at the destination, they no longer answered the description and could not be sold as “Toor Dal of the
best quality.” It was held; goods were not of merchantable quality.117
[s. 15.3] Implied condition as to description distinct from that relating to quality.—
The implied condition in sales by description, namely, that the goods shall correspond with the description, is
quite distinct from the implied condition as to quality dealt with in the next section. Thus, a contract may contain
terms whereby the seller may guard himself from any responsibility as to quality; yet if the sale is by description
he is bound to supply goods which correspond with the description.118 In Wallis v Pratt, seller sold by sample
Common English Sainfoin seed giving no warranty express or implied as to growth, description or any other
matters. The seed supplied was identical with sample but was giant sainfoin, a seed of inferior quality. It was
held by the House of Lords that the exemption clause did not protect the sellers and they were liable to pay
damages to the buyer as in the case of breach of warranty. The goods supplied cannot be regarded as the
goods ordered as a contract for common English Sainfoin seed is not performed by delivery of giant sainfoin.
The Court felt that exemption clause regarding warranty cannot exclude a breach of condition which was to
deliver common English Sainfoin. Again, a contract may contain a term that if the goods should turn out inferior
in quality the buyer should not be entitled to reject them but should be entitled only to a fair allowance for
inferiority in quality, or it may contain a term that should any dispute arise between the buyer and the seller, it
should be referred to arbitration; neither of these terms relieves the seller from the obligation to supply goods
corresponding with the description.119 The implied condition under section 16, sub-section (1) is, unless the
contract otherwise provides, in addition to the condition in this section.
A man may require goods for a particular purpose and make it known to the seller so as to secure the implied condition
of fitness for that purpose: but there is no reason why he should not abandon that purpose if he pleases and apply the
goods to any purpose for which the description makes them suitable. If they do not correspond with the description,
there seems no business or legal reason why he should not reject them if he finds it convenient so to do.120
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In Arcos case the contract was to supply timber of 1/2 inch thickness for being made into cement barrels and
this was known to the sellers. The timber supplied varied in thickness. The House of Lords held that the buyer
was entitled to reject the timber on the ground of breach of condition as to description. Lord Atkin said:
If the written contract specifies conditions of weight, measurement … those conditions must be complied with. A ton
does not mean about a ton or a yard about a yard … If the seller wants a margin he must and does stipulate for it …
No doubt there may be microscopic deviation which businessmen and therefore lawyers will ignore … But apart from
this consideration of the right view is that the conditions of the contract must be strictly performed.
The court rejected the seller’s contention that in all commercial contracts the question was whether there was a
substantial compliance with the contract.121
[s. 15.4] Sale by sample as well as description.—
If the sale is by sample as well as by description, it is not sufficient that the bulk of the goods corresponds with
the sample if the goods do not also correspond with the description. The fundamental condition is that the
goods must correspond with the description. The stipulation that the goods shall be according to the sample
affects the quality and not the nature of the article.122 Therefore, though the bulk may agree with the sample,
yet if the bulk does not correspond with the description in the contract, the condition is broken and the buyer is
entitled to reject the goods.
Illustrations
(a) A buys by sample, 100 bales of “Fair Bengal” cotton, and after having inspected the bulk, the cotton proves
not to be such as is known in the market as “Fair Bengal.” A may reject the goods when delivered to him.
(b) A sells to B five parcels of “foreign refined rape oil warranted only equal to samples.” The samples consist of
rape oil mixed with hemp oil. The oil tendered corresponds with the samples, but it is not such as is known in
the market as “foreign refined rape oil.” B may reject the goods. “The warranty affects only the quality, but not
the nature of the article itself.”123
[s. 15.5] Sale by description and sample.—
When a sale is by sample alone the duty is lesser as compared when sale is by sample as well as by
description where the goods must correspond with the description as well as by sample.124
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102 Jones v Just, (1866) LR 3 QB 197 (204).
103 Bowes v Shand, (1877) 2 App Cas 455 , 460.
104 Varley v Whipp, (1900) 1 QB 513 .
105 Sorabji M Joshi & Co v Ismail, AIR 1960 Mad. 520 [LNIND 1959 MAD 171] .
106 See Sorabji Case, AIR 1960 Mad. 520 [LNIND 1959 MAD 171] .
107 Beale v Taylor, (1967) 1 WLR 1193 : (1967) 3 All ER 253 ; Car advertised as 1961 model. Buyer examined
car before sale. Deviation from description in advertisement not apparent on reasonable examination. Buyer was
entitled to damages as seller was selling a car of description as advertised.
108 Grant v Australian Knitting Mills Ltd, AIR 1936 PC 34 at 41 : (1935) All ER 209 at 215.
109 Arcos Ltd v Ronaasen & Son, (1933) All ER Rep 646 : (1933) AC 470 .
110 Sha Thilokchand Poosaji v Crystal & Co, AIR 1955 Mad. 481 [LNIND 1954 MAD 214] .
111 Wieler v Schilizzi, (1856) 25 L.J.C.P. 89; National Traders v Hindustan Soap Works, AIR (1959) Mad. 112
[LNIND 1958 MAD 39] (Caustic Soda Solid No. 97/98 U.S.A.).
112 Vigers v Sunderson, (1901) 1 KB 608 .
113 Bowes v Shand, (1877) 2 App Cas 455 .
114 Journal Kasturchand v Hassanali Khanbhai, (1954) A. Saur. 79 AIR 1954 Guj 79 ; Citing Moore & Co v
Landauer & Co, (1921) 2 KB 519 .
115 Varley v Whipp, (1900) 1 QB 513 ; Re Beharilal, (1955) AM 271 : AIR 1955 Mad. 271 [LNIND 1953 MAD 215]
.
116 Chalmers’ Sale of Goods, 10th Edn, p 45.
117 Shivallingappa S. Mendse v Balkrishna Chettiar, AIR 1962 Mad .426 .
118 Wallis v Pratt, (1911) AC 394 : (1910) 2 KB 1003 .
119 Azemar v Casella, (1867) 30 L.J.C.P. 124; Vigers v Sanderson, (1901) 1 KB 608 .
120 Arcos, Ltd v A Ronaasen & Son, (1933) AC 470 (HL).
121 Arcos, Ltd v A Ronaasen & Son, (1933) AC 470 , pp 479–480 (HL).
122 Nichol v Godus, (1854) 23 LJ Ex 314 : 10 Exch 191 : 102 RR 523.
123 Nichol v Godus, (1854) 23 LJ Ex 314 : 10 Exch 191 : 102 RR 523.
124 See Willis v Pratt, (1910) 2 KB 1003 , 1012.

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End of Document
S. 16. Implied conditions as to quality of fitness.-
MullaK Kannan
Subject to the provisions of this Act and of any other law for the time being in force, there is no implied warranty
or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale,
except as follows:—
(1) Where the buyer, expressly or by implication, makes known to the seller the particular purpose for
which the goods are required, so as to show that the buyer relies on the seller’s skill or judgment, and
the goods are of a description which it is in the course of the seller’s business to supply (whether he is
the manufacturer or producer or not), there is an implied condition that the goods shall be reasonably
fit for such purpose:
Provided that, in the case of a contract for the sale of a specified article under its patent or other
trade name, there is no implied condition as to its fitness for any particular purpose.
(2) Where goods are bought by description from a seller who deals in goods of that description (whether
he is the manufacturer or producer or not), there is an implied condition that the goods shall be of
merchantable quality:
Provided that, if the buyer has examined the goods, there shall be no implied condition as regards
defects which such examination ought to have revealed.
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(3) An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the
usage of trade.
(4) An express warranty or condition does not negative a warranty or condition implied by this Act unless
inconsistent therewith.
[s. 16.1] Caveat emptor.—
The next question to consider is whether if the goods correspond with the description, but are of inferior quality
or damaged or unfit for some particular purpose, the buyer is entitled to reject them or whether he takes the risk
as to their quality and condition. This section adopts the English Common Law maxim to caveat emptor in its
first part and then lays down exceptions to that maxim.
Upon sale of goods, the general rule with regard to their nature or quality is caveat emptor, so that in the
absence of fraud, the buyer has no remedy against the seller for any defect in the goods not covered by some
condition or warranty, expressed or implied. It is beyond all doubt that, by the general rules of law there is no
warranty of quality arising from the bare contract of sale of goods, and that where there has been no fraud, a
buyer who has not obtained an express warranty, takes all risk of defect in the goods, unless there are
circumstances beyond the mere fact of sale from which a warranty may be implied. No one ought in ignorance
to buy that which is the right of another. The governing maxim is, caveat emptor qui ignorare non debuit quod
jus alienum emit, meaning “let a purchaser beware; who ought not to be ignorant that he is purchasing the
rights of another”. The buyer has to be cautious, as the risk is his and not that of the seller. In the context of
levy of penalty for import of gold and silver on the basis of forged special import licence, the Supreme Court
applied the doctrine in Commr of Customs (Preventive) v Aafloat Textiles (I) Pvt Ltd,125 to the purchaser who
pleaded that he was ignorant of the forged character of SIL and found the import to be unauthorised and upheld
the contention of the Revenue that penalty was justified. The Supreme Court reasoned that the question of
whether the buyer had made any enquiry as to the genuineness of the import licence shall be within his special
knowledge. He has to establish that he made enquiry and took requisite precautions to find out about the
genuineness of the import licence which he was purchasing. If he has not done that, consequences have to
follow.
The principle of “caveat emptor”, buyer beware, under the Sale of Goods Act cannot be applied to an examinee
at a public examination. At best, what may be noticed by such an examinee is a torn question paper, mutilated
or smudged question etc. This does absolve the respondents of their basic duty to provide correct question
papers.126
This section begins with an enunciation of the rule involved in the maxim caveat emptor. It then proceeds to lay
Page 3 of 11
down three exceptions to the rule, the first in sub-section (1), the second in sub-section (2) and the third one in
sub-section (3). It says that there is no implied warranty or condition as to the quality (which includes stale or
condition) or fitness for any particular purpose of the goods supplied under a contract of sale except in two
cases. In the first case [sub-sections (1) and (3)], there is an implied condition that the goods are reasonably fit
for the purpose for which they are required. In the second case [sub-section (2)], there is an implied condition
that the goods are of merchantable quality. In all other cases the buyer takes the risk as to the quality, condition
and fitness of the goods. If he wants to protect himself in such cases, he must do so by an express warranty or
condition.
[s. 16.2] Sub-section (1): First exception: Implied condition as to quality or fitness.—
The first class of cases is where—
(i) the buyer makes known to the seller the particular purpose for which the goods are required;
(ii) the buyer relies on the seller’s skill or judgment; and
(iii) the goods are of a description dealt in by the seller, whether he be the manufacturer or not.
In such cases there is an implied condition that the goods sold are reasonably fit for the purpose for which they
are bought. The three conditions mentioned above must co-exist. They may be considered in order.
(i) Firstly, the particular purpose for which the goods are required must be made known to the seller. The
purpose may be made known expressly or by implication. It should be made known expressly if the goods may
be used for a multitude of purposes, for then the buyer should inform the seller of the particular purpose for
which he requires the goods.127 But the purpose may be made known by implication and without any express
notification. This implication may arise from the very nature of the goods. The description or the goods may be
such as to show that they are required for a particular purpose. If a fishmonger sells oysters he must know that
they are required for the particular purpose of being eaten.128 If a retail dealer in woollen goods sells
underpants he must know that they are required for particular purpose of being worn next to the skin.129 The
seller being a dealer in the goods sold there is a presumption that the buyer relies on his skill or judgment. The
seller is therefore liable if the oysters are poisonous or if the underpants cause skin disease.
Illustrations
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(a) A goes to a chemist’s shop and asks for a hot-water bottle. He is shown a bottle which the chemist says will
not stand boiling water, but is meant for hot water. A buys the bottle. After a few days, while using it, it burst and
injures A. It is found that the bottle was not fit for use as a hot-water bottle. This is a sale of an article required
for the purpose of holding hot water, and it is a “particular purpose” within the meaning of sub-section (1). There
is therefore an implied condition that the bottle is fit for that purpose, and the seller is liable in damages for a
breach of warranty.130
(b) A goes to a milk dealer and buys milk for family use. At the time of sale the milk dealer gives A a printed
statement that the milk was free from the germs of disease. The milk supplied contains typhoid germs, in
consequence whereof A’s wife is infected and dies. Here the purpose for which the milk was supplied was
sufficiently made known by the buyer to the seller by its description. There was therefore an implied condition
that the milk was reasonably fit for human consumption. The milk, not being so fit, the milk dealer is liable in
damages for a breach of warranty.131
(c) A sells to B a boiler for the purpose of manufacturing carbon paper. The boiler does not satisfy the
requirements of the Indian Boilers Act. B is entitled to recover damages.132
(d) A contracts to make and deliver a set of false teeth to B. The false teeth do not fit in the mouth of B. B is
entitled to reject the goods.133
(ii) Secondly, the buyer must have relied on the seller’s skill or judgment. Where the special purpose for which
the goods are ordered is disclosed to the seller, and the order is accepted in the terms in which it is given, such
an acceptance is sufficient to show that the buyer has relied on the seller’s skill and judgment without any
further evidence on the point.134 The special purpose may be disclosed by implication arising out of the
description of the goods sold, for they may be such as can only be required for one particular purpose. In such
cases the buyer goes to the shop in the confidence that the tradesman has selected his stock with skill and
judgment.135 It is obvious that if the buyer himself selects the articles, there is no implied condition as to
fitness.136 The following passage from Benjamin on Sale,137 has received judicial approval:
Where it is part of the contract that goods shall be made according to a certain plan or according to a certain style,
shape, or form, or of specified materials, the buyer relies upon his own judgment as to the sufficiency of the plan, style,
etc., or of the materials for effecting the purpose contemplated, the only liability thee of the manufacturer is to execute
the work according to the plan, etc., and in a workman-like manner, and to exercise due care and skill in the selection
Page 5 of 11
and testing to the materials, in the absence of an express engagement on his part to produce goods which will be
adapted to the buyer’s purpose.138
(iii) Lastly, the goods must be of a description which it is in the course of the seller’s business to supply, as
where bread is bought from a baker, milk from a milk dealer, coal from a dealer in coal, and copper for
sheathing vessels from a copper manufacturer. There is no implied condition if the goods are not of a
description dealt in by the seller. This sub-section applies to sale of specific goods at the counter.139
[s. 16.3] Sale of article under patent or trade name.—
In the case of a contract for the sale of a specified article under its patent or other trade name, there is no
implied condition for its fitness for any particular purpose. The buyer in such a case defines by his order the
particular article to be supplied and the contract is performed if the seller supplied that article.
Illustrations
(a) B writes to A, the owner of a patent invention of cleaning cotton, “send me your patent cotton-cleaning
machine to clean the cotton at my factory.” A sends the machine according to order. There is no implied
warranty or condition on the part of A that the machine is fit for the particular purpose of cleaning the cotton at
B’s factory.
(b) B writes to A “send me your patent hopper and apparatus to fit up my brewing copper with your smoke
consuming furnace.” A sends the machine according to order. There is no implied warranty or condition on the
part of A that the furnace supplied should be fit for the purpose of a brewery. B having defined by the order the
particular machine to be supplied. A has performed his part of the contract by supplying that machine.140
(c) B buys a cargo of Cyfarth Merthyr coal for the particular purpose of bunkering steamers. This is a contract
for the sale of coal under a particular description known in the coal trade and not a contract for the sale of a
specified article under its patent or trade name. The proviso to sub-section (1) does not therefore apply, and
there is an implied condition that the coal is reasonably fit for bunkering.141
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The mere fact, however, that an article is sold under its trade name, in the sense that the trade name forms part
of the description of the thing sold, does not necessarily bring the case within the proviso, so as to exclude the
implication of the condition of fitness. If the buyer, while asking to be supplied with an article of a named make,
indicates to the seller that he relies on his skill and judgment for its being fit for a particular named purpose, he
does not buy it “under its trade name” within the meaning of the proviso, and if the Court is satisfied upon the
facts that the buyer relied on the seller’s skill and judgment, the proviso does not apply. B goes to A, a motor
car dealer, and asks for a comfortable car which is suitable for touring purposes. A says that a “Bugatti car,” a
type of car in which he specialised, will meet those requirements, and shows him a specimen. B then gives A
an order for “an eight cylinder Bugatti car.” An eight cylinder Bugatti car is delivered to B pursuant to the order,
but the car proves to be uncomfortable and unsuited for touring purposes. B is entitled to reject the car and to
recover back the purchase money.142
[s. 16.4] Sub-section (2): Second exception: Implied condition as to merchantableness.—
The second exception is where—
(1) goods are bought by description;
(2) from a seller who deals in goods of that description, whether he be the manufacturer or not.
In such cases there is an implied condition that goods shall be merchantable quality.
There is a sale by description even though the buyer is buying something displayed before him on the counter.
A thing is sold by description, though it is specific, so long as it is sold not merely as a specific thing but as a
thing corresponding to a description.143 If the seller deals in goods of that description there is an implied
condition that the goods shall be of merchantable quality.
In cases of this class the goods must not only answer to the description in the contract as required by section
15, but must also be of merchantable quality, i.e., saleable in the market as goods of that description. The
buyer, in other words, is entitled to receive a saleable article answering the description in the contract.144
Thus, if a person orders motor horns from a manufacturer of horns, and the horns supplied are scratched and
damaged owing to bad packing, he is entitled to reject them as unmerchantable.145 But merchantable does not
mean merely saleable. In the case of goods purchased for Underwear from a retailer by description the Privy
Council said that the second exception overlaps the first and that merchantable does not mean that a thing is
Page 7 of 11
saleable in the market because it looks all right. The garments were saleable as anyone who did not know of
their defect would readily buy them but they were not merchantable in the statutory sense because their defect
rendered them unfit to be worn next to the skin. It may be that after sufficient washing that defect would have
disappeared, but statute requires goods to be merchantable in the state in which they were sold and
delivered.146 The Privy Council found that in this case the implied condition of being fit for a particular purpose
for which they are required and implied condition of being merchantable quality (i.e., the article sold if only
meant for one particular use in ordinary course is fit for that use) had been overlapping here. It is not
merchantable if it has defects unfitting it for its only proper use but not apparent on ordinary examination.147
The phrase “merchantable quality” would mean that the article is of such quality and in such condition that a
reasonable man, acting reasonably, would accept it under the circumstances of the case in performance of his
offer to buy that article, whether he buys it for his own use or to sell again.148 As to the purpose, they should
be reasonably capable of being used for any one or more of the purposes, even if unfit for one particular
purpose which the buyer intended.149 So where an article may be used for various purposes but the buyer has
not specified his purpose, the buyer will have no remedy merely because it was unfit for his particular purpose
which he did not specify. So where barley was sold under the description of feeding barley but due to fungus in
it was useless as food for pigs but was capable of being used as feeding stuff for other animals. It was held that
it was merchantable.150
It is not sufficient that the goods correspond with the description, but if the buyer fakes the goods after
examining them, there is no implied condition as regards defects which such examination ought to have
revealed; in such a case the implied condition protects him only from a latent defect. What amounts to an
examination is a question of fact in each case. A mere opportunity of examining is not sufficient. At the same
time if the buyer does examine the goods, though cursorily, and he has had an opportunity of examining the
goods more fully if he desired to do so, that amounts to an examination within the meaning of this section.151
In Grant case the Privy Council found proviso to exception (ii) not applicable as the examination of the buyer
would not have revealed the defect i.e. the hidden presence of sulphites in the underwear.152
A sale of a bottle of “Stone’s Ginger Wine” at a public house is a sale of goods by description, and if the bottle
breaks while opening with a corkscrew by reason of a defect in the bottle and injures the buyer, there is a
breach of condition as to merchantable quality, and the buyer is entitled to damages.153 Quality of goods
includes their state or condition [section 2 (12)].
The fact, however, that a certain person is allergic to particular goods does not affect the merchantable quality
of the goods. Thus, where a person purchased from a retail trader a Harris tweed coat and contracted
Page 8 of 11
dermatitis and that was due to the fact that the purchaser’s skin was abnormally sensitive, the seller was not
liable in damages.154
It is important to note that except in the cases mentioned in this section there is no implied condition or warranty
as to the quality, fitness or merchantableness of goods supplied under a contract of sale. If a case falls within
the exceptions there is an implied condition, the breach whereof entitles the buyer to reject the goods or, at his
option, to claim damages. If a case does not come within the exceptions, the maxim caveat emptor applies and
the buyer takes the risk as to the quality and condition of the goods. If he desires to protect himself, he must do
so by an express warranty or condition. It is also important to note that neither exception applies unless all the
conditions therein are satisfied, there being three conditions in the first exception and two in the second. No
serious difficulty should arise if this is carefully borne in mind.
In State Bank of Mysore v Machado Computer Services, through its proprietor Shri Carmelino Machado,
Diginerve Networks Pvt Ltd and Bank of Maharashtra,155 goods were certified to have been received in full
and in satisfactory working condition. Hence, the right of the buyer under section 41 of the Sale of Goods Act,
1930 was held to have been availed of by the plaintiff and he was deemed to have accepted the goods upon
such intimation of acceptance to the supplier as stated specifically in the delivery challan. This acceptance was
both for the quality as well as the quantity of the goods supplied as per section 42 of the Act. Further upon such
acceptance after examination of the goods specifically accepted, the description of the goods as regards the
make or the brand are also deemed to have been accepted and there could be no defect stated to be in respect
of such brand as per the second proviso to section 16 of the Act. The duty of the supplier in the contract of sale
was therefore, complete. The plaintiff has accepted the goods. The plaintiff was, therefore, held required to
make payment for the goods, having accepted as per the enjoinment under sections 31 and 32 of the Act.
[s. 16.5] Sale of provisions.—
Section 111 of the Indian Contract Act, 1872 provided that on a sale of provisions there was an implied
warranty that they were sound. Thus, if provisions were sold by a dealer in provisions, there was an implied
warranty that they were fit for food. There is no implied warranty or condition under the present section unless
(1) the purpose for which they are required is made known to the seller, (2) the buyer relies on the seller’s
judgment, and (3) the goods are of a description dealt in by the seller. If these conditions are satisfied, there is
an implied condition as to fitness under the first exception [sub-section (1)] but not otherwise. Thus, if a person
goes to a milk dealer and asks for milk for family use,156 or goes to a fish-monger and asks for fresh crabs for
tea,157 and leaves it to the seller to select the provisions, there is an implied condition that the milk or crabs
supplied to him are fit for human consumption. In cases such as these the food is sold for the purpose of
human consumption and although this is the purpose for which all food is sold it is a “particular purpose”, within
Page 9 of 11
the meaning of the section, made known to the seller. But it is different if the buyer selects the goods himself. In
such a case there is no implied condition as to fitness.
Again, provisions may be bought by description in which case the second exception [sub-section (2)] may
operate. Thus, if a person goes into a beer-house which he knows to be tied to certain brewers, and asks for
beer, and is supplied with beer contaminated with arsenic, it is a breach or condition under sub-section (2) of
this section, and the seller is liable to the buyer in damages as for a breach of warranty. But if he examines the
provisions and then takes them, there is no implied condition except as regards latent defects.158
Even in case where there is no implied condition as to the provisions being fit for human consumption the seller
may be liable to an action for negligence, as where a bun supplied by a baker contains a stone on which the
buyer breaks one of his teeth.159
[s. 16.6] Sale of dangerous goods.—
Where a person sells goods which he knows to be dangerous, without warning the buyer of the fact, he may be
liable in damages for the consequences. This is so apart from any implied condition.160
[s. 16.7] Sub-section (3): Usage of trade as annexing implied condition as to quality or fitness.—
An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage
of trade. It may similarly be excluded by the usage of trade.161
[s. 16.8] Sub-section (4): Implied warranty or condition may co-exist with express warranty or condition.—
Thus, an implied condition as to fitness for a particular purpose or as to merchantable quality, may be
superadded to express conditions contained in the contract, such as a condition that the car shall be
reasonably fit as a touring car.162
125 Commr of Customs (Preventive) v Aafloat Textiles (I) Pvt Ltd, (2009) 11 SCC 18 [LNIND 2009 SC 367] : [2009] 2 SCR
490 [LNIND 2009 SC 367] : JT 2009 (5) SC 276 [LNIND 2009 SC 367] .
126 Mukesh Kumar Singh v The State of Bihar, 2009 (57) BLJR 1184 .
127 Priest v Last, (1903) 2 KB 148 ; Re Andrew Yule & Co, (1932) 59 Cal 928 : 140 IC 877 : (32) AC 879.
128 Wallis v Russell, (1902) 2 IR 585 .

Page 10 of 11
129 Grant v Australian Knitting Mills, (1936) 70 MLJ 513 : 159 IC 667 : (36) APC 34.
130 Priest v Last, (1903) 2 KB 148 .
131 Frost v Aylesbury Dairy Co, (1905) 1 KB 608 (CA).
132 Joseph Mavr v Phani Bhusan, (1938) 2 Cal 88 : 182 IC 397 : AIR 1939 Cal 210 .
133 Baretto v Price, AIR 1939 Ngp 19 .
134 Manchester Liners, Ltd v Rea Ltd, (1922) 2 AC 74 .
135 Grant v Australian Knitting Mills, (1936) 70 MLJ 513 : 159 IC 667 : (36) APC 34; Eastern Mining Contractors Pvt Ltd v
Premier Automobiles Ltd, 65 Bom LR 183.
136 Brown v Edgington, (1841) 2 M & G 279.
137 Benjamin’s Sale of Goods, 7th Edn, pp 662, 663.
138 Cammell Laird & Co v Manganese Bronze & Brass Co, (1933) 2 KB 141.
139 Eastern Mining Contractors Pvt Ltd v Premier Automobiles Ltd, 65 Bom LR 183.
140 Chanter v Hopkins, (1838) 4 M & W 399.
141 Gillespie Brothers v Cheney & Co, (1896) 2 QB 59 .
142 Baldry v Marshall, (1925) 1 KB 260 : [1924] All ER 155 .
143 Grant v Australian Knitting Mills, (1936) 70 Mad LJ 513 : 159 IC 667 : (36) APC 34.
144 Randall v Newson, (1877) 2 QBD 100 , 102.
145 Jackson v Rotax Motor and Cycle Co, (1910) 2 KB 937 .
146 Grant v Australian Knitting Mills, AIR 1936 PC 34 at 40.
147 Grant v Australian Knitting Mills, AIR 1936 PC 34 at 40.
148 Bristol Tramways Co v Fiat Motors Ltd, (1910) 2 KB 831 (840–1); S.S. Mendse v Balkrishna Chettiar, (1963) 2 Mad LJ
140 : AIR (1962) Mad. 426 .
149 Canada Atlantic Grain Export Co v Eilers, (1929) 35 Com Cas 90 , 102; Re Andrew Yule & Co, (1932) 59 Cal 928 ,
936.
150 Canada Atlantic Grain Export Co v Eilers, (1929) 35 Com Cas 90 and Re Andrew Yule & Co, AIR 1932 Cal 879 : 140
Ind Cas 877 (Merchantable quality was satisfied where hessian cloth had unusual smell which made it unfit for packing
of good stuff but as buyer had not disclosed his particular purpose and the goods could be used for other purpose than
packing.).
151 Thornett v Beers, (1919) 1 KB 486 .
152 Supra note 10.

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153 Morelli v Fitch and Gibbons, (1928) 2 KB 636 ; Godley v Perry, (1960) 1 All ER 36 : [1960] 1 WLR 9 .
154 Griffiths v Peter Conway, Ltd, (1939) 1 All ER 685 .
155 State Bank of Mysore v Machado Computer Services, 2009 (4) Bom CR 199 [LNIND 2009 GOA 92] : 2009 (111) Bom
LR 2481 .
156 Frost v Aylesbury Dairy Co, (1905) 1 KB 608 .
157 Wallis v Russell, (1902) 2 IR 585 .
158 Wren v Holt, (1903) 1 KB 610 .
159 Chaproniere v Mason, (1905) 21 TLR 633 .
160 Clarke v Army & Navy Coop Society, (1903) 1 KB 155 .
161 See Cointat v Myham, (1913) 2 KB 220 : (1911–13) All ER 724 .
162 Baldry v Marshall, (1925) 1 KB 260 ; Horn v Minister of Food, (1948) 2 All ER 1036 .
End of Document
S. 17. Sale by sample.-
MullaK Kannan
(1) 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.
(2) In the case of a contract for sale by sample there is an implied condition—
(a) that the bulk shall correspond with the sample in quality;
(b) that the buyer shall have a reasonable opportunity of comparing the bulk with the sample;
(c) that the goods shall be free from any defect, rendering them unmerchantable, which would not be
apparent on reasonable examination of the sample.
[s. 17.1] Sale by sample.—
A sale is by sample when there is a term in the contract express or implied to that effect. Thus, if A sells goods
to B on the terms that “the goods shall be equal in quality to the sample,” the sale is a sale by sample and the
incidents mentioned in sub-section (2) will attach. It has been decided that where samples are analysed and
transformed into a formula, the sale may still be by sample.163 But if the seller exhibits the sample merely to
show the sort of goods he is offering, the sale is not necessarily by sample.164 In such a case if the seller
shows goods on one quality and delivers goods of another quality, he may be liable for fraud, but the sale is not
a sale by sample.
Page 2 of 4
[s. 17.2] Implied condition on sale by sample.—
On a sale of goods by sample the seller expressly warrants that the goods sold should answer the description
of a small parcel approved at the time of the sale. Sub-section (2) therefore lays down that there is an implied
condition that the bulk is equal in quality to the sample. If the bulk does not correspond with the sample, there is
a breach of condition, and the buyer is entitled to reject the goods unless he has accepted them, or, in the case
of a contract relating to specific goods, the property in the goods has passed to him, in both of which cases he
is entitled to damages only on the footing of a breach of warranty as laid down in section 13(2) above. “Quality”
includes the state or condition of goods [section 2(12)]. As to sale by sample as well as by description, see
section 15 above.
[s. 17.3] Opportunity of comparing bulk with sample.—
In a sale by sample the buyer is entitled to have a reasonable opportunity of comparing the bulk with the
sample. The Act speaks not of a “practicable” but of a “reasonable opportunity” of examination.165 If such
opportunity is not given, the buyer may refuse to take the goods. In a case where A contracted to sell by
sample two parcels of wheat, one containing 700 bushels and the other 1,400 and he is allowed inspection of
the smaller parcel but is refused inspection of the larger parcel, it was held that the buyer was entitled to refuse
to take any of the wheat.166 The right to inspect, however, may be postponed by the express terms of the
contract, as where payment is to be made in cash on arrival of the goods “against shipping or railway
documents.” In such a case the buyer is not entitled to inspect the goods before payment. He is bound to pay
on arrival of the goods and production of the documents, although he would still have the right to reject if, on
subsequent examination, it was found that the bulk did not correspond with the sample.167 This is always so in
the case of contracts on C.I.F. terms; see note, “C.I.F. contract,” under section 39 below (delivery to carrier).
The right of examination contemplated under clause (b) is distinct from the one contemplated in section 41.
[s. 17.4] Where part only of the goods equal to sample.—
Where part of the goods is equal to the sample and part inferior to the sample, the buyer may reject the whole,
or he may accept the whole and claim damages for the portion which is inferior to the sample. But he cannot
retain the part which is equal to the sample and reject the other part, unless the contract is severable.
[s. 17.5] Free from defect.—
Clause (c) is a special application of the principle that the seller’s duty to furnish merchantable goods answering
the description is paramount to any particular condition or warranty. It will not avail him to say that the sample
was faulty. All the three conditions are essential. Neither the inspection of the bulk nor the use of the sample
absolutely excludes an enquiry whether the goods supplied are otherwise in accordance with the contract.168
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Summary of the law relating to implied condition and warranties
I. The breach of a condition gives rise to a claim to treat the contract as repudiated and to reject the goods
(section 12).
II. The breach of a warranty gives rise to a claim merely for damages (section 12).
III. The buyer may waive a condition to be fulfilled by the seller. After waiver he cannot reject the goods [section
13(1)].
IV. The buyer may elect to treat the breach of a condition as a breach of a warranty, i.e., instead of rejecting
them he may accept them and claim damages as if the breach was a breach of warranty [section 13(1)].
V. Even if there is a breach of a condition to be fulfilled by the seller, the buyer cannot reject the goods
(i) after he has accepted them, or
(ii) in the case of specific goods, after the property in the goods has passed to the buyer [section 13(2)].
Notes.—See section 42 as to acceptance and sections 20 to 24 as to passing of property.
VI. An express warranty or condition does not negative a warranty or condition implied by the Act unless
inconsistent therewith [section 16 (4)].
163 Lalchand v Baijnath, (1937) 63 Cal 736 : 169 IC 128 : AIR 1937 Cal 140 .
Page 4 of 4
164 Hill v Smith, (1812) 4 Taunt 520.
165 Godley v Perry, (1960) 1 All ER 36 : [1960] 1 WLR 9 .
166 Lorymer v Smith, (1822) 1 B&C 1 : SC 1 Law J Rep KB 7.
167 Polenghi v Dried Milk Co, (1904) 10 Com Cas 42 ; E Clemens Horst Co v Biddell Bros, (1912) AC 18 .
168 Mody v Gregson, (1868) LR 4 Ex 49, 56.
End of Document
S. 18. Goods must be ascertained.-
MullaK Kannan
The Indian Partnership Act, 11th ed > The Sale of Goods Act > Chapter III Effects of the Contract >
Transfer of Property as between Seller and Buyer
Chapter III Effects of the Contract
Where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the
buyer unless and until the goods are ascertained.
[s 18.1] Transfer of property as between seller and buyer.—
The first part of this chapter deals with the transfer of property as between the seller and the buyer. The
essence of sale is the transfer of the property in goods from the seller to the buyer for a price. The passing of
the property holds a key of the contract of sale. It is this factor which decides various rights and liabilities of
sellers and buyers. Property means the general property or ownership in goods as distinguished from special
property or interest such as that of a bailee or pledgee [section 2(11)]. When it is said that the property in the
goods has passed to the buyer it means that the goods have ceased to be the property of the seller and have
become the property of the buyer. Transfer of property in goods is distinct from delivery of goods. Property in
goods may pass from the seller to the buyer without delivery of the goods to the buyer, i.e., though the goods
have never come into the possession of the buyer. Property in goods is thus distinct from possession of goods.
The subject under consideration is of great importance in view of the consequences which follow from the
passing of the property. Of these, there are two which require special notice, namely—
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(1) As a rule the goods remain at the seller’s risk until the property therein is transferred to the buyer, but
where the property is transferred to the buyer, the goods, as a rule, are at the buyer’s risk, whether
delivery of the goods has been made to the buyer or not. Risk, in other words, prima facie passes with
the property (section 26).
(2) Where the contract is for specific goods the property in which has passed to the buyer (sections 20, 21,
22 and 24), the buyer cannot, even if there has been a breach of condition on the seller’s part, reject
the goods, unless there is a term of the contract, express or implied, to that effect [section 13(2)].
[s 18.2] Goods must be ascertained.—
Goods for the purposes of this chapter may be divided into two classes, namely, specific or ascertained, and
generic or unascertained.
Specific goods mean goods identified and agreed upon at the time a contract of sale is made; specific goods, in
other words, are ascertained goods. Specific goods must be distinguished from generic or unascertained goods
which are defined by description and/or sample only.
The present section provides that where there is a contract for the sale of unascertained goods, no property in
the goods passes to the buyer unless and until the goods are ascertained.
In one case, the Supreme Court held that the ascertainment took place when the goods from the larger stock
were delivered.1 Until appropriation, there is merely an agreement to sell. The agreement to sell becomes a
sale when the goods on which the contract is to operate are ascertained and unconditionally appropriated to the
contract as per section 23. The mere fact that the goods are to come out of a specified stock does not make
them ascertained goods nor is it sufficient to transfer the property therein to the buyer.2,3
As to the passing of property in specific goods, see sections 19, 20, 21, 22 and 24. As to the passing of
property in unascertained goods, see section 23.
Ascertainment of goods and appropriation of goods to the contract are two distinct concepts and steps.
Page 3 of 3
1 Jute and Gunny Brokers Ltd v UOI, AIR 1961 SC 1214 [LNIND 1961 SC 64] : (1962) 2 Scale 227 .
2 White v Wilks, (1813) 5 Taunt 176 : 14 RR 735.
3 Laurie & Morewood v Dudin & Sons, (1926) 1 KB 223 : 95 LJ KB 191.
End of Document
S. 19. Property passes when intended to pass.-
MullaK Kannan
(1) Where there is a contract for the sale of specific or ascertained goods the property in them is
transferred to the buyer at such time as the parties to the contract intend it to be transferred.
(2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the
contract, the conduct of the parties and the circumstances of the case.
(3) Unless a different intention appears, the rules contained in sections 20 to 24 are rules for ascertaining
the intention of the parties as to the time at which the property in the goods is to pass to the buyer.
[s 19.1] Scheme of the provisions relating to transfer.—
In Contship Container Lines Ltd v DK Lall,4 the Supreme Court explained the scheme of the provisions relating
to transfer of title relating to goods. Section 19 of the said Act provides that in a contract for the sale of specific
or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract
intend it to be transferred and that for the purpose of ascertaining the intention of the parties regard shall be
had to the terms of the contract, the conduct of the parties and the circumstances of the case.
Sections 20 to 24 of the said Act prescribe rules for ascertaining the intention of the parties as to the time at
which the property is to pass to the buyer. One of the said rules is that in unconditional contracts for the sale of
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specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made
irrespective of the fact that the time of payment of the price or the time for the delivery of the goods or both are
postponed.
Yet another rule contained in section 23 of the Act is that where the contract is for the sale of unascertained or
future goods by description and goods of that description are unconditionally appropriated to the contract either
by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods
passes to the buyer. So also, where the seller delivers the goods to the buyer or to a carrier or other bailee for
the purpose of transmission to the buyer and does not reserve the right of disposal, he is deemed to have
unconditionally appropriated the goods to the contract.
Section 26 of the Act provides that unless otherwise agreed, the goods remain at the seller’s risk until the
property therein is transferred to the buyer but when the property therein is transferred to the buyer, the goods
are at the buyer’s risk whether delivery has been made or not.
[s 19.2] Property passes when intended to pass.—
Section 18 says that in the case of a contract for the sale of unascertained goods, no property in the goods
passes to the buyer unless and until the goods are ascertained. But what if the contract is for the sale of
specific or ascertained goods? Does the property in the goods pass immediately when the contract is made?
The answer to this question is afforded by section 19. It says that the property passes when the parties to the
contract intended it to pass. It is a question of construction of a contract in each case at what stage the property
shall pass and a question of fact in each case whether that stage has been reached.5 There is no difficulty
when the parties have expressed their intention in express and clear terms. When, however, they have not
done so, the intention must be gathered from the whole agreement, and the courts have for this purpose
adopted some rules of construction which are set out in subsequent questions.6
The words in sub-section (1) “at such time as the parties to the contract intend it to be transferred” indicate that
the intention of the parties is paramount and hence the rules laid down in sections 20 to 24 are presumptive.
The said rules can be rebutted by the terms of the contract, the conduct of the parties and the circumstances of
the case.7 In a contract of a sale of logs of wood, it was provided that the buyer was entitled to inspect,
measure and weigh the goods at the place of destination before taking delivery from the railway. It was held
that the parties did not intend to pass property in goods until the buyer had performed the said acts.8
Where a contract provided that the seller shall consign the goods “free on rail”, it was held that the
Page 3 of 5
circumstances showed an intention that the property should not pass to the buyer until the goods were placed
in safety on rail.9
In case of goods delivered on the basis of “on sale for cash or return within a week” the parties did not intend to
pass the property in the goods until the price was paid in a week or the goods are returned within a week.10
Whether transfer of movable goods like a motor vehicle would be dependent upon registration? Is there any law
that governs the transfer of title in the movable goods? Section 4 of the Sale of Goods Act, 1930 shows how a
property in goods is transferred, i.e., by agreement to do so. According to the provisions of the Sale of Goods
Act, 1930, the sale of a motor car which is a movable property is governed by the provisions of that Act and as
soon as a sale of movable property is completed by delivery of possession and acceptance of price in the
manner agreed to and accepted by the parties, the contract is complete and the property in the goods
immediately passes to the buyer when the contract is made.11
When the title passes is really one of intention of parties to be gathered from the terms of contract. Dealing with
the issue of transfer of title to a motor bus with permit, where the title was intended to pass after all the
registration formalities are completed under the Motor Vehicles Act, 1939 and after the payment of price, the
Supreme Court made a distinction between registration of ownership under the Motor Vehicles Act, 1939 and
transfer of title under the Sale of Goods Act, 1930 as held in Vasantha Viswanathan v VK Elayalwar.12
Section 31 of the Motor Vehicles Act, 1939 lays down that where the ownership of any motor vehicle registered under
the Motor Vehicles Act is transferred, the transferor and transferee both are required to report the fact of transfer to the
registering authority so that particulars of transfer of ownership may be entered in the certificate of registration. The
transfer is not effected under section 31 of the Motor Vehicles Act, 1939, but the same simply prescribes procedure for
entering the factum of transfer in the registration certificate, which is an act posterior to the transfer. The transfer of
vehicles in question would be governed by the provisions of section 19 of the Sale of Goods Act according to which
property in the vehicle would pass to Defendant no. 1 at such time as the parties to the contract intend it to be
transferred. Thus the passing of property in the goods would be dependent upon the intention of the parties, as
evidenced from the contract. From the contract, Exhibits A-1 and A-2, it would appear that the parties intended that
after the registration formalities were completed, price of the vehicles covered by the permits would be ascertained and
thereafter the same would be paid by the Defendant no. 1, entitling him to take possession of the vehicles. Thus the
parties intended that property in the vehicles shall pass only after possession of the vehicles was delivered to the
Defendant no. 1 after completion of all the aforesaid formalities. In the present case, after registration formalities were
completed, the value of the vehicles covered by the permits was not ascertained, much less paid, rather, on the other
hand, possession was forcibly taken by the Defendant no. 1. Therefore, property in the vehicles did not pass to the
Defendant no. 1 as required under section 19 of the Sale of Goods Act.
Page 4 of 5
Section 19 of the Sale of Goods Act, 1930 lays down that where there is a contract for sale of specific or
ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract
intend it to be transferred. For the purpose of ascertaining the intention of the parties, regard shall be had to the
terms of the contract, conduct of the parties and the circumstances of the case. Sections 20 to 24 contain rules
for ascertaining the intention of the parties as to the time at which the property in the goods is passed to the
buyer. But these rules will apply only if a different intention does not appear from the contract itself. In United
Breweries Ltd v State of AP,13 a manufacturing company of liquor, while entering into contract of supplies with
its dealers/customers, with a view not to lose the bottles and crates in which the beer was supplied, charged 40
paise per bottle as deposit and the customers were also advised to do likewise when they sold the beer to the
consumers. The whole intention was to get back the bottles from the consumers through the customers. The
scheme was that United Breweries would regularly send trucks with beer to the customers to supply beer and
get back the empties. Consequently, the amount collected per bottle was excluded from the price calculated for
the bottles of beer and held not to involve the title in the empty bottles themselves for the purpose of
determination of sales tax.
4 Contship Container Lines Ltd v DK Lall, AIR 2010 SC 1704 [LNIND 2010 SC 246] : (2010) 4 SCC 256 [LNIND 2010
SC 246] : [2010] 3 SCR 460 [LNIND 2010 SC 246] .
5 Seath v Moore, (1886) 11 App Cas 350 (HL).
6 Hoe Kim Seing v Maung Ba Chit, AIR 1935 PC 182 : (1935) 62 IA 242 : 14 Rang 1 : 37 Bom LR 866 : 157 IC 891.
7 State of Madras v Ramalingam & Co, AIR 1956 Mad 695 [LNIND 1956 MAD 37] : 1956 2 Mad LJ 384 : 69 Mad LW
655; Hoe Kim Seing v Maung Ba Chit, (1935) 62 IA 242 : 14 Rang 1 : 37 Bom LR 866 : 157 IC 891.
8 CST, Eastern Division Nagpur v Husenali Adamji & Co, AIR 1959 SC 887 [LNIND 1959 SC 59] : [1959] Supp (2) SCR
702 .
9 Underwood Ltd v Burgh Castle Brick and Cement Syndicate, (1922) 1 KB 343 ; Bhagwandas Sitaram v Albion Jute
Mills Co Ltd, AIR 1957 Cal 143 [LNIND 1956 CAL 129] (free alongside the steamer).
10 Re Ferrier, (1944) 1 ChD 295 .
11 Sabir Hussain v Maya Bai, 1997 ACJ 1258 (MP) : 1997 AIHC 2401 : 1995 SCC OnLine MP 241.
Page 5 of 5
12 Vasantha Viswanathan v VK Elayalwar, AIR 2001 SC 367 : (2001) 8 SCC 133 [LNIND 2001 SC 1806] : (2001) 3 Arb
LR 110 : 2001 (5) Scale 483 [LNIND 2001 SC 1806] (SC).
13 United Breweries Ltd v State of AP, AIR 1997 SC 1316 [LNIND 1997 SC 1968] : (1997) 3 SCC 530 [LNIND 1997 SC
1968] : [1997] 2 SCR 690 [LNIND 1997 SC 1968] .
End of Document
S. 20. Specific goods in a deliverable state.-
MullaK Kannan
Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the
goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment of the
price or the time of delivery of the goods, or both, is postponed.
[s 20.1] Ascertaining the intention for time when transfer takes place.—
Section 19 attempts to give effect to the elementary principle of the Law of Contract that the parties may fix the
time when the property in the goods shall be treated to have passed. It may be the time of delivery, or the time
of payment of price or even the time of the making of contract. It all depends upon the intention of the parties. It
is, therefore, the duty of the court to ascertain the intention of the parties and in doing so, they have to be
guided by the principles laid down in section 19(2) which provides that for ascertaining the intention of the
parties, regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the
case.
Section 20 indicates that in case of unconditional contract of sale in respect of specified goods in a deliverable
state, the property in the goods passes to the buyer at such time as the parties intend it to be transferred.
Section 19(3) provides that sections 20 to 24 contain the rules for ascertaining the intention of the parties as to
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the time at which the property in the goods shall be treated to have passed to the buyer. Both sections 19 and
20 apply to the sale of “specific” or “ascertained” goods.
Section 20, which contains the first rule for ascertaining the intention of the parties, provides that where there is
an unconditional contract for the sale of “specific goods” in a “deliverable state”, the property in the goods
passes to the buyer when the contract is made. This indicates that as soon as a contract is made in respect of
specific goods which are in a deliverable state, the title in the goods passes to the purchaser. The passing of
the title is not dependent upon the payment of price or the time of delivery of the goods. If the time for payment
of price or the time for delivery of goods, or both, is postponed, it would not affect the passing of the title in the
goods so purchased.
In order that section 20 is attracted, two conditions have to be fulfilled: (i) the contract of sale is for specific
goods which are in a deliverable state; and (ii) the contract is an unconditional contract. If these two conditions
are satisfied, section 20 becomes applicable immediately and it is at this stage that it has to be seen whether
there is anything either in the terms of the contract or in the conduct of the parties or in the circumstances of the
case which indicates a contrary intention. This exercise has to be done to give effect to the opening words,
namely, “Unless a different intention appears” occurring in section 19(3). In Hoe Kim Seing v Maung Ba Chit,14
it was held that intention of the parties was the decisive factor as to when the property in goods passes to the
purchaser. If the contract is silent, intention has to be gathered from the conduct and circumstances of the
case.
The Supreme Court in Consolidated Coffee Ltd v Coffee Board,15 has held that in an auction-sale of chattels,
property passes to the purchaser on the acceptance of his bid. This occurs not because of section 64(2) but
because of the rule contained in section 20.
In Agricultural Market Committee v Shalimar Chemical Works Ltd,16 the goods which were the subject-matter
of sale were ascertained goods. They were also in a deliverable state. On the order being placed by the
respondent, the seller in the State of Kerala, loaded the goods on the lorry and despatched the same to
Hyderabad. It was at that stage that the examination of the conduct of the parties would become extremely
relevant. It was one of the terms of the contract between the parties that the seller would not be liable for any
future loss of goods and that the goods were being despatched at the risk of the respondent. The respondent
had also obtained insurance of the goods and had paid the policy premium. He, therefore, intended the goods
to be treated as his own so that if there was any loss of goods in transit, he could validly claim the insurance
money. The weighment of the goods at Hyderabad or the collection of documents from the bank or payment of
Page 3 of 4
price through the bank at Hyderabad were immaterial, inasmuch as the property in the goods had already
passed at Kerala and it was not dependent upon the payment of price or the delivery of goods to the
respondent.
[s 20.2] Unconditional contract of sale of specific goods in a deliverable state.—
This section applies to the case of specific goods—
(1) where the contract is unconditional, i.e., not subject to any condition to be fulfilled by the parties; and
(2) where the goods are in a deliverable state, i.e., they are in such a state that the buyer would under the
contract be bound to take delivery of them.
In such a case the section says the property in the goods passes to the buyer when the contract is made,
whether the time of payment of the price or the time of delivery of the goods, or both, is postponed. This is the
case of a sale as distinguished from an agreement to sell.
Illustrations
(a) B offers A for his horse Rs 1,000, the horse to be delivered to B on a stated day and the price to be paid on
another stated day. A accepts the offer. The horse becomes B’s property when the contract is made, that is, as
soon as the offer is accepted.
(b) B offers A for his horse Rs 1,000 on a month’s credit. A accepts the offer. The horse becomes B’s property
as soon as the offer is accepted.
(c) B on the 1 January, offers to A for a quality of rice Rs 2,000 to be paid on the 1 March following, the rice not
to be taken away till paid for. A accepts the offer. The rice becomes B’s property as soon as the offer is
accepted, and the goods are at B’s risk from the moment of the acceptance of the offer.
(d) Where the contract was for the sale of a fixed condensing engine which had to be severed and delivered
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free on rail at a specified price and it was damaged in transit before it reached the railway, it was held that the
engine was not in a deliverable state when it reached the railway.17
14 Hoe Kim Seing v. Maung Ba Chit, AIR 1935 PC 182 : 62 IA 242 : (1935) AWR 1299 : 37 Bom LR 366 : 157 IC 891.
15 Consolidated Coffee Ltd v Coffee Board, AIR 1980 SC 1468 [LNIND 1980 SC 187] : (1980) 3 SCC 358 [LNIND 1980
SC 187] : 1980 SCC (Tax) 279 : [1980] 3 SCR 625 [LNIND 1980 SC 187] : (1980) 46 STC 164 [LNIND 1980 SC 187] .
16 Agricultural Market Committee v Shalimar Chemical Works Ltd, AIR 1997 SC 2502 [LNIND 1997 SC 1759] : (1997) 5
SCC 516 [LNIND 1997 SC 1759] : 1997 (4) Scale 93 [LNIND 1997 SC 1759] .
17 Underwood v Burgh Castle Brick and Cement Syndicate, (1922) 1 KB 343 .
End of Document
S. 21. Specific goods to be put into a deliverable state.-
MullaK Kannan
Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for
the purpose of putting them into a deliverable state, the property does not pass until such thing is done and the
buyer has notice thereof.
“Specific goods” in this section necessarily means the goods which can be ascertained with certainty.18
[s 21.1] Contract of sale of specific goods to be put into a deliverable state.—
The words “and the buyer has notice thereof” are intended to prevent the hardship which might result in the risk
being transferred to the buyer without notice.
The words “has notice thereof” have been deliberately used; the said words do not cast a direct obligation on
the seller to give notice. The said words mean that the buyer has knowledge thereof, i.e., comes to know of it
somehow.
Illustration
A, a ship-builder, contracts to sell to B, for a stated price, a vessel which is lying in A’s yard; the vessel to be
Page 2 of 3
rigged and fitted for a voyage, and the price to be paid on delivery. Under the contract, the property in the
vessel and the risk do not pass to B until the vessel has been rigged and fitted and notice thereof is given to B.
[s 21.2] Goods in process of manufacture.—
Where there is a contract for the sale of a thing which has yet to be made or finished, the property in the thing
does not pass to the buyer until it is delivered in a finished state, or until it is ready for delivery and is approved
by the buyer in that state; and this is so even where the thing is to be paid for by stated instalments as the work
progresses. But the contract may provide that the property in the goods to be manufactured and sold shall pass
from time to time to the buyer while they are in the course of manufacture and before completion. Such an
agreement is usually found in the construction of ship where property in the uncompleted ship passes to the
buyer as and when the instalment of the price is paid corresponding to progress of construction.19 Such a
contract generally stipulates for inspection by or on behalf of the buyer regarding the progress of the work.
These principles enunciated with reference to the ship may be made applicable by contract for the manufacture
of other chattels also. So the materials provided by the seller in the un-completed state of a ship (or other
chattel like carriage bus if contract so provides) may become the buyer’s property if such materials are affixed
to or made part of the vessel or other chattel. But courts are reluctant to hold that the parties intended that
property should stand transferred in such ascertained materials at some earlier stage before being affixed. So
in Reid v Macbeth,20 a contract for the construction of a ship between the shipbuilders and shipowners
provided that vessel as she is constructed and all materials intended for her (wherever situated) shall
immediately as the same proceeds become the property of the purchaser (i.e., shipowners). The House of
Lords held that various iron and steel plates lying at railway station which had been marked showing their
proposed position in the ship were still the property of the shipbuilders as they had not yet become part of the
ship’s structure. They cannot be regarded as appropriated to the contract unless they have been affixed to the
ship.
In a case where the seller had to bag the rice and book it on the railway and dispatch it as and when the
wagons became available and then deliver the railway receipt to the buyer, it was held that until the goods were
loaded in wagons and dispatched, they were not in a deliverable state; it was held that it was the seller’s duly to
get the wagons.21 So the seller cannot sue for the price. This contract of sale is known as “bilty cut” souda.
18 Emperor v Kunverji, AIR 1941 Bom 106 : (1941) 43 Bom LR 95 .
19 Seath v Moore, (1886) 11 App Cas 350 .
20 Reid v Macbeth, (1904) AC 223 : (1904) 6F (HL) 25.
21 Lachhmi Niwas Rice Mills v Firm Ram Das Ramniwas, AIR 1963 All 110 [LNIND 1962 ALL 95] : ILR (1962) 2 All 763 .
Page 3 of 3
End of Document
S. 22. Specific goods in a deliverable state, when the seller has to do anything
thereto in order to ascertain price.-
MullaK Kannan
S. 22. Specific goods in a deliverable state, when the seller has to do anything
thereto in order to ascertain price.-
Where there is a contract for the sale of specific goods in a deliverable state, but the seller is bound to weigh,
measure, test or do some other act or thing with reference to the goods for the purpose of ascertaining the
price, the property does not pass until such act or thing is done and the buyer has notice thereof.
[s 22.1] Contract of sale of specific goods in a deliverable state when the seller has to do anything thereto in
order to ascertain the price.—
Where anything remains to be done to the goods by the seller for the purpose of ascertaining the amount of the
price, e.g., weighing them or measuring them, the property does not pass until this has been done and the
buyer has notice thereof.
Illustration
A, the owner of a stack of bark, contracts to sell it to B, weigh and deliver it, at Rs 100 per ton. B agrees to take
and pay for it on a certain day. Part is weighed and delivered to B. The ownership of the residue is not
transferred to B until it has been weighed pursuant to the contract and the notice thereof is given to B.
Page 2 of 2
S. 22. Specific goods in a deliverable state, when the seller has to do anything thereto in order to ascertain
price.-
The section does not apply when the thing which has to be done is to be done by the buyer and not the
seller.22
[s 22.2] Predominance of intention.—
The fact that the goods transacted are in a deliverable state do not conclude the issue of transfer of title under
section 22. It must be seen in the context of section 19 as well. As per section 19 of the Sale of Goods Act,
1930, the property in the goods passes when the parties intended it to pass. In Usha Beltron Ltd v State of
Punjab,23 it was a case of sale of some cables. The contract provided that property in the goods shall not pass
till after delivery and after successful testing and issuance of takeover certificate. The mere fact that the goods
had been delivered at the site of the purchaser in such a situation was held not to result in transfer of ownership
in goods.
Illustration
A contracts to sell a heap of clay to B at a certain price per ton. B (the buyer) is, by the contract, to load the clay
in his own carts and weigh each load at a certain weighing machine, which his carts must pass on their way
from A’s ground to B’s place of deposit. Here nothing more remains to be done by the seller. The sale is
complete and the ownership of the heap of clay is transferred at once to B.
22 Hoe Kim Seing v Maung Ba Chit, AIR 1935 PC 182 : (1935) 62 IA 242 : 14 Rang 1 : 37 Bom LR 366 : 157 IC 891
(buyer had to measure paddy to ascertain the quantity).
23 Usha Beltron Ltd v State of Punjab, (2005) 7 SCC 58 .
End of Document
S. 23. Sale of unascertained goods and appropriation.-
MullaK Kannan
(1) Where there is a contract for the sale of unascertained or future goods by description and goods of that
description and in a deliverable state are unconditionally appropriated to the contract, either by the
seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the
goods thereupon passes to the buyer. Such assent may be expressed or implied, and may be given
either before or after the appropriation is made.
(2) Delivery to carrier.-Where, in pursuance of the contract, the seller delivers the goods to the buyer or to
a carrier or other bailee (whether named by the buyer or not) for the purpose of transmission to the
buyer, and does not reserve the right of disposal, he is deemed to have unconditionally appropriated
the goods to the contract.
[s 23.1] Contract of sale of unascertained goods and appropriation.—
It has been seen that where there is a contract for the sale of unascertained goods, no property in the goods is
transferred to the buyer unless and until the goods are ascertained (section 18). Until that is done there are no
goods on which the contract can operate. How then are the goods to be ascertained?
At the outset it is to be remembered that when the contract is for the sale of unascertained goods, the goods
Page 2 of 9
can be defined by description only, e.g., Fair Bengal cotton, Calcutta silk, Java sugar. Suppose that the contract
is for the sale of 100 bales of Fair Bengal cotton out of 5,000 bales of cotton of different descriptions lying in the
seller’s warehouse. In such a case the goods to be selected by the seller must correspond with the description
in the contract, i.e., the cotton must be Fair Bengal cotton. Assuming that the seller has selected 100 bales of
Fair Bengal cotton, it is not sufficient for passing the property in the bales to the buyer that he has set aside the
100 bales in his own warehouse. Such an act indicates merely an intention to appropriate the bales to the
contract. The matter resting in intention only, the seller is at liberty to change his mind and deliver the goods to
another buyer. What is required for the transfer of the property to the buyer is an unconditional appropriation of
the bales to the contract. This is usually done by the seller giving notice to the buyer that the bales are ready for
delivery and the buyer assenting to the appropriation by saying that he will take delivery thereof.24 It is at this
stage that goods are ascertained and unconditionally appropriated by the seller to the contract with the assent
of the buyer. The buyer becomes the owner of the goods, and the seller cannot deliver them to another person
for he is no longer the owner of the goods.
In Nippon case24 the Respondents who were a firm of brokers in Calcutta purchased bales of gunnies from
mills and sold, on behalf of themselves as undisclosed principals, a large quantity of gunnies to International
Export Co. Ltd. (referred here as buyers). Their contract stipulated for mate’s receipts to be exchanged for bill
of lading. Clause (3) precluded passing of property until price is paid in cash in exchange of mate’s receipt.
Clause (4) provided that so long as mate’s receipts were in the possession of the sellers, they will have the lien
as unpaid sellers on the goods represented by the mate’s receipts. The contract stipulated for delivery of goods
free alongside the ship, i.e., FAS which meant that the sellers undertake to deliver the goods free alongside a
ship and the buyers have to arrange for the shipping space. Accordingly, the buyer sent the shipping
instructions to the Respondents. The Respondents (sellers) sent the goods alongside the ship and obtained
mate’s receipts which were issued not in the name of the Respondents but in the name of the buyers. On the
same day, the shipping company (shipowners) issued bills of lading to the buyers which were named as
shippers in mate’s receipts. The shipping company while issuing bills of lading to the buyers did not obtain from
them the mate’s receipts but obtained their guarantee or indemnity. Eventually, the buyers got the goods from
the shipping company and sold them to sub-buyers but they defaulted to make the payment when Respondents
demanded the payment. The Respondents sued the buyers and the shipping company (Appellants) for issuing
bills of lading to the buyers without exchanging mate’s receipts. The Privy Council held that the shipping
company (Appellants) could not be held liable to Respondents for issuing bills of lading to the buyers without
having mate’s receipts from them as Respondents’ notice intimating of their lien to shipping company was late.
The court also viewed that provision regarding issue of bills of lading on presentation of mate’s receipt was
solely for the protection of shipowner and it could be waived. This aspect is not relevant to us here.
Secondly, the property had passed to the buyers because the goods were appropriated by the sellers by
Page 3 of 9
delivery alongside the ship, i.e., the goods were placed in possession of shipping company in implementation of
the contract. Clause (3) would prevent the passing of property until payment but clause (3) had to be read
together with clause (4) which provides that the property in the goods passes when the goods are delivered
alongside the ship, i.e., placed in possession of the shipowners. The result of this was that the sellers had
parted with property and possession and so it cannot be said that sellers had reserved the right to dispose (jus
disponendi). It was also said that the position would have been different if sellers had taken the mate’s receipt
in their own (and not in the buyers’) name. If the mate’s receipt had the seller’s name, it amounted to
reservation of the right of disposal with the sellers and would be sufficient to prevent the passing of property in
favour of the buyers.
The appropriation may also be made by the buyer and assented to by the seller. The selection of the goods by
the one party and the adoption of that act by the other, connects that, which before was a mere agreement to
sell into an actual sale, and the property thereby passes.25 A agrees to supply logs of wood to B and it is
agreed that goods should be inspected on arrival at a named station and after measuring the same B would
accept the goods. Property in the goods passed on B’s acceptance at the named station.26
Illustrations
1. A, having a quantity of sugar in bulk, more than sufficient to fill 20 hogsheads, contracts to sell to B 20
hogsheads of it. Alter the contract, A fills 20 hogsheads with the sugar, and gives notice to B that the
hogsheads are ready and requires him to lake them away. B says he will take them as soon as he can. By this
appropriation by A and assent by B, the property in the sugar passes to B.27
2. A contracts to sell B a certain quantity of liquor out of a big cask containing a much larger quantity. The
required quantity is not separated or bottled. The property in the liquor does not pass to the purchaser.28
3. Sale on 6 May of certain quantity of oil, price paid by the buyer. The goods were not in possession of the
sellers at the date of the contract but had been dispatched to them on 25 April. Subsequently they received the
railway receipt and endorsed it and sent it to the buyer. Afterwards, on 12 May, the goods were destroyed by
fire while in transit. The property had passed to buyer who had to bear the loss.29
[s 23.2] Essentials of appropriation.—
(1) The goods should conform to the description and quality stated in the contract. In Vigers v
Sanderson,30 there was a contract for two parcels of Swan laths of specified length, and it was
Page 4 of 9
provided that property should pass on shipment, and that if any dispute arose, the buyer was not to
reject the goods but the dispute was to be referred to arbitration. However, the goods supplied by the
seller were not of the contract description. It was held that no question of passing of property arose.
The buyer could reject the goods in spite of the clause stipulating that he shall not reject the goods as
the seller has to deliver the goods what he has contracted to deliver.
(2) The goods must be in a deliverable state.
(3) The goods must be unconditionally (as distinguished from an intention to appropriate) appropriated to
the contract either by delivery to buyer or his agent or the carrier. Section 23(2) of the Sale of Goods
Act, 1930 provides one instance of unconditional appropriation of goods. It shows clearly that the seller
has not reserved his right to dispose of the goods (jus disponendi). However, there is a conditional
appropriation of the goods where the seller will not part with the goods until he is paid [see section
25(1) of the Sale of Goods Act, 1930]. So also there is a conditional appropriation where a seller ships
goods as per his contract but takes out a bill of lading to his own order or to the order of his agent [see
section 25(2) of the Sale of Goods Act, 1930]. In the above situations, the seller when he ships the
goods is prima facie deemed to have reserved the right of disposal and so the property will not pass on
shipment of the goods. But where the seller takes a bill of lading to the order of the buyer, the case is
entirely different as this act shows that seller has not reserved with him the right to dispose of the
goods in any other manner. In Nippon Yusen v Ramjiban,31 the Respondents sold the goods to the
buyers but the mate’s receipt issued by the shipowners had the name of the buyers as shippers of the
goods. The Privy Council held that the insertion of the name of the buyer in mate’s receipt as shipper
indicated that there was no reservation of the right of disposal by the sellers. In Shanker Das v Bhana
Ram,32 sellers had contracted to sell oil and had received the price. Subsequently, they received from
their vendors a railway receipt for the goods and sellers endorsed them to their buyer. It was held that
property had passed to the buyer and the risk of destruction in transit lay with him.
(4) The appropriation must be
(i) by seller with the assent of buyer.
(ii) by buyer with the assent of seller.
(5) The assent may be expressed or implied.
(6) The assent may be given either before or after appropriation.
[s 23.3] Authority to select and appropriate.—
A contract for the sale of unascertained goods may provide that the buyer shall have the authority to select and
appropriate the goods to the contract or that the right to select and appropriate shall be in the seller. If the buyer
Page 5 of 9
has the right to select, and he selects the goods out of the bulk, no difficulty arises. When he has done so, the
goods are ascertained and the property in the goods passes to him. The difficulty arises when the seller makes
the selection pursuant to an authority derived from the buyer, for the question may then arise whether the acts
done by the seller merely express a revocable intention to appropriate certain goods to the contract, or whether
they show an irrevocable exercise of a right of election.33 In the former case, the seller may change his mind
and send the goods to another buyer; in the latter he cannot. When, then, is the seller entitled to select and
when does the appropriation by him become final? The general rule is that where by the terms of the contract
the seller is to dispatch the goods, or to do any act with reference to the goods which cannot he done until they
are appropriated to the buyer, the seller has a right to select any goods answering to tie description in the
contract and the property is transferred the moment the dispatch or other act has commenced, for then an
appropriation is made finally and the election irrevocably determined34 [Illustrations (a) and (b), below]. But if
there is no authority to dispatch the goods or to do anything to them which cannot be done till the goods are
appropriated, the appropriation is not complete until the buyer has assented to it [Illustration (c), below]. The
matter is thus put by Blackburn in his work on Contract of Sale.35
But the difficulty arises when the original agreement does not ascertain the specific goods (i.e. the agreement is for the
sale of unascertained goods), and one party has appropriated some particular goods to the agreement, but the other
party has not subsequently assented to such an appropriation. Such an appropriation is revocable by the party who
made it and not binding on the other party, unless it was made in pursuance of an authority to make the election
conferred by agreement; or unless the act is subsequently and before its revocation adopted by the other party. In
either case it becomes final and irrevocably binding on both parties.
Illustrations
(a) A sends a written order to B, a manufacturer, for a quantity of hardware to be dispatched on insurance being
effected. B, in pursuance of the order, packs up a cask of hardware and sends it to his shipping agents. The
cask is marked with the buyer’s initials and insured on his account. The property in the goods passes to A from
the moment the goods leave B’s warehouse. B cannot thereafter change his mind and deliver the goods to
another buyer.36
(b) B agrees with A to purchase of him, at a stated price to be paid on a fixed day, 50 maunds of rice out of a
larger quantity in A’s granary. It is agreed that B shall send sacks for the rice, and that A shall put the rice into
them. B does so, and A puts 50 maunds of rice into the sacks. The property in the goods passes to B from the
Page 6 of 9
moment A commences to put the rice into B’s sacks. A cannot thereafter change his mind and deliver the
goods to another buyer.37
(c) B orders two machines to be made by A according to a certain design. A makes the machines, packs them
in boxes, and writes to B to say that they are ready and inquires by what conveyance they are to be sent.
Before B replies to the letter, A becomes insolvent. B claims the machines as his property. The Official
Assignee claims them as property still belonging to A. The Official Assignee is entitled to the machines. Here A
had no authority from B to dispatch the machines as in Illustration (a), nor had he any authority to do any act
with reference to them which could not be done until the goods were appropriated as in Illustration (b).
Therefore B’s assent to the appropriation was necessary before the property could pass to him. No such assent
having been given, the property in the machines remained in A, though he had intended them for B and
informed him of that intention. For all that had been done, A might still have supplied B with any other two
machines answering the description in the contract.38
(d) A contracts to sell to B 100 maunds of grain, according to a sample produced, out of a larger bulk which B
has not seen, and which is already in sacks of A. Certain number of the sacks are marked by A with B’s name
and the words “To Wait Orders”. The sacks so dealt with do not become B’s property in the absence of specific
assent from B or previous authority from B to A to select them on B’s behalf.39
(e) The Defendant contracted to purchase 20 boxes of mackerel from the plaintiff, a fish exporter in Ireland. The
plaintiff consigned to an Irish railway company 190 boxes of mackerel and telegraphed the railway officials at
Holyhead to deliver 20 boxes to defendant and the rest to two other consignees. The Irish train was delayed
and fish deteriorated before boxes were earmarked at Holyhead. It was held40 that property had not passed to
Defendant before the boxes were earmarked and fish remained as the property of the seller.
In order that delivery to the carrier should have passed the property, each box ought to be marked with the
name of its consignee.
(f) Goods answering the description in a contract were manufactured by the vendor who also appropriated the
goods to the contract. The Purchaser was informed of it and he directed the vendor to mark and dispatch them
for shipment as per certain instructions. The goods were marked and dispatched from the vendor’s mill but
could not be shipped as the vessels named by the purchaser were not available at their usual place. It was held
that the property in the goods passed to the purchaser and he was liable in damages for declining to take
Page 7 of 9
delivery of the goods. It was observed that “the act of dispatching the goods from the mill was … the act of the
defendant (i.e. purchaser) through his agent the plaintiffs, and this act of the defendant constituted an implied
assent to the appropriation by the plaintiffs, which then became no longer revocable.”41
The conduct of the purchaser in directing the seller to mark and dispatch the goods for shipment shows that he
assented to the appropriation which the seller made. The conduct of the seller in marking and dispatching the
goods was a complete compliance with the directions of the purchaser who had not instructed him to ship the
goods, but only to dispatch the goods for shipment. Hence this case was distinguishable from Jenner v Smith of
Illustration (d) where the purchaser gave no instructions to the seller and never signified his assent to such
appropriation as had been made. There the appropriation was dearly conditional only on the purchaser giving
the necessary orders.
[s 23.4] Essentials of delivery to carrier.—
(1) Delivery must be in pursuance of the contract i.e., the goods must be of the description and quality of
the goods contracted.
(2) Seller delivers goods to the buyer or to a carrier or a bailee for transmission to the buyer. This must be
pursuant to the contract.
(3) Seller does not reserve right of disposal (jus disponendi).
[s 23.5] Sub-section (2): Delivery to buyer.—
Where, in pursuance of the contract, the seller delivers the goods to the buyer, the delivery operates as an
unconditional appropriation by the seller, and the property passes to the buyer at the moment of delivery.
[s 23.6] Sub-section (2): Delivery to carrier.—
The commonest case of appropriating goods to the contract (i.e., a contract for the sale of unascertained
goods) is where, in pursuance of the contract, the seller delivers goods to a carrier for the purpose of
transmission to the buyer. In such a case the delivery operates as an unconditional appropriation by the seller
provided the seller has not reserved his right of disposal on the goods and if these conditions are fulfilled, the
property in the goods passes to the buyer at the moment of delivery to such carrier. Thus if a tradesman orders
goods to be sent through a carrier, though he does not name any carrier, the moment the goods are delivered
to the carrier it operates as a delivery to the buyer and the property in the goods passes to the buyer.42 The
seller, however, may not desire that the property in the goods should pass to the buyer at the moment of
delivery to the carrier. He may desire to retain the property until the price is paid or until some condition
imposed by him on the buyer is fulfilled by the buyer. This he may do by reserving the right of disposal (jus
disponendi) of the goods. This right may be reserved by the terms of the contract or of appropriation. Where the
right of disposal is reserved, the appropriation is conditional, and the property does not pass to the buyer until
Page 8 of 9
the conditions imposed by the seller are fulfilled by the buyer. As to what those conditions may be, see note to
section 25, “Modes of reserving right of disposal.”
[s 23.7] Undertaking by seller to deliver goods at a particular place.—
The general rule, as slated above, is that delivery by the seller to the carrier is a delivery to the buyer, and that
the risk is, after such delivery, of the buyer. But if by the terms of the contract the seller undertakes to deliver
the goods at a certain place, and in order to do so delivers them to a carrier to be taken to that place, section
23(2) does not apply, and the property and risk do not pass to the buyer until the goods are delivered at that
place.43
[s 23.8] Risk may pass though property has not passed.—
Where there is a contract for the sale of goods which constitute part of a larger quantity, and the goods have to
be selected by the seller, the property does not pass until the seller has selected the goods and appropriated
them to the contract. The buyer, however, acquires an undivided interest in the larger bulk, and such an interest
is an insurable interest.44 Moreover, if the seller gives a delivery order upon a party in possession of the large
bulk of goods in respect of the quantity sold to the buyer, and the buyer accepts the order, the risk of loss from
something happening to the goods, such as a deterioration in their quality, passes to the buyer on acceptance
of the delivery order.45
[s 23.9] Future goods.—
The rules stated above apply not only on unascertained goods, but also to future goods, i.e., goods to be
manufactured or acquired by the seller after the making of the contract of sale. Illustration (c) under the note,
“Authority to select and appropriate,” is a case of future goods.
24 Nippon Yusen Kaisha v Ramjiban Serowgee, AIR 1938 PC 152 : 65 IA 263 : 40 Bom LR 799.
25 Rhodes v Thwaites, (1827) 6 B&C 388 : 108 ER 495, per Holroyd, J.
26 Commissioner of Sales Tax, Eastern Division, Nagpur v Husenally Adamji & Co, AIR 1959 SC 887 [LNIND 1959 SC
59] : [1959] Supp (2) SCR 702 .
27 Rhodes v Thwaites, (1827) 6 B&C 388 : 108 ER 495. Hogshead is a large cask or barrel that is used as a unit of
capacity for measuring goods in liquid or dry form.
28 Emperor v Kunverji Kavasji, AIR 1941 Bom 106 : (1941) 43 Bom LR 95 : 194 IC 302.
Page 9 of 9
29 Shanker Das v Bhana Ram, AIR 1926 Lah 606 .
30 Vigers Bros v Sanderson Bros, (1901) 1 KB 608 .
32 Shanker Das v Bhana Ram, AIR 1926 Lah 606 .
33 Sir Mackenzie Dalzell Edwin Stewart Chalmers, The Sale of Goods Act, 1893, 10th Edn, Butterworths, 1910, p 61.
34 Colin Blackburn, A Treatise on the Effect of the Contract of Sale, 3rd Edn, p 138.
35 Colin Blackburn, A Treatise on the Effect of the Contract of Sale, 3rd Edn, p 137.
36 Fragans v Long, (1825) 4 B&C 219.
37 Aldridge v Johnson, (1857) 26 LJQB 296 : (1857) 7 E&B 885.
38 Atkinson v Bell, (1828) 8 B&C 277. Colin Blackburn, A Treatise on the Effect of the Contract of Sale, 3rd Edn, pp 139–
140.
39 Jenner v Smith, (1869) LR 4 CP 270.
40 Healy v Howlett & Sons, (1917) 1 KB 337 .
41 Clive Jute Mills Co v Ebrahim, (1896) 24 Cal 177 : (1897) ILR 24 Cal 177.
42 Dutton v Solomonson, (1803) 3 B&P 582 : 7 RR 883.
43 See judgment of Lord Cottenham, LC, in Anderson v Morice, (1875) 44 LJCP 10 : 1 App Cas 713, at pp 728, 729 : LR
10 CP 609.
44 Inglis v Stock, (1885) 10 App Cas 263 .
45 Sterns, Ltd v Vickers, Ltd, (1923) 1 KB 78 : (1922) All ER 126 (CA).
End of Document
S. 24. Goods sent on approval or “on sale or return”.-
MullaK Kannan
When goods are delivered to the buyer on approval or “on sale or return” or other similar terms, the property
therein passes to the buyer—
(a) when he signifies his approval or acceptance to the seller or does any other act adopting the
transaction;
(b) if he does not signify his approval or acceptance to the seller but retains the goods without giving
notice of rejection, then, if a time has been fixed for the return of the goods, on the expiration of such
time, and, if no time has been fixed, on the expiration of a reasonable time:
[s 24.1] Goods sent on approval or on sale or return.—
This section relates to specific goods and it should have been placed immediately after section 22.
The questions to be considered are whether the goods are delivered on the basis of “sale or return” or on some
other terms. It depends upon the terms of the contract and surrounding circumstances. Sometimes the person
to whom goods are delivered may be an agent for sale.
Page 2 of 4
When goods are sent on approval, or on sale or return, or other similar terms, e.g., on trial, 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 any one of those things, the transaction becomes a
sale and the property and risk pass to the buyer. Thus if goods are sent on sale or return and the buyer pledges
them to a third person, he has adopted the transaction and the property passes to him. The seller therefore
cannot remove the goods from the third person. This is so even if the pledge is in fraud of the seller who
intended that the goods should be disposed of in the ordinary course of business.46 The seller, however, may
protect himself by delivering the goods on special terms.47 When goods are sold on “jangad” it means that the
goods are to be shown for approval. A purchaser, therefore, does not obtain a good title from a broker who has
received goods on “jangad” terms unless the consent of the owner has been obtained.48
Where goods have been delivered by a person on “sale for cash or return within a week” and two days after
such delivery execution is levied against prospective buyer on behalf of his creditors, it cannot be said that the
party has retained such goods and therefore the property has passed to him.49
[s 24.2] Any other act adopting the transaction.—
Such an act would be in the nature of an exercise of right of ownership of the goods such as a sale to a third
person, pledging the goods with a pledgee, using the goods for his own purpose.
[s 24.3] On similar terms.—
These words are to be construed ejusdem generis. Sale on trial will come within this expression.
[s 24.4] Reasonable time.—
What is a reasonable time depends upon the facts and circumstances of each case. Time would begin to run
from the date or time the purchaser receives the goods.
[s 24.5] Gathering intention, its importance.—
Section 24 has to be read along with sub-section (3) of section 19 which says that “unless a different intention
appears, the rules contained in sections 20 to 24 are rules for ascertaining the intention of the parties as to the
time at which the property in the goods is to pass to the buyer”. Section 24 appears to be practically in the
same terms as section 18 of the English Sale of Goods Act, 1979 which itself is but a repetition of the common
law rule to that effect. The law in this behalf is stated in Halsbury’s Laws of England, 50 in the following words:
727. When property passes.—Unless a different intention appears, when goods are delivered to the buyer on approval,
or on sale or return, or other similar terms, the property in the goods passes to the buyer when he signifies his approval
or acceptance to the seller or does any other act adopting the transaction; and if he does not signify his approval or
Page 3 of 4
acceptance to the seller but retains the goods without giving notice of rejection, then, if a time has been fixed for the
return of the goods, on the expiration of that time and, if no time has been fixed, on the expiration of a reasonable time.
What is a reasonable time is a question of fact.
In para 728, it is stated:
728. Similar terms.—A delivery of goods is not made on terms similar to a delivery on approval or on sale or return
unless the effect of the transaction is that the bailee has the option of becoming the owner of the goods and on terms
substantially the same as those already mentioned.
The principle of section 24 inter alia is that where the goods are delivered to the buyer on terms similar to the
delivery of goods on approval or “on sale or return”, the property in the goods therein passes to the buyer, if he
does not signify his approval or acceptance and also does not return the goods within the time prescribed
therefor. According to the said principle, the position of the purchaser, until he returns the goods within the
prescribed period, is that of a bailee and on the expiry of the said period, he becomes a purchaser. Where,
however, the person to whom the goods are delivered is under an obligation to return the goods, there is no
question of sale ever coming into being and the person to whom the goods are delivered remains a bailee.
The Supreme Court was dealing with the above provisions in State of Maharashtra v Britannia Biscuits Co
Ltd,51 and particularly in a transaction in its nature nearer to the situation contemplated by and to the principle
of section 24, where the biscuit tins were delivered to the buyer with the stipulation that if he returns the tins in
which the biscuits were sold in good condition within three months, he would get back the deposit kept by him
in that behalf. It meant that after the expiry of the said period, he had no right to claim the refund on return of
goods. The transaction then became a sale. The customer had under the contract a right to return the tins in
good condition within three months. Correspondingly, the biscuit company was under an obligation to refund
the deposit amount if the tins were returned within three months in good condition; after the expiry of three
months, the respondent was under no such obligation though it may be that for his own business or other
reasons, he may yet accept the return of the tins and refund the deposit.
Page 4 of 4
46 Kirkham v Attenborough, (1897) 1 QB 201 ; London Jewellers Ltd v Sutton (Attenborough on Appeal), (1934) 2 KB 206
(CA) : (1934) 50 TLR 193 ; U. Sulaiman v Ma Twet, (‘34) AR 198 : 151 IC 413.
47 Wiener v Gill, (1906) 2 KB 574 .
48 Amritlal v Bhagwandas, (1939) Bom 454 : 186 IC 8 : (‘39) AB 435 : 41 Bom LR 609.
49 Re Ferrier, (1944) 1 ChD 295 .
50 Halsbury’s Laws of England, IVth Edn, vol 41, para 727.
51 State of Maharashtra v Britannia Biscuits Co Ltd, 1995 Supp (2) SCC 72 : (1994) 5 Scale 44 : (1995) 96 STC 642
(SC).
End of Document
S. 25. Reservation of right of disposal.-
MullaK Kannan
(1) Where there is a contract for the sale of specific goods or where goods are subsequently appropriated
to the contract, the seller may, by the terms of the contract or appropriation, reserve the right of
disposal of the goods until certain conditions are fulfilled. In such case, notwithstanding the delivery of
the goods to a buyer, or to a carrier or other bailee for the purpose of transmission to the buyer, the
property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled.
52[(2) Where goods are shipped or delivered to a railway administration for carriage by railway and by the
bill of lading or railway receipt, as the case may be, the goods are deliverable to the order of the seller
or his agent, the seller is prima facie deemed to reserve right of disposal.
(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 bill of 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.
Explanation.—In this section the expressions “railway” and “railway administration” shall have the
meanings respectively assigned to them under the Indian Railways Act, 1890 (9 of 1890)53].
Page 2 of 5
[s 25.1] Amendment.—
Sub-sections (2) and (3) were substituted by Act 33 of 1963. It has the effect of including carriage by railway.
[s 25.2] Railway.—
“Railway” is defined in section 3(4) of the Indian Railways Act, 1890 as follows:—
(4) “Railway” means a railway or any portion of a railway, for the public carriage of passengers, animals or
goods, and includes—
(a) All land within the fences or other boundary marks indicating the limits of the land appurtenant to a
railway;
(b) All lines of rails, siding or branches worked over for the purposes of, or in connection with, a railway;
(c) All stations, office warehouses, wharves, workshops, manufactories, fixed plant and machinery and
other works constructed for the purposes of, or in connection with, a railway, and
(d) All ferries, ships, boats and rafts which are used on inland waters for the purposes of the traffic of a
railway and belong to or are hired or worked by the authority administering the railway.
[s 25.3] Railway Administration.—
“Railway Administration” has been defined by section 3 of the Indian Railways Act, 1890, as follows:
(b) “Railway administration” or administration in the case of a railway administered by the Government
means the Manager of the railway and includes the Government and in the case of a railway
administered by a railway Company, means the railway Company.
[s 25.4] Reservation of right of disposal.—
This section is to be read with section 23. It is founded on the judgment of Cotton J., in Mirabita v Imperial
Ottoman Bank.54 The following are the material passages in the judgment:
In the case of such a contract (that is, a contract for the sale of unascertained goods), the delivery by the vendor to a
common carrier, or, unless the effect of the shipment is restricted by the terms of the bill of lading, shipment on board a
Page 3 of 5
ship of, or chartered for, the purchaser, is an appropriation sufficient to pass the property. (This corresponds to section
23).
If, however, the vendor, when shipping the articles which he intends to deliver under the contract, takes the bill of
lading to his own order, and does so not as agent, or on behalf of the purchaser, but on his own behalf, it is held that
he thereby reserves to himself a power of disposing of the property, and that consequently there is no final
appropriation, and the property does not on shipment pass to the purchaser. [This corresponds to sub-sections (1) and
(2) of the present section.]
If the vendor deals with, or claims to retain the bill of lading, in order to secure the contract price, as and when he
sends forward the bill of lading with a bill of exchange attached, with directions that the bill of lading is not to be
delivered to the purchaser till acceptance or payment of the bill of exchange, the appropriation is not absolute, but until
acceptance of the draft, or payment or tender of the price, is conditional only, and until such acceptance or payment or
tender, the property in the goods does not pass to the purchaser.55 [This corresponds to sub-section (3).] It is also
explanatory of the words “unconditionally appropriated” in section 23(1).
[s 25.5] Modes of reserving right of disposal.—
The object of reserving the right of disposal of goods is generally to secure that the price shall be paid before
the property passes to the buyer. One mode of reserving the right of disposal of goods is to send the VPP
(Value Prepaid). Property in the goods does not pass until payment is made by the buyer. Under VPP system
the seller retains control over the goods right upto the time the goods are delivered to buyer against payment of
price and contract would fall under section 25 of the Sale of Goods Act, 1930.56 When the goods are sent by
sea the seller ships them from Cochin to Bombay and takes bill of lading making the goods deliverable to his
own order or to that of his agent at the port of discharge. These he transmits to his agent with instructions not to
hand them over except on payment of the price.57 Or he may draw a bill of exchange on the buyer and
discount the bill with his own bankers, handing them the bills of lading which their agents at the port of
discharge will retain until the bill is paid.58 In either case, if there is nothing to show the contrary, it is clear that
the intention and the effect of so acting is that the property does not pass on shipment of the goods.59 Instead
of acting in either of ways above suggested, the seller may draw on the buyer for the price and transmit the bill
of exchange and the bill of lading to the buyer for payment or acceptance of the former. If the buyer does not
accept the bill of exchange, he must return the bill of lading. If he does not, no property in the goods passes to
him [section 25(3)]. The protection obtained by the seller in this case, however, is not complete. Where a buyer
who had contracted to purchase the goods in his turn agreed to sell to a third party and thereafter became
insolvent and received the bill of lading together with an invoice from the seller and the buyer in his turn without
payment endorsed the bill of lading to the third party and received the price thereof, it was held that the buyer
having received the bill of lading from the seller directly he was in possession of the bill of lading with the
consent of the seller and the third party took the bill of lading in good faith and without notice of the defect in the
Page 4 of 5
buyer’s title and hence the third party got a good title to the goods.60 This case was treated as a sale by a
mercantile agent to the third party as if falling under the proviso to section 27.60
When a railway receipt is made out in the name of the consignee, the railway receipt, invoice and Bill of
Exchange for price are sent to the bank, to be handed over to the buyer (consignee) on his honouring the Bill of
Exchange or against payment. If in such a case the consignee obtains the goods from the railway by giving an
indemnity, that would be a tortious act and the property would not pass to the buyer by such a tortious act.61
In the instant case though railway receipt was taken in the name of the consignee, yet it did not show that
property in the goods passed to consignee (i.e., buyer) when the goods were appropriated and handed over to
the railway as under the circumstance of the case the buyer had to pay 65% of the price on arrival of the goods.
In Shamji Bhanji and Co v North Western Rly Co,62 P sold goods to S. The goods were to be supplied to S at
Peshawar. P entrusted the goods to Railway company to be carried to Peshawar at railway risk. The railway
issued railway receipt in P’s name as the goods were consigned by P to himself at Peshawar. On this it was
held that P did not unconditionally appropriate the goods to the contract for sale but reserved the right of
disposal insofar as P obtained railway receipt in respect of the goods in his own (P’s) name as consignee until
certain condition was fulfilled, i.e., the price of goods was paid by S as against the receipt of the goods by P
from railway at Peshawar. Thus, notwithstanding the delivery of goods to railway for transmission to S, the
property in goods could not pass to S until price is not paid to P.
Where a bill of lading is taken by the seller in his name but he endorses it in favour of the buyer or endorses it
in blank and sends it to the buyer together with invoice stating that the goods are shipped “on account and risk
of buyers” the seller did not reserve his right of disposal.
Where a contract of sale specifically provided that no property in the goods will pass to the buyer until payment
of the price, with the seller’s lien on the goods and on the documents until such payment, it was held that the
property in the goods passed to the buyer when the goods were handed over to the shipowner on FAS basis63
(i.e., free alongside, meaning the seller placing the consignment in possession of shipowner).
Sub-sections (2) and (3) have been amended so as to include carriage by railway on the ground that goods are
frequently consigned by rail with the railway receipts made out in the name of the consignor or his agent or
bank with the clear intention of reserving a right of disposal to the consignor and there was no reason why in
such cases the consignor by rail should not have the same rights as the consignor by ship.
Page 5 of 5
52 Subs. by Act 33 of 1963, section 4 for sub-sections (2) and (3).
53 See the Railways Act, 1989 (24 of 1989).
54 Mirabita v Imperial Ottoman Bank, (1878) 3 Ex D 164 , at p 172.
55 See The Prinz Adalbert, (1917) AC 586 : LR (1916) p 81.
56 CIT v PM Rathod & Co, AIR 1959 SC 1394 [LNIND 1959 SC 132] : [1960] 1 SCR 401 [LNIND 1959 SC 132] .
57 Carona Sahu Co (Pvt) Ltd v State of Maharashtra, AIR 1966 SC 1153 [LNIND 1965 SC 347] : [1966] 2 SCR 845
[LNIND 1965 SC 347] .
58 Ford Automobiles India Ltd v Delhi Motor and Engineering Co, 1922 (24) Bom LR 1140 [LNIND 1922 BOM 150] :
(1923) AB 125 : 70 IC 138.
59 Mirabita v Imperial Ottoman Bank, (1878) 3 Ex D 164 .
60 Cahn v Packett’s Bristol Channel Co, (1899) 1 QB 643 : 43 SIJ 331. The above passage is taken from Patrick Selim
Atiyah, Atiyah’s Sale of Goods, 12th Edn, Pearson Education Canada, 2010.
60 Cahn v Packett’s Bristol Channel Co, (1899) 1 QB 643 : 43 SIJ 331. The above passage is taken from Patrick Selim
Atiyah, Atiyah’s Sale of Goods, 12th Edn, Pearson Education Canada, 2010.
61 N Mohammed Sherif v Official Liquidator, Seetharam Spinning and Weaving Mills Ltd, AIR 1964 Ker 135 [LNIND 1963
KER 79] : 1963 Ker LT 741 [LNIND 1963 KER 79] : ILR (1963) 2 Ker 723 [LNIND 1963 KER 79] .
62 Shamji Bhanji and Co v North Western Rly Co, AIR 1947 Bom 169 : (1946) 48 Bom LR 698 .
End of Document
S. 26. Risk prima facie passes with property.-
MullaK Kannan
Unless otherwise agreed, the goods remain at the seller’s risk until the property therein is transferred to the
buyer, but when the property therein is transferred to the buyer, the goods are at the buyer’s risk whether
delivery has been made or not;
Provided that, where delivery has been delayed through the fault of either buyer or seller, the goods are at the
risk of the party in fault as regards any loss which might not have occurred but for such fault:
Provided also that nothing in this section shall affect the duties or liabilities of either seller or buyer as a bailee
of the goods of the other party.
[s 26.1] Risk prima facie passes with property.—
The general rule is that in absence of special terms, the risk follows the property. The words “unless otherwise
agreed” indicate that the rule stated in this section will apply if there is no agreement to the contrary. The prima
facie rule in this section is that the goods remain at the seller’s risk until the property in the goods is transferred
to the buyer. But when the property in the goods is transferred to the buyer the goods are at the buyer’s risk
whether delivery has been made or not. The above rule has some exceptions. The first proviso provides that
where delivery of goods has been delayed due to the fault of either the buyer or the seller, the goods are at the
risk of the party in fault as regards any loss which might not have occurred but for such fault. The second
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proviso is further subject to the first proviso and provides that nothing in the section shall affect the duties or
liabilities of either the seller or the buyer as a bailee of the goods of the other party.
The first proviso lays down a rule of equity. It serves as an exception to the general rule. If there was any
weighing or anything of the sort which prevented the contract from being emptio perfecta, whenever loss was
occasioned by one of the parties in mora, as it was his default he shall bear the risk as if there was emptio
perfecta.64
In Demby Hamilton & Co Ltd v Barden,65 X contracted to sell 30 tons of apple juice to be delivered to Y. X
accordingly crushed the apple to make juice and put the juice in casks pending delivery. Y was late in taking
delivery and some juice went bad. It was held that the first proviso applied and Y (buyer) was liable as he bore
the risk of deterioration which was due to his delayed taking of delivery. The contract in this case required that
delivery should be as per sample. So it would have been very difficult for the seller to obtain the goods (i.e.,
apple juice) which complied with the sample which meant that apples had to be from the same district.
Moreover, the season was also ending. Under these circumstances the seller could not have reasonably
disposed of these goods (i.e., apple juice) and minimise the loss on the buyer. Thus to meet with his obligation
towards the buyer (i.e., delivery as per sample) the seller had to keep 30 tons of juice at the same time.
Illustrations
(a) B offers, and A accepts, Rs 100 for a stack of firewood standing on A’s premises. The firewood is to be
allowed to remain on A’s premises till a certain day and not to be taken away till paid for. Before payment, and
while the firewood is on A’s premises, it is accidentally destroyed by fire. B must bear the loss. This is a case of
an unconditional contract for the sale of specific goods in a deliverable state. Therefore section 20 applies and
the property in the goods passes to the buyer, and along with the risk, when the contract is made, i.e., B’s offer
is accepted by A, though payment and delivery are both postponed.
(b) A bids Rs 1,000 for a picture at a sale by auction. After the bid it is injured by an accident. If the accident
happens before the hammer falls, the loss falls on the seller; if afterwards, it falls on A. This again is a case of
an unconditional contract for the sale of specific goods. Therefore, section 20 applies and the property in the
picture passes to A when the contract is made, i.e., when A’s offer is accepted, the acceptance being indicated
by the fall of the hammer.
[s 26.2] Risk is no test of property.—
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There is nothing to prevent the parties from contracting that though one party has the property in the goods, yet
if the goods are lost, the other party is to pay for them; the parties, in other words, may contract that the risk
shall pass on delivery irrespective of the passing of the property.66
[s 26.3] “Unless Otherwise agreed”.—
The agreement to the contrary contemplated in this section may be in writing or may be inferred from the
course of dealing or by usage binding on both.
Where the goods lay at seller’s risk for two months and the two months expired, the risk fell on the buyer after
the expiry of the two months, where the goods were consigned by railway and the railway receipt, which was
taken in the name of the consignor, was endorsed by the consignor in favour of the buyer and sent to the bank
with instructions to deliver the railway receipt to the buyer against payment and if the goods reach their
destination safely but are then stolen before the buyer pays to the bank and goes to take delivery, it was held
that the course of dealing indicated that the property did not pass till the buyer paid and hence the goods were
lying at the seller’s risk till payment of the price.67
Where a contract of sale provides that either party shall insure the goods during transit, it is presumed that the
party who has to insure the goods in transit takes upon himself the risk of loss.68
[s 26.4] Seller or buyer as bailee.—
If A sells goods to B, but continues in possession after sale, he is a bailee of the goods for B. Similarly if A
agrees to sell goods to B, who obtains possession thereof before the property in the goods passes to him, B is
a bailee of the goods for A. In either case the duties and liabilities of A and B as a bailee for the other are not
affected by this section. For rights and liabilities of bailees, see sections 148–181 of the Indian Contract Act,
1872.
[s 26.5] Analysis of sections relating to passing of property
(1) Sale is transfer of property in the goods (sold) from the seller to the buyer (section 4).
(2) The transfer of property may take place either when the contract of sale is made or subsequent thereto.
(3) The transfer takes place when the contract is made, if the goods are specific and in a deliverable state and
the contract is unconditional (section 20). The transaction in such a case amounts to a sale. But if the goods
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are not in a deliverable state or the contract is not unconditional, the transaction is an agreement to sell as
distinguished from a sale.
(i) The goods may be specific and in a deliverable state, but the contract is conditional upon the seller
having to do some act to ascertain the price, e.g., to weigh the goods. In such a case the property
passes when the goods are weighed and the buyer has notice thereof (section 22).
(ii) The goods may be specific, but not in a deliverable state, and the contract is conditional upon the seller
having to do something to put them in a deliverable state. In such a case the property passes when the
seller has put the goods in a deliverable state and the buyer has notice thereof (section 21).
(iii) Where specific goods are delivered to the buyer—which cannot be done unless they are in a
deliverable state—on approval as on sale or return, the property passes on the fulfilment by the buyer
of the condition implied in such a transaction, namely, the buyer signifying his approval or acceptance
to the seller (section 24).
(4) In the case of an agreement to sell unascertained or future goods, the property passes when the goods are
ascertained by appropriating them to the contract (section 23).
[s 26.6] CIF contract.—
The buyer under a cost, insurance and freight (CIF) contract is in effect the insurer of his goods, and the risk
prima facie attaches to him on and after shipment by the seller, subject to the seller’s obligation to tender such
valid and effective documents as are contemplated by the contract or as are usual.69 The obligations upon a
seller under a CIF contract are also well known, some of which are in relation to goods and some of which are
in relation to documents. In relation to goods, the seller must ship goods of contract description on board a ship
bound to the contract destination. If there is a late shipment or the seller has put goods on board a ship not
bound to the contract destination as stipulated, the logical inference that must necessarily follow is that the
seller has not put on board goods conforming to a contract destination. The liability of the seller will not cease to
exist on shipment of the goods or in any case when the shipping documents were handed over through the
banking channels on negotiations of the letter of credit, when the seller is in breach at the threshold. It will also
be immaterial whether or not the buyers had a right of action against the insurers or the carrier.70 As to what is
a CIF contract, see note to section 26, “CIF contract”.
[s 26.7] FOB. contract.—
In the case of a contract for the sale of goods to be shipped F.O.B., i.e., free on board, the property and risk in
goods do not, in the absence of special agreement, pass to the buyer till the goods are actually put on board.71
[s 26.8] Benefit.—
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It may be asked as to whom the benefit goes.
The section deals with the risk but it is silent as to the accrual of the benefit. The converse of the rule res perit
demino holds good and by parity of reasoning, benefits or fruits of the goods sold belong prima facie to the
person who has the property in the goods.
64 Martineau v Kitching, (1872) LR 7 QB 436.
65 Demby Hamilton & Co Ltd v Barden, (1949) 1 All ER 435 : (1949) WLN 73 .
66 See Anderson v Morice, (1875) 44 LJCP 10 : 1 App Cas 713, 735 : LR 10 CP 609; Sterns, Ltd v Vickers, Ltd, (1923) 1
KB 78 .
67 NS Billimoria v Gauri Mal Narain Das, AIR 1928 Lah 481 , 112 IC 457.
68 Anderson v Morice, (1875) 44 LJCP 10 : 1 App Cas 713 : LR 10 CP 609.
69 Groom v Barber, (1915) 1 KB 316 : (1915) 112 LT 301 .
70 Phulchand Exports Ltd v OOO Patriot, (2011) 10 SCC 300 [LNIND 2011 SC 1127] : (2012) 1 SCC (Civ) 131 : 2011
(11) Scale 475 [LNIND 2011 SC 1127] .
71 Stock v Inglis, (1885) 10 App Cas 263 . See CIT Madras v Mysore Chromite Ltd, AIR 1955 SC 98 [LNIND 1954 SC
151] : [1955] 1 SCR 849 [LNIND 1954 SC 151] ; Cowasjee v Thompson, (1845) 5 Moore PCC 165 : 70 RR 27.
End of Document
S. 27. Sale by person not the owner.-
MullaK Kannan
Transfer of Title
Transfer of Title
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.
Illustrations
1. A finds a ring and after making reasonable efforts to find out the owner, sells it to B who buys without
knowledge that A was merely a finder. The true owner may recover the ring from B.72
2. A delivers goods to B on sale or return basis, on condition that they are to remain the property of A until paid
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for. B sells the goods to C without paying A. C buys in good faith and without notice of A’s title. Still A can
recover the goods or their value from C.73
3. The hirer of goods under a hire purchase agreement “sells” them. The “buyer” from him, though acting in
good faith, does not acquire the property in the goods as against the owner, but at the most such interest as the
hirer had.74
4. One Alfred Blenkarn, writing from an address which he gave as 37, Wood Street, Cheapside and signing his
name as Blenkiron & Co., ordered some goods from the plaintiff-Respondents (Lindsay & Co). A reputable firm
W. Blenkiron & Co carried on business at 123, Wood Street. The plaintiffs consigned the goods to Messrs.
Blenkiron & Co. 37, Wood Street and Blenkarn obtained possession of the goods and resold to Defendants who
bought in good faith. The Defendants acquired no title as against the plaintiffs.75
5. Plaintiff entrusted a motor car to a mercantile agent for sale, stipulating that the car should not be sold below
a certain price. To this the agent professed to agree but intended from the outset to sell the car at such price as
he could obtain and misappropriate the proceeds. He sold it to A who bought in good faith for less than the
stipulated price. Subsequently A sold the car to defendant. The plaintiff cannot recover the car from the
defendant.76
[s 27.1] Sale by person not the owner—General rule.—
As a general rule, no man can sell goods and give a good title to them unless he is the owner, or some one
having his authority or consent, e.g., an agent. And the rule is the same, although the sale is accompanied by a
transfer of a bill of lading, delivery order, warrant, or similar documents. Such documents are not negotiable
instruments so as by their transfer to pass to the buyer a title superior to that of the seller. A person, therefore,
however innocent, who buys goods from one not the owner obtains no property in them whatsoever.77 The
general rule of law, as stated by Wilies, J, is that “no one can transfer a better title than he himself possesses.”
This is expressed by the maxim nemo dot quod non habet.78
In the development of law, the legislature had to find a balance between two principles. The first one relates to
protecting one’s own property. In order to protect the owner’s property so that the owner alone can pass title,
the first para of this section has been enacted so that a person not an owner cannot pass any title. However, in
the interest of trade and commerce and its development, it was necessary to permit sales by authorised agents.
This is secured by the proviso to this section whereby sales by commercial agents are protected. Sections 28,
29, 30(1), (2) fall in the second category.
[s 27.2] Title by estoppel: Estoppel of owner.—
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But though the general rule is as stated above, the owner may be estopped by his conduct from denying the
seller’s title and setting up his title against the buyer.
The words “unless the owner of the goods is by his conduct precluded from denying the seller’s authority to
sell” refer to estoppel of the owner. The said words carve out an exception to the general rule. The estoppel
may arise by words or conduct which wilfully causes another to alter his position and to induce him to act on
that belief or stands by negligently or culpably and allows another to contract on the faith and understanding as
if the seller has the authority to sell, or is the owner or has apparent title to the goods.
Negligence on the part of the owner, in order to constitute conduct precluding him from denying the seller’s
authority to sell, must be more than mere negligence in the management of his own affairs and must amount to
a disregard of his obligations towards the buyer.79
In Mercantile Bank v Central Bank,80 the Respondent Central Bank advanced monies to a merchant, on the
pledge of railway receipt. The bank instead of sending railway receipt to its own godown keeper to enable him
to obtain goods was accustomed in the usual course of business to hand railway receipt back to a merchant for
the specific purpose of clearing the goods and storing them in bank’s godown. A merchant, instead of doing so,
repledged the receipts with the Appellant bank. On merchant’s failure, a question of priority arose between
these two banks with regard to pledged railway receipts with these two banks. An estoppel by conduct or
neglect was sought to be raised against the Respondent, Central Bank, but the Privy Council rejected it on the
ground that Respondent, Central Bank, owed no duty to Appellant, Mercantile Bank, in the matter as there was
no relationship of the contract or agency between them. Lastly, the Appellant bank argued that there was
estoppel as railway receipt contained a representation by Respondent to any person to whom merchant might
produce it, that the merchant had the power to obtain a pledge on security of goods. Thus the argument ran
that apart from the question of negligence of the respondent, there was a representation of authority which
bound the Respondent because it enabled merchant to mislead Appellant. The Privy Council refused to accede
to the argument and observed that estoppel by representation did not exist in the case inasmuch as the railway
receipt was in form merely authority to take delivery of goods and there was no ground for finding any
representation as was argued by the appellant. Possession of railway receipt, like possession of goods, did not
convey a representation that merchants were entitled to dispose of property. The Privy Council accepted that
estoppel by holding out or representation may arise if a share certificate with transfer form in blank has been
placed with share broker. Brokers in ordinary course of business are employed to sell, buy and to raise money
upon security of the customer. Accordingly, it was reasonable assumption that broker had full authority to deal
with the securities. But the railway receipt was in form merely an authority to take delivery of the goods and
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possession of such documents contained no representation that holder had any implied authority or right to
dispose of the goods. It was at best an ambiguous document.
In Mohambaram v Ram Narayan,81 an owner of bus engaged A as his agent to ply the bus for hire and left a
duly signed letter addressed to District Magistrate requesting to grant “G” permit to “A”. The registration
certificate of the bus was also left with A. A fraudulently altered the letter into one addressed to DSP requesting
him to transfer the registration in his (A’s) name, which having been done, A sold the bus to a stranger who was
ignorant about A’s real title. The owner, challenged the buyer’s title. It was held that the owner could not have
contemplated the possibility of fraud of A and that true owner was not precluded under section 27 of the Sale of
Goods Act, 1930 from challenging the title acquired by the buyer.82
[s 27.3] Exceptions to the general rule.—
The following are the exceptions to the rule that no seller of goods can give to the buyer thereof a better title
than his own, namely,—
(1) Where person without title selling the goods with consent or authority of the owner (section 27).
(2) Where an Owner of goods is precluded by his conduct to deny the seller’s authority to sell
(3) Sale by a mercantile agent (proviso to section 27).
(4) Sale by one of the joint owners (section 28).
(5) Sale by a person in possession under a voidable contract (section 29).
(6) Sale by one who has already sold the goods but continues in possession thereof [section 30(1)].
(7) Sale by buyer obtaining possession before the property in the goods has vested in him [section 30(2)].
(8) Where an unpaid seller resells the goods when he has exercised his right of lien or stoppage in transit
(section 54).
All these exceptions are necessary for the protection of persons who deal bona fide for value without notice and
person dealing with mercantile agents.
The words “subject to the provisions of this Act and of any other law for the time being in force” are wide
enough to provide further exceptions as under:—
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(1) Sale by a pawner under his power of sale (see section 176 of Indian Contract Act, 1872).
(2) Sale by a Court Receiver under his powers under O 40 of Civil Procedure Code, 1908.
(3) Sale by Official Assignee under the Insolvency Law or by Liquidators under the Indian Companies Act,
1956.
(4) Sale by a mortgagor in possession to a buyer without notice of encumbrance.
(5) Sale by a finder of goods pursuant to the provisions of section 169 of the Indian Contract Act, 1872.
(6) Sale by a master of the ship in case of necessity.
[s 27.4] Sale by mercantile agent.—
Mere possession of goods or of the documents of title to goods gives no power to dispose of them. Thus a clerk
in a merchant’s office who as such is possessed of delivery orders or other documents of title for the purposes
of his employment has no power to dispose of them. But it is different when the person in possession of goods
is a mercantile agent, such as a factor, broker or auctioneer. Lord Wright in Lowther v Harris,83 observed that a
mere shopkeeper or servant cannot be a mercantile agent. A person who has his own shop and gives receipts
and takes cheque in his own registered business name and earns commission is not a mere servant but agent
even if his discretionary authority is limited. A mercantile agent may act for only one principal and may not have
general occupation as agent. Persons who deal in picture and object of art on commission can be mercantile
agent. A sale by such a person of goods or the documents of title to goods will pass a good title to the buyer—
(1) if he is in possession of the goods or of the documents with the consent of the owner;
(2) if the sale is made by him when acting in the ordinary course of business of a mercantile agent;
(3) if the buyer acts in good faith and has not at the time the contract of sale notice that the seller has no
authority to sell.
The proviso to the section is a reproduction of section 2(1) of the Factors Act (English), 1889. It is founded on
the principle that where a person has entrusted goods or the documents of title to goods to an agent who, in the
course of such agency, sells or pledges the goods, he ought, as regards innocent third parties, to be treated as
the owner of the goods. This is the principle running through the earlier Factors Acts of 1823, 1825, 1842 and
1877, all of which have been repealed by the Factors Act of 1889. It is a departure from the common law rule
that mere possession of goods or of the documents of title to goods does not enable the person in possession
to dispose of them in contravention of his instructions in respect of them. The present section deals with the
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sale of goods by a mercantile agent. Section 178 of the Indian Contract Act, 1872, as amended by the Indian
Contract (Amendment) Act, 1930, deals with the pledge of goods by a mercantile agent.
[s 27.5] Mercantile agent.—
The proviso to the section validates a sale by a mercantile agent. A mercantile agent is one who has, in the
customary course of his84 business as such agent, authority either to sell goods, or to consign goods for the
purposes of sale, or to buy goods, or to raise money on the security of goods [section 2(9) of the Sale of Goods
Act, 1930]. A person having authority to consign goods is called a forwarding agent.
The term “mercantile agent” does not include a mere servant or caretaker, or one who has possession of goods
for carriage, safe custody, or otherwise as an independent contracting party. It only includes persons whose
employment corresponds to that of some known kind of commercial agent, e.g., a factor, an auctioneer or a
broker.85 A broker is an agent to make contracts between other persons in matters of trade or commerce. A
mercantile agency under this section may exist although the agent is acting for one principal only and has no
general occupation as agent. The section does not require a general occupation as agent.86
To constitute an agent he must be (1) a mercantile agent (2) having the customary course of his business as
such agent authority to sell goods, etc. A mere insurance agent who on a particular occasion is entrusted with
pictures to sell on commission is not a mercantile agent. It cannot be said of one who is merely an insurance
agent that he has “in the customary course of his business as such agent authority,” etc. A pledge therefore of
the pictures given to him for sale would not be valid.
The definition of the terms “goods” in section 2(7) shows that the section under consideration is not confined to
dealing in merchandise, but also includes sales of furniture, etc.
[s 27.6] Possession by mercantile agent.—
The mercantile agent must have possession of the goods or of document of title to the goods in his capacity as
mercantile agent and not in other capacity. So where a warehouseman who was also a broker had the goods
qua warehouseman, it was held that he could not validly pledge the goods received by him in his capacity as a
warehouseman.87 Mercantile agent is in possession of goods even if he obtains possession of goods by his
fraud. So in Lowther v Harris,88 where mercantile agent was allowed to take certain tapestry away in van after
the real owner (plaintiff) had sanctioned the sale of the goods to the buyer, it was held that a mercantile agent
was in possession of the goods though he (mercantile agent) never intended sale to be made to that buyer as
he had just obtained by fraud possession of the goods from the real owner to pawn it with a pledgee. But
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mercantile agent is not in possession of the goods when he had stolen the goods from the real owner (plaintiff)
who never parted with it.
[s 27.7] Possession must be with consent.—
To validate a sale by a mercantile agent under this section he must be in possession of the goods or of the
documents of title to the goods with the consent of the owner. This implies that he must have been entrusted
with the goods, as a mercantile agent and not in any other capacity, in other words, the capacity in which the
agent receives the goods must be one which clothes him with authority to sell or pledge the goods. Thus if a
house is let furnished to a person who happens to be an auctioneer, it is let to him as a tenant and not as an
auctioneer. He cannot therefore sell the furniture by auction and give a good title to the buyer.
The consent contemplated by this section is consent in fact. If the goods or documents are obtained by theft
there is no consent.89 Similarly there is no consent if the goods or documents are obtained by what is
equivalent to theft, as where A falsely pretending that he is B receives goods or documents from the owner. But
it is different if the buyer, who is also the mercantile agent, has received the bill of lading directly from the seller
together with the invoice and bill of exchange. It may be held that the buyer received the bill of lading with the
consent of the owner90 [see section 30(2)].
[s 27.8] Sale must have been made when acting in the ordinary course of business of a mercantile agent.—
It is not sufficient that the sale is made by a “mercantile agent,” i.e., a mercantile agent having in the ordinary
course of his business as such agent authority to sell or pledge the goods [section 2(9) of Sale of Goods Act,
1930]. The sale must also have been made by him when acting in the ordinary course of business of a
mercantile agent. In other words, the seller must occupy the character of a mercantile agent as defined in
section 2(9) of Sale of Goods Act, 1930 and, further, he must act within business hours, at a proper place of
business, and in other respects in the ordinary way in which a mercantile agent would act, so that there is
nothing to lead the buyer or pledgee to suppose that anything wrong is being done, or to give him notice that
the sale or pledge is one which he has no authority to make.91 So where a mercantile agent employed a friend
of his to pledge the goods for him, it was held not to be in the ordinary course of business of a mercantile agent,
and the pledge was held to be invalid.92
The matter may be put in another form. If a mercantile agent has express authority to sell, and he sells, no
difficulty arises. The case then falls within the first part of the section. The difficulty arises when he has no
authority to sell and he sells the goods in contravention of his instructions, for instance, where he has authority
only to pledge, but he fraudulently sells. In such a case the section applies and protects the innocent buyer, if
the agent has acted “in the ordinary course of business of a mercantile agent.”
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In dealing with third person the section gives him authority if he acts “in the ordinary course of business of a
mercantile agent,” i.e., an ostensible authority. This authority cannot be cut down by private instructions or by a
particular trade custom, except that the existence of a notorious trade custom would fix the buyer or the
pledgee from the agent with notice of a restricted authority to deal with the goods and thus bring the case within
the last part of the section.93
Illustrations
Travelling Jewellery salesman—
(1) A is a manufacturing jeweller. B is a person whose business it is to travel about the country selling jewellery.
A delivers certain articles of jewellery to B upon the terms that they should remain the property of A until sold or
paid for. B fraudulently pledges the jewellery with a pawn-broker and money-lender. The pledge is valid. B is a
mercantile agent and as such has an ostensible authority to pledge the jewellery.94
Diamond Broker—
(2) A diamond merchant delivers to B, a diamond broker, a parcel of diamonds on B’s representation that a
specified firm of diamond merchants would probably buy them. B does not show the diamonds to the firm, but
pledges them to C who is a bona fide pledgee. A sues C to recover the diamonds. Evidence is given in the suit
of a custom in the diamond trade that a diamond broker employed to sell has no authority to pledge them for his
principal. The pledge is valid. The ostensible authority which B had as a mercantile agent to pledge the
diamonds could not be cut down by a particular trade custom.95
It will be noted that in both the cases cited above the express authority was to sell, but the mercantile agent
pledged the goods, and the pledge was held valid. The cases being those of a pledge are more appropriate as
illustrations of section 178 of the Indian Contract Act, 1872, as amended by the Indian Contract (Amendment)
Act, 1930.
Certified sharebroker—
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Where a registered shareholder handed over to a certified sharebroker a blank transfer form together with the
share certificates for sale in the market and the sharebroker sold the shares to a bona fide purchaser for value,
the purchaser gets a good title and the purchaser can get the shares transferred to his name filling in the blank
transfer form. It was held that the shareholder having put forward the share-brokers as his agents in the market
to make representations to innocent third parties to the effect that they were duly authorised to transfer his title
in the shares and to receive the price thereof, he could not be heard to say that the brokers obtained the share
certificates by cheating him because the third party had acted on the representations of the brokers. The
purchasers were to be bona fide purchasers for value without notice.96
[s 27.9] Good faith and absence of notice on the part of the buyer that the seller has no authority to sell.—
To validate a sale by a mercantile agent under this section the buyer must have acted in good faith, i.e., with
honesty and must not have at the time of the sale notice that the seller had no authority to sell goods.97 The
onus of proving both these facts as well as the fact that the agent was in possession of the goods with the
consent of the owner rests upon the buyer.98
Under section 3 of the General Clauses Act, 1897, a thing is deemed to be done in good faith where it is in fact
done honestly whether it is done negligently or not. Gross negligence may be evidence of bad faith, but it is not
the same thing and does not entail the same consequence.99
The term “notice” in this section includes both express and constructive notice. A person is deemed to have
constructive notice of a fact when but for wilful abstention from an inquiry or search which he ought to have
made, or gross negligence, he would have known it.100 See comments under this heading in section 29.
[s 27.10] Subject to the provisions of any other law for the time being in force.—
The section preserves the powers of sale conferred by other acts. Thus if the pawnor makes default in payment
of the debt at the stipulated time, the pawnee may sell the goods pledged and may give a good title to the
buyer, though he was only a special property in the goods as distinguished from the general property which a
mortgagee has in the goods mortgaged to him.101 See note to section 4 above, “Mortgage, pledge and
hypothecation of goods.”
[s 27.11] Indian Contract Act, 1872, section 108.—
This section now takes the place of section 108, Exception I of the Indian Contract Act, 1872. By that Exception
it was provided that when any person was, by the consent of the owner, in possession of any goods or of the
documents of title to the goods, he could transfer the ownership of the goods or documents, and give such
Page 10 of 12
person a good title thereto notwithstanding any instructions to the contrary: provided that the buyer acted in
good faith and under circumstances which were not such as to raise a reasonable presumption that the person
in possession of the goods or documents had no right to sell goods. The language of that section was very
wide, the words of the section being “any person in possession” of the goods or of the documents of title of
goods. The courts, however, endeavoured to keep the results within tolerable bounds by putting a strict
construction on the words “possession,” and interpreting it to mean juridical possession as distinguished from
mere physical possession or custody. It was accordingly held that a sale of buffaloes by a person with whom
they were left by the owner to take care of during his absence does not pass a good title to the buyer.102
Similarly where a piano had been hired from the plaintiff with an option of purchase, and the hirer sold the piano
to the defendant before he had exercised that option, it was held that the defendant was liable in trover to the
plaintiff, although it was found that he acted in good faith.103 These cases would be decided the same way, the
first on the ground that a bailee for safe custody is not a mercantile agent, and the second on the ground that
the hirer of goods under a hire-purchase agreement with an option to purchase cannot sell them so as to give a
good title to the buyer under section 30(2) below. He can do so only if he is under a binding agreement to buy
them, for then he has “agreed to buy goods” within the meaning of that section.104 Under the Sale of Goods
Act, 1930, a sale by a person who is not the owner, nor is authorised by the owner to sell is not valid unless the
case falls within one of the four sections, namely, section 27, section 28, section 29 and section 30. The
capacity to give a good title to a bona fide buyer is confined to the classes of persons, mentioned in those
sections.
[s 27.12] Sale in market overt.—
The exceptions to the rule that a person cannot make a valid sale of goods which do not belong to him have
already been enumerated in the note “Exceptions to the general rule,” above. In England, there is an additional
exception in the case of sales in market overt. Where goods are sold in market overt, 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 part of the seller.105 Market overt is an open, public and legally constituted
market. In the city of London every shop in which goods are openly sold is market overt, for such goods as the
owner openly professes to trade in. In the country the only place that is market overt is the particular spot of
ground set apart by custom for the sale of particular goods, and this does not include shop.106 The result is
that where goods obtained by theft are sold in market overt, the property in the goods passes to the buyer.
There is no such provision in the Indian law. According to the Indian law a thief cannot give a good title to a
purchaser from him of goods which he has stolen, however innocent the purchaser may be of any knowledge of
the theft. It may be interesting to note that in the Contract Bill as drafted by the Law Commissioners it was
provided in effect that a purchaser acting in good faith, and in the absence of suspicious circumstances, might
acquire a good title from any person in possession of goods, in other words, that every place in India should be
a market overt. The Select Committee to which the Bill was referred objected to this clause, the ground of
objection being substantially that the provision would make British India an asylum for cattle stealers from the
native States. The clause, after a good deal of controversy, was ultimately moulded in a different form and it
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appeared as section 108 in the Indian Contract Act, 1872. In England also the law of market overt has so many
exceptions grafted on it that it has long ceased to be of any general importance.107 In fact the Select
Committee in the Commons, to which the Sale of Goods Bill (English) was referred, decided for the abolition of
the rule of sale in market overt, but the rule was restored in Committee of the whole House, and it is now
contained in section 22 of the English Sale of Goods Act, 1893.
72 Farquharson Bros. v King & Co, (1902) AC 325 at 335, 336.
73 Edwards v Vaughan, (1910) 26 TLR 545 (CA).
74 Helby v Matthews, (1895) AC 471 ; Belsize Motor Supply Co v Cox, (1914) 1 KB 244 .
75 Cundy v Lindsay, (1878) 3 App Cas 459 .
76 lkes v King, (1923) 1 KB 282 : (1922) All ER Rep 658 .
77 Anthone Gordon Guest (ed), Benjamin’s Sale of Goods, 6th Edn, Sweet & Maxwell, 2003, p 11.
78 Whistler v Forster, (1863) 4 CB (NS) 248 : 143 ER 441 : 32 LJCP pp 161, 164.
79 Heap v Motorists Advisory Agency, Ltd, (1923) 1 KB 577 .
80 Mercantile Bank v Central Bank, AIR 1938 PC 52 : (1938) 47 LW 329 .
81 Mohambaram v Ram Narayan, AIR 1935 Mad 850 [LNIND 1935 MAD 168] : (1935) 69 Mad LJ 691.
82 Woodley v Coventry, (1863) 2 H&C 64 : 32 LJ Ex 185 : (1863) 159 ER 68 .
83 Lowther v Harris, (1926) All ER Rep 352 : (1927) 1 KB 393 .
84 The omission of the word “his” in the Sale of Goods Bill was a printer’s mistake. The mistake is repeated in the Act.
85 Heyman v Flewker, (1863) 143 ER 205 : 32 LJCP 132; Cole v North Western Bank, (1875) LR 10 CP 354, 372–373.
86 Weiner v Harris, (1910) 1 KB 285 ; Turner v Sampson (1911) 27 TLR 200 ; Lowther v Harris, (1927) 1 KB 393 : (1926)
All ER Rep 352 .
87 Cole v North Western Bank, (1874–80) All ER Rep 486 : (1875) LR 10 , CP 372.
88 Lowther v Harris, (1927) 1 KB 393 : (1926) All ER Rep 352 .
89 Lowther v Harris, (1927) 1 KB 393 : (1926) All ER Rep 352 ; See also Central National Bank v United Industrial Bank,
AIR 1954 SC 181 [LNIND 1953 SC 109] : [1954] SCR 391 [LNIND 1953 SC 109] for a similar approach under section
30(2) of Sale of Goods Act, 1930.
90 Cahn v Pockett’s Bristol Channel Co, (1899) 1 QB 643 , 654, 659.

Page 12 of 12
91 Oppenheimer v Attenborough, (1908) 1 KB 221 , per Buckley, LJ.
92 De Gorter v Attenborough, (1904) 21 TLR 19 .
94 Weiner v Harris, (1910) 1 KB 285 .
95 Oppenheimer v Attenborough, (1908) 1 KB 221 .
96 Fazal v Mangaldas, AIR 1922 Bom 303 : 23 Bom LR 1144 : 46 Bom 489.
97 Amritlal v Bhagwandas, AIR 1939 Bom 435 : 41 Bom LR 609 : (1939) Bom 454 : 186 IC 8.
98 Heap v Motorists’ Advisory Agency Ltd, (1923) 1 KB 577 .
99 Jones v Gordon, (1877) 2 App Cas 616 , 629.
100 See Transfer of Property Act, 1882, section 3.
101 Indian Contract Act, 1872, section 176.
102 Shankar v Mohanlal, (1887) 11 Bom 704 : (1887) ILR 11 Bom 705.
103 Greenwood v Holquette, (1873) 12 Beng LR 42, 46.
104 Belsize Motor Supply Co v Cox, (1914) 1 KB 244 .
105 Sale of Goods Act (English), section 22(1).
107 See Hargreave v Shink, 1 QB 25, and the judgment of Scrutton J, in Clayton v Le Roy, (1911) 2 KB 1031 , seq, where
further references may be found.
End of Document
S. 28. Sale by one of joint owners.-
MullaK Kannan
Transfer of Title
Transfer of Title
If one of several joint owners of goods has the sole possession of them by permission of the co-owners, the
property in the goods is transferred to any person who buys them of such joint owner in good faith and has not
at the time of the contract of sale notice that the seller has no authority to sell.
[s 28.1] Sale by a co-owner.—
Ordinarily a co-owner could transfer his share only and hence this section enables a co-owner to sell not only
his own share but also of his other co-owners. This section lays down three conditions for validating a sale by
one of the co-owners, i.e., (i) he must be in sole possession by permission of his co-owners; (ii) the purchaser
acts in good faith, i.e., with honesty; and (iii) the purchaser had no notice at the time of the contract of sale that
the seller had no authority to sell. This is the fourth exception of the rule that a man cannot make a valid sale of
goods which do not belong to him. It is a reproduction of Exception 2 to section 108 of the Indian Contract Act,
1872. A, B and C own certain cattle in common. A is left by B and C in possession of a cow which he sells to D.
D purchases bona fide. The property in the cow is transferred to D. This section has been applied to a joint
Hindu family.108
108 Taruck Chunder v Jodeshur, (1873) 11 Beng LR 193.

Page 2 of 2
End of Document
S. 29. Sale by person in possession under voidable contract.-
MullaK Kannan
Transfer of Title
Transfer of Title
When the seller of goods has obtained possession thereof under a contract voidable under section 19 or
section 19A of the Indian Contract Act, 1872 (9 of 1872), but the contract has not been rescinded at the time of
the sale, the buyer acquires a good title to the goods, provided he buys them in good faith and without notice of
the seller’s defect of title.
[s 29.1] Sale by person in possession under voidable contract.—
This section is, in effect, the first part of Exception 3 to section 108 of the Indian Contract Act, 1872 up to the
words “buys them in good faith of the person in possession.” The wording of the section is taken from section
23 of the English Sale of Goods Act, 1893. It is the fifth exception to the rule that a man cannot make a valid
sale of goods which do not belong to him. It deals with the case of a sale by a person who has obtained
possession of goods under a contract voidable under section 19 or section 19A of the Indian Contract Act,
1872. Section 19 says that where consent to an agreement is caused by coercion as defined in section 15, or
fraud as defined in section 17 or misrepresentation as defined in section 18, the agreement is a contract
voidable at the option of the party whose consent was so caused. Section 19A says that where consent to an
agreement is caused by undue influence as defined in section 16, the agreement is a contract voidable at the
option of the party whose consent was so caused. Section 29 validates a sale by a person who has obtained
possession of goods under a contract voidable at the option of the other party on the ground of coercion, fraud,
misrepresentation or undue influence, provided the contract has not been rescinded by the other party at the
time of the sale. A, by misrepresentation has B’s computer delivered for sale. A in turn sells it to C, who
Page 2 of 3
purchases it bona fide without knowing the misrepresentation practiced on B. The purchase by C is complete,
but will have a right of action for damages against A for the loss sustained by him by such misrepresentation.
A person may obtain possession of goods under a contract which is voidable at the opinion of the lawful owner
on the ground of fraud, misrepresentation or coercion or on the ground of undue influence. Possession so
obtained is not by the free consent of the lawful owner as defined in section 14 of the Indian Contract Act, 1872.
It is nevertheless possession of consent, and the person in possession may make a valid pledge of the goods,
provided the contract has not been rescinded at the time of the pledge. There is in such a case a de facto
contract, though voidable on the ground of fraud and the like. It is, however, different if there is no real consent,
as where goods have been obtained by means of theft as defined in section 378 of the Indian Penal Code,
1860. A thief has no title and can give none. Section 29 of the Sale of Goods Act, 1930 has no application if
seller has obtained possession otherwise than under a contract, e.g., by committing an offence of theft.
Where goods have been obtained by fraud the person who has so obtained may either have no title at all, or a
voidable title, according to the nature of the transaction. If the nature of the fraud is such that there never was a
contract between the parties, the person who so obtains the goods has no title and can give none. Thus if A
represents to B that he is acting as agent for C, and B relying on that representation delivers goods to A as
buyer, there is not avoidable contract between A and B, but no contract at all. No property passes to A and he
can neither make a valid sale109 nor a valid pledge. This is really a case of a fundamental error as to the
person with whom one is contracting. There is no real consent and no contract; there is only an offer on B’s part
to the person with whom alone he means to deal and thinks he is dealing; see Indian Contract Act, 1872,
section 13. But if a person buys goods with the intention of not paying for them, there is consent, though not
free, and a contract, though voidable110 and he may make a valid sale or pledge of the goods while the
contract is still subsisting,111 though the fraud may amount to the offence of cheating, as defined in section
415 of the Indian Penal Code, 1860. This was not so under section 178 of the Indian Contract Act, 1872. Under
that section the buyer who obtained possession of goods “by means of an offence or fraud” could not make a
valid pledge. Under section 29, a person who obtains possession of the goods under a contract voidable under
section 19 or section 19A may make a valid pledge though the transaction may amount to an offence or fraud.
[s 29.2] “In good faith”.—
A thing is deemed to be done in good faith when it is in fact done honestly whether it be done negligently or not.
[s 29.3] Without notice of the seller’s defect of title.—
The said words clearly show that mere acting in good faith is not sufficient. There must be want of notice or
knowledge to the buyer of the seller’s defect in title or authority to sell. If the buyer or his agent had the
knowledge or the means of knowledge about the seller’s defect in title or authority to sell and he shuts his eyes
wilfully thereto, the buyer would be deemed to have notice and he would not get a good title.112
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To establish notice, it is sufficient to show that the circumstances attending the transaction were such as a
reasonable or prudent businessman applying his understanding to the circumstances would certainly know, as
distinguished from mere suspicion, that the seller had no authority to sell or pledge.113
Proof of circumstances which ought to put the principal or his agent, having knowledge of them on enquiry, is
sufficient to disentitle him to get a good title.114 In a case where the railway administration appointed a
contractor to supply earth and the contractor removed earth from the plaintiff’s land, the railway administration
was held liable to the plaintiff for conversion of the earth, although the railway administration had paid to the
contractor the price of the earth.
109 Hardman v Booth, (1863) 32 LJ Ex 105 : 1 H&C 803.
110 Clough v London & NW Ry Co, (1871) LR 7 Ex 26.
111 Croft v Lumley, (1858) 6 HL Cas 672, 705 : (1843-60) All ER 162 : 10 ER 1459.
112 Jones v Gordon, (1877) 2 App Cas 616 , 625.
113 Gobind Chunder v Ryan, (1861) 9 Moore IA 140 (164).
114 Nandlal v Bank of Bombay, (1910) 12 Bom LR 316 , 337; Jones v Gordon, (1877) 2 App Cas 616 , 628.
End of Document
S. 30. Seller or buyer in possession after sale.-
MullaK Kannan
Transfer of Title
Transfer of Title
(1) Where a person, having sold goods, continues or is in possession of the goods or of the documents of
title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him, of the
goods or documents of title under any sale, pledge or other disposition thereof to any person receiving
the same in good faith and without notice of the previous sale shall have the same effect as if the
person making the delivery or transfer were expressly authorised by the owner of the goods to make
the same.
(2) Where a person, having bought or agreed to buy goods, obtains, with the consent of the seller,
possession of the goods or the documents of title to the goods, the delivery or transfer by that person
or by a mercantile agent acting for him, of the goods or documents of title under any sale, pledge or
other disposition thereof to any person receiving the same in good faith and without notice of any lien
or other right of the original seller in respect of the goods shall have effect as if such lien or right did not
exist.
[s 30.1] Disposition by seller remaining in possession.—
Sub-section (1) deals with dispositions by a seller continuing in possession of the goods after sale. It says that
where a person has sold goods but continues in possession of them or of documents of title to them, he may
sell them to a third person, and if such person obtains delivery thereof in good faith and without notice of the
Page 2 of 4
previous sale, he gets a good title to them, although the property in the goods has passed to the first buyer. A
pledge, mortgage or any other disposition of the goods is equally valid. The disposition may be made not only
by the seller in possession, but also by a mercantile agent acting for him. 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. The transaction would be equally valid
if A pledged or mortgaged the goods to C.
It will be seen from what is stated above that to enable the seller to pass a good title—
(1) the seller must continue in possession of the goods or of the documents of title to the goods as a
seller. Possession as a hirer or bailee of the goods from the buyer after delivery of the goods to him will
not do.115
(2) the goods must have been delivered to the buyer or the documents of title must have been transferred
to him. A mere agreement for sale, pledge or other disposition will not do;
(3) good faith and absence of notice of the previous sale on the part of the second buyer.
[s 30.2] Disposition by buyer obtaining possession.—
Sub section (2) deals with the converse case of a sale or other disposition by the buyer of goods in which the
property has not yet passed to him. The section says that if the buyer obtains possession of the goods, before
the property in them has passed to him, with the consent of the seller, he may sell, pledge or otherwise dispose
of the goods to a third person, and if such person obtains delivery of the goods in good faith and without notice
of any lien or other right of the original seller in respect of the goods, he will get a good title to them. As to an
unpaid seller’s lien, see section 47; as to his right of stoppage in transit, see section 50 below.
To enable the buyer to pass a good title—
(1) There must be possession of the goods or documents with the consent of the seller. A sells certain
copper to B and draws on B for the price and forwards to B the bill of exchange and bill of lading
(endorsed in blank) together to secure acceptance or payment of the bill. B who is insolvent does not
accept the bill of exchange, but transfers the bill of lading to C in fulfilment of a previous contract to
supply him with copper. C in good faith pays the price. A cannot stop the copper in transit. Here B, not
having accepted the bill of exchange, was bound to return the bill of lading to A, and the property in the
Page 3 of 4
goods did not pass to him [section 25(3)]. B, however, has possession of the bill of lading with the
consent of the seller, the seller having voluntarily, and without being deceived by any trick, sent it to
him. B therefore could pass a good title to C.116 The words “with the consent of the seller” are very
material. The Supreme Court has held that “the consent” in this section means “agreeing on the same
thing in the same sense” and does not mean “free consent.”117 In that case A having agreed to sell to
B certain shares sent the share certificates with blank transfer forms to his banker with instructions to
deliver them to B against payment of the price. The bank’s clerk went to B’s office with the documents
to deliver them against receipt of price thereof. The bank’s clerk placed the documents on B’s table
asking B to pay the price and to sign the transfer form. B began to scrutinise the documents which the
bank’s clerk allowed but the bank’s clerk insisted upon the payment of the price thereof before B took
delivery thereof. On the pretext of bringing moneys, B left the office and took with him the said
documents. B disappeared from the other door and pledged them. Plaintiff Bank contended that it
received shares by way of pledge in good faith and without notice of the title of the intending purchaser
B and Plaintiff Bank had actual possession of share with the consent of the seller and so pledge would
be effective under section 30(2). It was held that B, the intending buyer, had not obtained possession
of the documents “with the consent of the seller”. B’s possession was without such consent; B could
not therefore create a valid pledge and hence the pledgee did not acquire any title against the true
owner and/or against the owner’s bank.118
(2) The goods must have been delivered to the buyer or the documents of title transferred to him. A mere
agreement for sale, pledge or other disposition will not do.
(3) There must be good faith, and absence of notice of the seller’s right of property on the part of the
second buyer.
[s 30.3] Chain of contracts.—
Sub-section (2) appropriately applies to a case involving a chain of contracts wherein the documents, such as
delivery orders, are handed over by one seller to his buyer and the latter in his turn to his buyer and so on. But
in such cases, the buyer gets possession of the documents of title to the goods with the consent of the seller
after paying the price thereof in cash or on credit.119
[s 30.4] Hire-purchase agreements.—
The hirer under a hire-purchase agreement is not a person who “has agreed to buy goods” within the meaning
of sub-section (2) unless he has hound himself to buy. A mere option to purchase is not sufficient.119
[s 30.5] Mercantile agent.—
For the definition of mercantile agent, see section 2(9). See sale by a mercantile agent under section 27.
[s 30.6] Documents of title to goods.—
Page 4 of 4
For the definition of documents of title to goods, see section 2(4).

[s 30.7] Or other disposition.—
These words follow the words “any sale or pledge” and hence they have to be construed ejusdem generis with
the preceding words.120 Therefore there must be a transfer of property or a transfer of a right to property. A
hypothecation will not be covered by the said words “or other disposition” as it does not involve transfer of
property.120
115 Parbati Devi Bagla v Lachminarayan, AIR 1957 Cal 551 [LNIND 1957 CAL 102] ; Staffs Motor Guarantee, Ltd v British
Wagon Co, (1934) 2 KB 305 ; Union Transport Finance, Ltd v Ballardie, (1937) 1 KB 510 . The word “possession”
includes possession by another person on behalf of the person whose possession is material; City Fur Manufacturing
Co. Ltd v Fureenbond (Brokers) London, Ltd, (1937) 1 All ER 799 .
116 Cahn v Pockett’s Bristol Channel Co, (1899) 1 QB 643 .
117 Central National Bank Ltd v United Industrial Bank Ltd, AIR 1954 SC 181 [LNIND 1953 SC 109] : [1954] SCR 391
[LNIND 1953 SC 109] .
118 Duni Chand Rataria v Bhuwalka Bros Ltd, AIR 1955 SC 182 [LNIND 1954 SC 170] : [1955] 1 SCR 1071 [LNIND 1954
SC 170] .
119 Belsize Motor Supply Co v Cox, (1914) 1 KB 244 ; Gopal v Sorabji, (1904) 6 Bom LR 871 .
120 Pramatha Nath v Probirendra, AIR 1966 Cal 405 [LNIND 1965 CAL 28] .
120 Pramatha Nath v Probirendra, AIR 1966 Cal 405 [LNIND 1965 CAL 28] .
End of Document
S. 31. Duties of seller and buyer.-
MullaK Kannan
The Indian Partnership Act, 11th ed > The Sale of Goods Act > Chapter IV Performance of the
Contract
Chapter IV Performance of the Contract
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.
[s 31.1] Duties of seller and buyer.—
The two parties to a contract of sale are the seller and the buyer, and each has his duties and obligations to
perform. The duty of the seller is to deliver the goods, whether he is the owner or not, and whether he has the
goods in his possession at the time of the contract of sale or not. The duties of the buyer are to accept the
goods (section 42) and to pay for them. Both these duties are to be performed in accordance with the terms of
the contract of sale.
This section emphasises reciprocity of the promises of duties. The words “in accordance with the terms of the
contract of sale” are intended to show that the parties are at liberty to modify the terms. In absence of a contract
to the contrary these duties are concurrent conditions as stated in the following section.
In certain F.O.B. contracts, it was held that the buyer had prima facie to open a confirmed bank’s credit before
the goods are shipped by the seller.1
Where a buyer has put an end to the contract and has repudiated his obligation, a seller would be absolved
from his duty of delivering the goods.2
Page 2 of 2
Similarly, if the seller has refused to perform his part of the contract, without any justification even before the
final date of delivery of goods had arrived, the buyer need not make a formal application for delivery.3
In State Bank of Mysore v Machado Computer Services,4 goods were certified to have been received in full
both for the quality as well as the quantity of the goods supplied as per section 42 of the Sale of Goods Act,
1930. Further, upon such acceptance after examination of the goods specifically accepted, the description of
the goods as regards the make or the brand is also deemed to have been accepted and there could be no
defect stated to be in respect of such brand as per the second proviso to section 16 of the Sale of Goods Act,
1930. The duty of the supplier in the contract of sale was, therefore, complete. The plaintiff accepted the goods.
The plaintiff was, therefore, required to make payment for the goods, having accepted as per the enjoinment
under sections 31 and 32 of the Sale of Goods Act, 1930.
1 Ian Stach Ltd v Baker Bosley Ltd, (1958) 2 WLR 419 : (1958) 2 QB 130 .
2 Chhunna Mal v Mool Chand, AIR 1928 PC 99 : 9 Cal 510 : (1928) 30 Bom LR 837 .
3 Devi Lal v Govind Lal, AIR 1961 Raj. 283 [LNIND 1961 RAJ 169] .
4 State Bank of Mysore v Machado Computer Services, 2009 (4) Bom CR 199 [LNIND 2009 GOA 92] : (2009) 111 Bom
LR 2481 .
End of Document
S. 32. Payment and delivery are concurrent conditions.-
MullaK Kannan
Contract
Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions, that is to
say, the seller shall be ready and willing to give possession of the goods to the buyer in exchange for the price,
and the buyer shall be ready and willing to pay the price in exchange for possession of the goods.
[s 32.1] Payment and delivery are concurrent conditions.—
This section says that delivery of the goods and payment of the price are concurrent conditions. Concurrent
conditions mean that they have to be performed simultaneously, that is to say, the seller must be ready and
willing to give delivery in exchange for the price, and the buyer must be ready and willing to pay the price in
exchange for possession of the goods.
Section 32 has no relevance to the question whether there was a contract at all between the parties, but if a
contract is shown to exist, the payment and delivery are concurrent conditions. It pertains to a condition which
is to be implied, unless there is a provision to the contrary, in a contract. Indeed, the section assumes the
existence of a contract in respect of which such a term may or may not be read in.5
[s 32.2] Ready and willing.—
The seller in order to be ready and willing need not be in actual possession of goods; it is sufficient if he has
such control of goods that he can cause them to be delivered.6 Similarly, a buyer must have proper
arrangements for securing payment.7 Insolvency or inability to take or give delivery is indication of being “not
ready and willing”.8
[s 32.3] Unless otherwise agreed.—
Page 2 of 2
The rule laid down in this section applies “unless otherwise agreed.” Thus, if A sells goods to B on credit, and
nothing is said as to the time of delivery, the buyer is entitled to immediate possession, without paying the price
when possession is given. A C.I.F. contract which is a sale of goods by transfer of documents would fall within
the expression “unless otherwise agreed.”9
[s 32.4] Inter-state sale, place of payment of price is not relevant.—
In construing whether a particular transaction involves an inter-state sale or not, the place of payment of price is
not much of consequence because as per section 20 of the Sale of Goods Act, 1930 in cases where there is an
unconditional contract for sale of specific goods in deliverable state, the property in the goods passes to the
buyer when the contract is made, and it is immaterial that time of payment of the price or the time of delivery of
the goods or both are postponed. In terms of this section and section 9, merely because that person who took
delivery of the goods from the respondent happened to be an agent of some other person outside the State,
and had consigned the said goods to his principal outside the State, the purchase of the goods made by him
from the respondent would not make the transaction of sale made by the respondent transaction of inter-state
sales.10
5 Claude-Lila Parulekar v Sakal Papers, Pvt Ltd, AIR 2005 SC 4074 [LNIND 2005 SC 295] : (2005) 11 SCC 73 [LNIND
2005 SC 295] .
6 Kumar Bhan Sukha Nand. v Ganpat Rai, AIR 1926 Lah 318 : (1926) 7 Lah 442 : 94 IC 304.
7 Kidar Nath Behari Lal v Shimphu Nath Nandu Mal, AIR 1927 Lah 176 : (1926) 8 Lah 198 : 99 IC 812.
8 Chunna Mal Ram v Mool Chand Ram, AIR 1928 PC 99 : 55 IA 154 : 9 Lah 510 : 108 IC 678.
9 E. Clements Horst Co v Biddel Bros, (1912) AC 18 .
10 State of AP v Computer Graphics Pvt Ltd, (2009) 21 VST 42 (AP) : LNIND 2008 AP 373 .
End of Document
S. 33. Delivery.-
MullaK Kannan
Contract
S. 33. Delivery.-
Delivery of goods sold may be made by doing anything which the parties agree shall be treated as delivery or
which has the effect of putting the goods in the possession of the buyer or of any person authorised to hold
them on his behalf.
There are no corresponding provisions for sections 33, 34 and 35 in English law. The law, however, is not
different and they are covered through rules to determine the intention when title is intended to pass and set out
in section 18 of the English Sale of Goods Act, 1979 and several other sections.
[s 33.2] Delivery how made.—
The first part of the present section which says that delivery may be made by doing anything which the parties
agree shall be treated as delivery presents no difficulty. The question is one of agreement between the parties,
and where a dispute arises the Court is called upon to do no more than ascertain what the agreement between
the parties was. Where a seller sells his horse but the buyer allows the horse to remain in custody of the seller
on buyer’s behalf.11 The delivery in this case would fall under the first part viz. “made by doing anything which
the parties agree shall be treated as delivery.”
The second part of the section says that the delivery may be made by doing anything which has the effect of
putting the goods in the possession of the buyer. This part of the section may be explained by the following
illustrations.
Page 2 of 3
S. 33. Delivery.-
Illustrations
(1) B, in USA, orders two containers of garments from A, and books a space in the ship docked in Mumbai. On
being informed, A puts on board the containers containing the garments. The placing of the containers on board
by A is delivery to B.
(2) A sells to B five metric tonnes of rice in possession of C, a warehouse manager. A gives B an order to C
(called a delivery order) to transfer the rice to B, and C assents to such order, and transfers the rice in his
books to B. This is a delivery to B.
(3) A agrees to sell B five tons of oil, at Rs 1000 per ton, to be paid for at the time of delivery. A gives to C, a
wharfinger, at whose wharf he has 20 tons of the oil, an order to transfer five tons out of them into the name of
B. C makes the transfer in his books, and gives A’s clerk a notice of the transfer to B. A’s clerk takes the
transfer notice to B, and offers to give it to him on payment of the price of the oil. B refuses to pay. There has
been no delivery to B, as B never assented to make C his agent to hold for him the five tons selected by A.12
[The assent of all the three parties, namely, (1) the seller, (2) the buyer, and (3) the seller’s bailee is necessary
to constitute a transfer of possession, as in illustration (2).]
[s 33.3] Symbolic delivery.—
Delivery of the key of a godown or warehouse is symbolic delivery of the goods therein. Delivery of a key,
however, does not operate as delivery of the goods under the lock if it does not in fact give complete access to
them.13
Illustrations
(1) A sells to B certain specific goods which are locked up in a godown. A gives B the key of the godown in
order that he may get the goods. This is a delivery to B.
(2) A sells to B certain specified goods which are locked up in a receptacle, but retains the key of the outer
enclosure. This is not a delivery to B.
[s 33.4] Constructive delivery.—
There may be change in the possession of goods, and therefore delivery within the definition above, without
any change in their actual and visible custody. There is said to be a constructive delivery in such cases. Firstly,
the seller’s possession of the goods may change as after the sale, he may no longer hold the goods as owner
Page 3 of 3
S. 33. Delivery.-
but may hold the goods on account of the buyer, e.g., as a bailee for the buyer. So, in Elmore v Stone,14 a
horse was sold. The seller at the buyer’s request agreed to keep it at his livery and moved the horse from sale
stable into another stable. It was held that there was a delivery. Illustration (2) under the heading “Delivery how
made” is another instance on constructive delivery. The handing over of the delivery order by the seller to the
buyer and the assent of the seller’s bailee (warehouseman in that illustration) constitutes a constructive
delivery. But all the three parties must concur. Otherwise there is no delivery. The warehouseman by assenting
to hold the goods for B attorns to B. Such an “agreement of attornment”, as it is sometimes called, has the
effect of transferring the legal possession to the buyer. Note that in Illustration (3) under the heading “Delivery
how made”, all the three parties did not concur. B’s assent was wanting. When once, however, the assent of all
the three parties is obtained, the delivery as between the seller and buyer is complete and the seller will not be
responsible if the bailee afterwards wrongfully delivers the goods to some third person.15
Lastly, constructive delivery also takes place where a buyer, before sale, is in possession of the goods of the
seller, instead of holding the goods in that capacity of a bailee for the seller, after the sale the buyer holds the
goods as the owner of it. The above three instances are of constructive delivery which is effected without any
change in the actual possession of the thing delivered which is the subject matter of the sale.
11 Elmore v Stone, 127 ER 912 : 1 Taunt 458.
12 Godis v Rose, (1885) 17 CB 229 : 139 ER 1058.
13 Milgate v Kebble, (1841) 3 Man. & Gr. 100 : 60 RR : 475 : 39 Digest (Repl.) 777, 2533.
14 127 ER 912.
15 Wood v Tassell, (1844) 6 QB 234 .
End of Document
S. 34. Effect of part delivery.-
MullaK Kannan
Contract
A delivery of part of goods, in progress of the delivery of the whole, has the same effect, for the purpose of
passing the property in such goods, as a delivery of the whole; but a delivery of part of the goods, with an
intention of severing it from the whole, does not operate as a delivery of the remainder.
[s 34.1] Part delivery.—
This affirms the common law rule that delivery of part may be a delivery of the whole if it is so intended and
agreed, but not otherwise, and the burden of proof seems to be on the party affirming that such was the
intention.16 A delivery of part operates as a constructive delivery of the whole only where the delivery of part
takes place in the course of the delivery of the whole; in such a case the faking possession by the buyer of that
part is the acceptance of constructive possession of the whole.17 But if part of the goods be delivered with
intent to separate that part from the rest, it is not an inchoate delivery of the whole.18 What was the intention of
the parties in any particular transaction is a question of fact to be determined with regard to all the
circumstances of each case.18 The following illustrations explain the scope of the section:
(1) A ship arrives in a harbour laden with a cargo consigned to A, the buyer of the cargo. The captain begins to
discharge it and delivers over part of the goods to A in progress of the delivery of the whole. This is a delivery of
the cargo to A for the purpose of passing the property in the entire cargo.
(2) A sells to B a stack of firewood, to be paid for by B on delivery. After the sale, B applies for and obtains from
A leave to take away some of the firewood. This has not the legal effect of a delivery of the whole.
Page 2 of 2
(3) A sells 50 maunds of rice to B. The rice remains in A’s warehouse. After the sale, B sells to C 10 maunds of
the rice, and A at B’s desire sends the 10 maunds to C. This has not the legal effect of a delivery of the whole.
(4) In a contract to purchase “5 bales of chrome orange twist or any part thereof that may be in a merchantable
condition ex ss.… with specific marks and numbers each bale to contain 500 Lbs.” it was held that delivery of
each bale was a separate transaction, as the purchaser had the right in case of each bale to ascertain if it is in
a merchantable condition.19
(5) Sale of a quantity of goods lying at a wharf. The seller left an order with the wharfinger to deliver the goods
to the buyer, who has paid by a bill. The buyer subsequently weighed the goods and took away part of them.
This was held to amount to a delivery of the whole of the goods.20
16 Per Lord Blackburn in Kemp v Falk, (1882) 7 App Cas 573 , 586.
17 Bolton v L. & Y. R. Co, (1886) LR 1 CP p 440 ; Pranlal v Manekji Petit Mfg Co, AIR 1933 Bom 46 : 34 Bom LR 1252 :
140 IC 610.
18 Dixon v Yates, (1833) 5 B. & Ad. 313, 339 : 39 RR 489, 499 : (1824–1834) All ER Rep 744 , 751; Mitchell Reid & Co v
Buldeo Doss Khettry, (1888) 15 Cal 1 .
18 Dixon v Yates, (1833) 5 B. & Ad. 313, 339 : 39 RR 489, 499 : (1824–1834) All ER Rep 744 , 751; Mitchell Reid & Co v
Buldeo Doss Khettry, (1888) 15 Cal 1 .
19 Mitchell Reid & Co v Buldeo Doss Khettry, 15 Cal 1 (7) : (1888) ILR 15 Cal 1.
20 Hammond v Anderson, (1803) 1 B & PNR 69 : 127 ER 384.
End of Document
S. 35. Buyer to apply for delivery.-
MullaK Kannan
Contract
Apart from any express contract, the seller of goods is not bound to deliver them until the buyer applies for
delivery.
[s 35.1] Buyer to apply for delivery.—
This is a reproduction of section 93 of the Indian Contract Act, 1872. There is no such section in the English
Sale of Goods Act, 1979. The rule contained in this section has been found in practice to be very salutary. The
buyer has no cause of action against the seller if he has not applied for delivery and he must state that cause of
action in his plaint.21 In other words, the seller of goods is not bound to deliver until the buyer applies for the
delivery.22
The words “until the buyer applies” would mean that a demand by a third party is not valid under this section.23
In a case where the contract provided that seller should give notice of the arrival of the goods (such as railway
receipt and the invoice), the buyer was still under an obligation to apply for delivery.24
The application for delivery must be according to the provisions of section 32, i.e., unless otherwise agreed
upon, the buyer must be ready and willing to pay the price in exchange for possession of goods.25
B buys goods from A, and assigns the benefit of the contract to C. C applies for delivery. B then takes a
reassignment from C and sues A on the contract without making any demand for the goods. It is found that the
Page 2 of 3
assignment to C was fictitious. B is not entitled to adopt the demand for delivery made by C. Such a demand is
no demand at all, and B’s suit should be dismissed. He ought to have made a fresh demand for the goods.
When the buyer has applied for delivery, it will be a question dependent on the nature and circumstances of the
particular contract as to the time within which the seller is bound to comply with the buyer’s demand.26
The words “Apart from any express contract” are intended to exclude any express contract from the general
rules laid down in this section. C.I.F.27 (Cost, Insurance and Freight) and F.O.B. (Free on Board) contracts
would be covered by the said expression. Under C.I.F. contract there is an obligation on the seller to tender the
shipping documents or certain agreed documents at the particular stage and the buyer’s obligation is to pay the
price against the tender of the documents. When it is an initial obligation of the seller to tender the documents
and it is upon such tender that the obligation of the buyer arises to pay the price in exchange of the documents
and to take delivery of the goods, the provisions of section 35 of the Sale of Goods Act, 1930 are not
applicable.26 The Calcutta High Court26 drew the distinction between an ordinary contract of Sale of Goods
and C.I.F. type contract. In C.I.F. contract seller’s duty is to deliver documents representing the goods and it is
no part of his duty to deliver the actual physical delivery of the goods to the buyer as is the case in ordinary
contract of sale of goods. Where the goods are being imported from a foreign country by the seller and the
delivery is to be given at the jetty, there is clearly an obligation on the seller to inform the buyer about the arrival
of the goods at the port of destination. It is only then that the obligation, if any, of the buyer to apply for delivery
would arise.
This section also excludes any custom or usage to the contrary by reason of section 1 of the Contract Act, 1872
read with section 3 of the Sale of Goods Act, 1930.28 The said expression has been used for excluding the
scope of any implied stipulations as well as trade usage.29
The rule contained in this section applies to contract of sale for ready as well as forward goods.30 The buyer’s
duty to apply for delivery under section 35 of the Sale of Goods Act, 1930 does not arise where the seller has
refused to perform his part of the contract without any justification even before the final date of delivery has
arrived as it would become an idle formality to apply for delivery. In the case of anticipatory breach of contract
by the seller the provisions of section 35 have no application when the buyer treats the contract as rescinded by
virtue of section 60 of the Sale of Goods Act, 1930.31
Page 3 of 3
21 Sivayya v Ranganayakulu, AIR 1935 PC 67 : (1935) 37 Bom LR 538 : 62 IA 89; Alapty Ramamoorthy v P.
Satyanarayana, (‘58) A Andh Prad 550.
22 Gujarat Urja Vikas Nigam Ltd v Essar Power Limited, (2016) 9 SCC 103 [LNIND 2016 SC 324] .
23 Mulji v Nathubhai, (1890) 15 Bom 1; Sivayya v Ranganayakulu, (1935) 62 IA 89 : 58 Mad 670 : 154 IC 1097, (‘35) APC
67.
24 Ganesh Das v Ram Nath, (1928) A Lah 20, 27 : 9 Lah 148 : 111 IC 498.
25 Sivayya v Ranganayakulu, AIR 1935 PC 67 : 62 IA 89.
26 Sivayya v Ranganayakulu, AIR 1935 PC 67 : (1935) 62 IA 89 : 58 Mad 670 154 IC 1097.
27 B.R. Herman & Mohatta Ltd v Pran Ballav Majumdar, AIR 1960 Cal 524 [LNIND 1960 CAL 49] (530) : 64 Cal WN 798.
28 Sivayya v Ranganayakulu, AIR 1935 PC 67 (70) : 58 Mad 670 154 IC 1097 : 62 IA 89 : 37 Bom LR 538.
29 Alapaty Ramamoorthy v Polisetti Satyanarayana, AIR 1958 AP 550 .
30 Dinkerrai v Sukhdayal, AIR 1947 Bom 293 : 48 Bom LR 821.
31 Devilal v Govindlal, AIR 1961 Raj. 283 [LNIND 1961 RAJ 169] .
End of Document
S. 36. Rules as to delivery.-
MullaK Kannan
Contract
(1) Whether it is for the buyer to take possession of the goods or for the seller to send them to the buyer is
a question depending in each case on the contract, express or implied, between the parties. Apart from
any such contract, goods sold are to be delivered at the place at which they are at the time of the sale,
and goods agreed to be sold are to be delivered at the place at which they are at the time of the
agreement to sell, or, if not then in existence, at the place at which they are manufactured or produced.
(2) Where under the contract of sale the seller is bound to send the goods to the buyer, but no time for
sending them is fixed, the seller is bound to send them within a reasonable time.
(3) Where the goods at the time of sale are in the possession of a third person, there is no delivery by
seller to buyer unless and until such third person acknowledges to the buyer that he holds the goods
on his behalf:
Provided that nothing in this section shall affect the operation of the issue or transfer of any
document of title to goods.
(4) Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour. What is
a reasonable hour is a question of fact.
(5) Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state
shall be borne by the seller.
[s 36.1] Rules as to delivery.—
Page 2 of 4
The rules as to delivery stated in this section are based on section 29 of the English Sale of Goods Act, 1979.
They may be varied by agreement between the parties.
[s 36.2] Interpretation of contract.—
The first part sub-section (1) lays down that in each case the question as to whether the buyer has to apply for
possession or the seller has to send the goods to the buyer should be determined on the basis of the
construction of each contract.
[s 36.3] Place of delivery.—
Apart from any such express or implied contract, the goods are to be delivered at the place where they were
lying, at the time of the sale or at the time of the agreement to sell; if the goods are future goods, they should be
delivered at the place of manufacture or production thereof.
[s 36.4] Place and mode of delivery.—
The first part of this rule deals incidentally with the mode of delivery, and the second part with the place of
delivery.32 The section lays down a specific rule as to the place of delivery, but none as to the mode of
delivery. The mode of delivery, i.e., whether the seller is to send the goods to the buyer or the buyer is to take
possession of them, depends, says rule (1), on the contract between the parties. The contract may be express
or implied. In the absence of any such contract, the mode of delivery may be governed by the usage of the
trade.
In the absence of any contract express or implied as to delivery, delivery has to be made at the place stated in
this rule. A agrees to sell goods to B “to be delivered at any place in Bengal to be mentioned hereafter.” Here
there is an express contract as to delivery giving the buyer the right to fix the place anywhere in Bengal. If the
buyer demands delivery, say, at the Howrah railway station, the seller must deliver the goods at that station.33
[s 36.5] Time for delivery.—
Sub-section (2) states that when the seller is bound to send the goods to the buyer, he must send them within a
reasonable time. Where time is fixed, the seller is bound to deliver the goods in time. If the contract of sale
states that the goods will be delivered as and when required, a request for delivery is a condition precedent to
the seller’s obligation to deliver. Where no time is limited for making a request for delivery the request for
delivery must be made within a reasonable time which depends upon particular circumstances of each case,
nature of goods, transport facilities, etc. Once “reasonable time” is implied within the meaning of this sub-
section 2, it becomes a contract as if the parties have themselves fixed a specified time and when the
reasonable time expires, there arises a breach of contract.34 If A agrees to sell and deliver goods to B “as
required,” B is not entitled to wait indefinitely. He must require delivery within a reasonable time. If B fails to do
Page 3 of 4
so, A may rescind the contract, i.e., put an end to it, but he cannot do so without previous notice to B giving B a
reasonable time to pay for and take delivery of the goods.35 For the meaning of the expression “reasonable
time”36.
[s 36.6] Goods in possession of third person.—
When the goods are in the possession of a third person, e.g., a warehouseman, there is no delivery unless he
assents to attorn to the buyer and becomes his bailee instead of that of the seller.37 A sells to B five metric
tonnes of rice in the possession of C, a warehouse manager. A hands over to B his (A’s) order issued to C to
transfer the rice sold to B. C assents to the order and transfers the rice in his books to B. This is a delivery of
the goods to B. By assenting to the order, C attorns to B, the buyer, and becomes B’s bailee. Before the assent
C held the goods as the bailee of A, the seller. All the three parties must agree.
Issue or transfer of document of title to goods.—The expression “document of title to goods” is defined in
section 2(4) of the Sale of Goods Act, 1930. It includes a bill of lading and a railway receipt. The proviso to
section 36(1) of the Sale of Goods Act, 1930 covers the case of goods in course of transit at sea or on land. In
the case of goods while they are at sea, the lawful transfer of a bill of lading operates as a delivery of the goods
themselves.38 And so does a railway receipt in the case of goods in course of transit on land.39
[s 36.7] Demand or tender of delivery.—
This must be at a reasonable hour.

[s 36.8] Expenses of delivery.—
A agrees to sell and deliver goods to B. The agreement is silent as to the expenses of putting the goods in a
deliverable state, that is to say, in such a state, that the buyer would under the agreement be bound to take
delivery of them [section 2(3)]. The expenses must be borne by A. He cannot charge B with them. If B is
compelled to pay them, he may recover them from A. The words “unless otherwise agreed” would cover
agreements to the contrary, e.g., in F.O.B. and F.O.R. contracts, seller has to bear expenses of putting goods
“on board” or “on rails”. In C.I.F. contract, the freight has to be borne by the seller. Wharfage charges,
demurrage are to be borne by the buyer.
In a case of a contract for sale of goods the words used were “station delivery”, the question arose as to who
has to bear the customs duty payable on the goods in respect of the goods in transit up to the railway station
and upon the evidence it was held that the buyer had to bear the customs duty. It was in evidence that custom
receipts were invariably made out in the name of the buyer indicating thereby that the responsibility for payment
of custom dues was on the buyer and not on the seller. The seller bore the expenses of carrying the goods from
his business place to the railway station in his carts.40
Page 4 of 4
See also notes on C.I.F. contracts under section 39.
32 Chalmers’ Sale of Goods, 10th Edn, p 86.
33 Grenton v Lachmi Narain, (1896) 23 IA 119 , 24 Cal 8.
34 Dinkerrai v Sukhdayal, AIR 1947 Bom 293 : 48 Bom LR 821 : (1948) Bom 90.
35 See Jones v Gibbons, (1853) 8 Exch. 920, 922 : 91 RR 841.
36 See section 63 infra.
37 Bentall v Burn, (1824) 3 B & C 423 3 LJKB 42.
38 See E. Clemens Horst & Co, (1911) 1 KB at pp 952, 956.
39 Ramdas v Amerchand & Co, (1916) 43 IA 164 , 40 Bom 630.
40 Shreechand Aggarwalla v Bhagwan Das, AIR 1952 Ori. 85 [LNIND 1951 ORI 35] .
End of Document
S. 37. Delivery of wrong quantity.-
MullaK Kannan
Contract
(1) Where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer
may reject them, but if the buyer accepts the goods so delivered he shall pay for them at the contract
rate.
(2) Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the buyer
may accept the goods included in the contract and reject the rest, or he may reject the whole. If the
buyer accepts the whole of the goods so delivered, he shall pay for them at the contract rate.
(3) Where the seller delivers to the buyer the goods he contracted to sell mixed with goods of a different
description not included in the contract, the buyer may accept the goods which are in accordance with
the contract and reject the rest, or may reject the whole.
(4) The provisions of this section are subject to any usage of trade, special agreement or course of dealing
between the parties.
A contract for the quantity of goods lying at a particular place for a lump sum price is prima facie an entire (for
the entire lot) contract.41 Subject to the rule de minimis non curat lex, the seller does not fulfil his contract by
tendering less than the stipulated quantity and cannot call upon the buyer to accept it and equally the buyer
cannot call for delivery of anything short of the full quantity unless he is prepared to accept the whole.42
Page 2 of 5
Delivery of wrong quantity.—This section provides for three cases, namely, where the seller delivers to the
buyer—
(1) a quantity less then he contracted to sell;
(2) a quantity larger then he contracted to sell;
(3) goods ordered mixed with goods of a different description.
When the seller delivers a smaller or a larger quantity of goods than was ordered under an entire contract, such
delivery amounts to a proposal by the seller for a new contract.43
[s 37.1] Delivery of less.—
The following cases explain the operation of sub-section (1). They may be stated in the form of illustrations—
Illustrations
(a) A agrees to sell and deliver to B 500 maunds of rice, but only 420 are delivered. B has the rice weighed and
he accepts the quantity sent. B cannot afterwards object that the whole of the 500 maunds was not delivered,
and he must pay for the 420 maunds accepted by him at the contract rate.44
(b) A sells to B 2000 gross of “200 yards reels” of sewing cotton. After taking delivery B finds that the length of
the cotton per reel is less than 200 yards, the average shortage being about 6%. The case is one of short
delivery, and B is entitled to damages.45
(c) A agrees to sell and deliver “200 tons, 5% more or less,” of certain goods. A may under this contract deliver
5% more, i.e., 210 tons [see sub-section (2)], or he may deliver 5% less, i.e., 190 tons, and the buyer cannot
refuse delivery in either case.46
By accepting lesser quantity, the buyer does not preclude himself from claiming damages for short delivery.47
[s 37.2] Delivery of more.—
Page 3 of 5
A orders of B two dozen bottles of wine. B sends five dozen. A is entitled to reject the whole. Or he may accept
two dozen and reject the rest. If he accepts all the five dozen, he must pay for them at the contract rate.48
De minimis non curat lex.—The above two rules are subject to this rule of de minimis non curat lex i.e. law does
not count of the trivial variation. The burden of proving that a breach of contract falls within this principle is on
the party seeking to excuse the breach.49
[s 37.3] Mixed delivery.—
The words “mixed with” in sub-section (3) mean “accompanied by”.50 The sub-section provides for the case
where the seller sends to the buyer the goods he contracted to sell with goods of a different description, i.e., a
different class, kind or sort.
(a) A orders to B specific articles of china. B sends these articles to A in a hamper with other articles of china
which had not been ordered. A may refuse to accept any of the goods sent. The purchaser was entitled to an
unconditional tender and such a tender not having been made, he was at liberty to refuse to accept.51
(b) A, under a contract for the sale of Ruabon coals, sends one lot of 15 tons of such coals, and another lot of 7
tons of coals which are not Ruabon coals, and mixes them all together in delivery. The whole of the quantity so
delivered must be considered not according to contract, and the delivery is a bad delivery.52
(c) A agrees to sell to B 3000 tins of canned fruit to be packed in cases, each containing 30 tins. About one-half
of the goods tendered are packed in cases, each containing 24 tins. B is entitled to reject the whole
consignment. He is not bound to accept the cases properly packed, though the market value of the whole
consignment is not affected by the mixture.53 This is a case of mixing up goods agreed to be sold with goods of
a different description.
(d) The word “description” in sub-section (3) is to be strictly construed. The sub-section entitles the buyer to
accept the goods which are in accordance with the contract and reject the rest only if the seller delivers to the
buyer the goods he contracted to sell mixed with goods of different description. Thus if goods of the description
ordered are delivered, but some of them are of inferior quality, the case is not within this sub-section. In such a
case the remedy of the buyer is to accept or to reject all.54 In Nagpur case out of the bargained quantity of
2,35,000 gaddis of bidi leaves lying at the two godowns, only 77,300 gaddis of bidi leaves were of good quality
Page 4 of 5
as per the contract and the rest gaddis of bidi leaves were worthless. It was observed by the Court that the
case fell under section 37(1), and not under section 37(3), of the Sale of Goods Act, 1930. A mixing of an
inferior quality is not a mixing of goods of different description as contemplated by section 37(3) of the Sale of
Goods Act, 1930. Here, there was a tender and delivery of only a part, viz., 77,300 gaddis of bidi leaves and as
the buyer had accepted the partial delivery, he had to pay for the part accepted by him at the contract rate. See
sections 12(2) and 16 above.
[s 37.4] Trade usages.—
The last sub-section specifically provides that contracts for sale of goods would be subject to the usages of the
different trades and markets. It will be open to the parties to show that in a particular trade or market certain
qualifying words have special meanings (e.g., giving an option of 5%). In order to protect against the provisions
of this section, in various contracts the words used are “more or less”, “about”55 “not less than”, “not more
than”.56
41 Harnarain v Firm Radhakrishan Narayandas, AIR 1949 Ngp 178 (180).
42 Kingdom v Cox, (1848) 5 CB 522 (526).
43 See Cunliffe v Harrison, (1851) 6 Exch. 903, at p 906 : 86 RR 543.
44 Morgan v Gath, 3 H & C 478, 34 LJ Ex. 165 : 140 RR 114.
45 Beck & Co v Syzmanowski & Co, (1924) AC 43 .
46 Re Thornett Fehr Yullis, Ltd, (1921) 1 KB 219 .
47 Garrison v Perrin, (1857) 2 CBNS 681 : 109 RR 830; Bech & Co v Syzmanowski & Co, (1924) AC 43 .
48 See Hart v Mills, 15 M & W 85, 15 LJ Ex 200 : 71 RR 578.

Page 5 of 5
49 Ronaasen & Son v Arcos Ltd, ( 1932) 37 Com Cas 291 .
50 Moore & Co v Landauer & Co, (1921) 2 KB 519 ; London Plywood & Timber Co Ltd, v Nasik Oak Extract Factory and
Steam Sawmills Co, Ltd, (1939) 2 KB 343 .
51 Levy v Green, (1859) 8 E. & B. 575 : 117 RR 552 : (1859) 1 E & E 969 : 120 ER 1174.
52 Nicolson v Bradfield Union, (1866) LR 1 QB 620.
53 Moore & Co v Landauer & Co, (1921) 2 KB 519 ; London Plywood & Timber Co Ltd, v Nasik Oak Extract Factory and
Steam Sawmills Co, Ltd, (1939) 2 KB 343 .
54 Aitken Campbell & Co v Bullen & Gatenby, (1908) SC 490 (Scotland); Harnarayan v Firm Radhakrishan, (1949) A Nag
178.
55 Societic Anonyme & Co v Scholefield, (1902) 7 Com Cas 114 (Re, meaning of the word “about”).
56 Harnarain v Firm Radhakrisan, (1949) A Nag 178.
End of Document
S. 38. Instalment delivery.-
MullaK Kannan
Contract
(1) Unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by instalments.
(2) Where there is a contract for the sale of goods to be delivered by stated instalments which are to be
separately paid for, and the seller makes no delivery or defective delivery in respect of one or more
instalments, or the buyer neglects or refuses to take delivery of or pay for one or more instalments, it is
a question in each case depending on the terms of the contract and the circumstances of the case,
whether the breach of contract is a repudiation of the whole contract, or whether it is a severable
breach giving rise to a claim for compensation, but not to a right to treat the whole contract as
repudiated.
Sub-section (1)
The words “unless otherwise agreed” clearly show that there must be a specific agreement for delivery by
instalments. Such an agreement may, however, be inferred from the nature of the contract itself or the conduct
of the parties.57
[s 38.1] Instalment deliveries.—
This section is an application to contracts of sale of the general principle contained in section 39 of the Indian
Contract Act, 1872. Cases of the kind which fall to be decided under the present section were decided before
the Sale of Goods Act, 1930 under sections 39 and 120 of the Indian Contract Act, 1872. Section 120 occurred
in the Chapter on Sales. It was in these terms: “If a buyer wrongfully refuses to accept the goods sold to him,
this amounts to a breach of the contract of sale.”
Page 2 of 4
Sub-section (2)
Sub-section (2) contemplates that there might be an agreement for delivery by instalments but the price may be
payable either on complete delivery or on delivery of each instalment. In any of these contingencies, the main
consideration is whether the contract is an entire one or a divisible one. It is on this aspect of the matter that the
rights of parties have to be determined with regard to further performance or with regard to breach or with
regard to payment of price or a claim for damages or with regard to rejection of the instalments of goods
already delivered. The test laid down in sub-section (2) is “in each case it depends upon the terms of the
contract and the circumstances of the case.”
The rule of law is that where there is a contract in which there are two parties, each side having to do
something, if you see that the failure to perform one part of it goes to the root of the contract, it is a good
defence to say, “I am not going to perform my part of it when that which is at the root of the whole and
substantial consideration for my performance is defeated by your misconduct”.58
A mere refusal to pay for one or more instalments of goods, to be delivered by instalments at stated times and
to be paid for on delivery, unaccompanied by any other act, does not amount to a repudiation of the contract so
as to discharge the other party from performing his contract. In each case all the circumstances have to be
considered in determining whether there is evidence on which it may be found that there has been a
repudiation of the entire contract.59 Where the repudiation is on the part of the seller, the buyer is relieved from
his obligation to accept the residue of the goods. Where the repudiation is on the part of the buyer, the seller is
not bound to tender the residue of the goods; he need not make or offer goods which he knows the buyer will
refuse.60 Where a buyer of straw, which was to be delivered in instalments and paid for on delivery, said to the
seller, in effect, “You may bring your straw, but I will not pay you upon delivery as under the contract I ought to
do; I will always keep one bundle of straw in hand so as to have a check upon you,” it was held he had shown
an intention to repudiate the contract, and that the seller might treat is as at an end.61
The law on the subject may be stated in one sentence thus: unless otherwise agreed [Illustration (i)], mere
failure to make one of a series of payments [Illustration (ii)], or to make one or more deliveries, will not
generally, in the absence of a prospective refusal, discharge the other party from proceeding with the contract.
Illustrations
Page 3 of 4
(i) A agrees to sell goods to B to be delivered in three instalments in January, February and March 1931, and
ade on due date as a condition precedent to future deliveries.” B fails to pay for the first instalment on the due
date. A may refuse to make further deliveries.62 See section 11 above, “Stipulations as to time.”
(ii) A agrees to sell to B 300 tons of sugar, “the shipment to be made during September and October next in lots
of about 75 tons in a shipment,” payment to be made in cash before delivery. A informs B of the arrival of the
first shipment and demands payment, but B fails to pay. This does not discharge A from making further
deliveries.63
(iii) In a contract for delivery of 7500 bags of Castor Seeds to be shipped per steamer deliveries to be made
each month of 2500 bags and terms cash on delivery, the seller consigned 1690 bags on 12 December in a
steamer and 610 bags on 17 December, the buyer refused to accept deliveries as being less than 2500, it was
held that 2500 bags were shipped in December and hence the buyer’s refusal to accept deliveries was
wrong.64
(iv) In a contract to supply 1500 bags of corn in three instalments of 500 bags each, it was held that the seller
had three causes of action in respect of three instalments, and that each instalment was intended to be
separate.65
(v) The seller agreed to supply 4000 maunds of sabai grass and received a sum of Rs 1000/- as deposit from
the buyer; the buyer was to supply wagons from time to time as required by seller every month and buyer was
to pay for each wagon separately. As the buyer put off supplying wagons as requested by the seller, the seller
intimated that he would sell off the goods and hold the buyer liable for loss. It was held that the buyer was in
breach and that the contract was an entire one. Buyer having failed to accept delivery of more than half the
stipulated quantity the buyer was in breach of the entire contract.66
57 Colonial Insurance Co of New Zealand v Adelaide Insurance Co, (1886) 12 AC 128 (138–39).
58 Mersey Steel and Iron Co v Naylor, Benzon & Co, (1884) 9 App Cas 434 , 443.
Page 4 of 4
59 Freeth v Burr, (1874) LR 9 CP 208 : (1874–80) All ER Rep 751 ; Cornwall v Henson, (1900) 2 Ch 298 .
60 Cort v Ambergate Ry. Co, (1851) 17 QB 127 .
61 Withers v Reynolds, 2 B. & Ad. 882, approved by the House of Lords in Mersey Steel and Iron Co v Naylor, Benzon &
Co, (1884), 9 App Cas 434 at p 442.
62 Ebbw Vale & Co v Blaina Iron Co, (1901) 6 Com Cas 33 .
63 Rash Behary v Nrittya Gopal, (1906) 33 Cal 477 . See also Sooltan Chund v Schiller, (1878) 4 Cal 252 ; Volkart Bros v
Ratna Velu, (1894) 18 Mad 63.
64 Simson v Gorachand, (1883) 9 Cal 473 .
65 Ratilal v Lakhmichand, AIR 1938 Rang 364 .
66 Sriram Agarwalla v Sagarmal Modi, AIR 1957 Ori. 8 .
End of Document
S. 39. Delivery to carrier or wharfinger.-
MullaK Kannan
Contract
(1) Where, in pursuance of a contract of sale, the seller is authorised or required to send the goods to the
buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of
transmission of the buyer, or delivery of the goods to a wharfinger for safe custody, is prima facie
deemed to be a delivery of the goods to the buyer.
(2) Unless otherwise authorised by the buyer, the seller shall make such contract with the carrier or
wharfinger on behalf of the buyer as may be reasonable having regard to the nature of the goods and
the other circumstances of the case. If the seller omits so to do, and the goods are lost or damaged in
course of transit or whilst in the custody of the wharfinger, the buyer may decline to treat the delivery to
the carrier or wharfinger as a delivery to himself, or may hold the seller responsible in damages.
(3) Unless otherwise agreed, where goods are sent by the seller to the buyer by a route involving sea
transit, in circumstances in which it is usual to insure, the seller shall give such notice to the buyer as
may enable him to insure them during their sea transit, and if the seller fails so to do, the goods shall
be deemed to be at his risk during such sea transit.
[s 39.1] Delivery to carrier or wharfinger.—
Sub-sections (1) and (2).—This section is a combination of section 32 of the English Sale of Goods Act, 1979
and section 91 of the Contract Act, 1872.
In view of the provisions of section 23 and section 39 of the Sale of Goods Act, 1930, it was found in Escorts
Page 2 of 9
JCB Ltd v CCE,67 that goods were to be treated as delivered to the buyer and property and possession of the
goods passed on to the buyer when the goods were handed over to the transporter.
[s 39.2] In pursuance of a contract of sale.—
These words govern the mode of delivery and the presumption is stated in the section. If the contract of sale
specifics the name of the carrier, the seller must deliver the goods to such named carrier. If the instructions of
the buyer are carried out properly, the risk is with the buyer. If the instructions of the buyer are not carried out
properly, the goods remain at the risk of the seller during transit.
Sub-section (1) raises a prima facie presumption. For the purposes of raising a prima facie presumption, the
seller should deliver the goods to a carrier or a wharfinger, if so provided in the contract, i.e., in pursuance of a
contract of sale. It the contract does not so provide, the buyer should have required or asked the seller so to
deliver.
The use of the expression prima facie is intended to raise a presumption. When a seller delivers the goods to a
carrier but takes the bill of lading or railway receipt in his name and not in the name of the buyer, it is not a
delivery to carrier for transmission to the buyer and it cannot be deemed to be a delivery to the buyer.68 But if
such a bill of lading or railway receipt is endorsed in favour of the buyer and sent to the buyer, it shall be
deemed to be a delivery to the buyer.69 In such a case if a few articles are found missing from the consignment
when it reaches the destination, it is as between the seller and buyer, the buyer who is responsible for value of
the missing articles. The fiction of presumption has been created in order to fix on whom the loss would be
during transit.
[s 39.3] Carrier, whether named or not.—
If a tradesman orders goods to be sent by a carrier, though he does not name any carrier, the moment the
goods are delivered to a carrier, the delivery to the carrier is prima facie deemed to be a delivery to the buyer. It
is well established that it is the seller’s duty to be reasonable so as to secure the responsibility of the carrier for
the safe delivery of the goods. If the seller omits to do so and the goods are lost or damaged in course of
transit, the buyer may decline to treat the delivery to the carrier as a delivery to himself and hold the seller
responsible in damages.70 The duty to make reasonable contract of carriage does not mean that it is the
seller’s duty to insure the goods during transit unless so agreed or unless it is customary for the seller to
assume such duty. The same rule applies where the goods are delivered to a wharfinger.
Where the buyer has named the carrier, the goods must be delivered to that carrier. But the section leaves the
choice of the carrier to the seller despite naming of the carrier.71
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The section makes prima facie the carrier or wharfinger an agent of the buyer to take delivery only. The right to
examine the goods and accept or reject the goods remains with the buyer. The presumption of delivery to the
buyer raised by section 39(1) does not apply when the carrier is an agent or servant of the seller himself72 or
where the goods are delivered to a carrier for transmission to person on approval or on sale or return basis.73
[s 39.4] Seller’s duty while delivering goods to the carrier.—
Sub-section (2) is in the nature of a proviso to sub-section (1). Sub-section (2) lays down a duty of the seller in
making delivery to a carrier or a wharfinger. The seller’s duty is to do whatever is necessary to secure the
carrier’s responsibility for the safe delivery of the goods to the buyer so that in the event of a loss, the buyer
may have his indemnity against the carrier.74
Neglect to appraise the carrier that the value of goods exceeded a particular maximum value,75 mere delivery
to the carrier without obtaining proper receipt, leaving the goods in the premises of the carrier without taking
proper receipt, will bring the case in the second part of sub-section (2).
In order to bring his case in the first part of sub-section (2), the seller must act reasonably and with due care
and diligence.
Illustration
B at Agra, orders of A, a tradesman in Calcutta, casks of oil to be sent to him by railway. A takes 3 casks of oil
directed to B to the railway station and leaves them there without conforming to the rules which must be
complied with in order to render the railway company responsible for their safety. The goods do not reach B.
There has not been a sufficient delivery to charge B in a suit for the price. It was A’s duty to secure the
responsibility of the carriers for the safe delivery of the goods, and to put the goods into such a course of
conveyance as that in the case of a loss the buyer might have his indemnity against the carrier.76
[s 39.5] Sub-section (3): Sea transit.—
This sub-section contemplates the case (1) where goods are sent by sea, and (2) it is usual for the buyer
himself to insure. In such a case it is the duty of the seller to give such notice of the shipment to the buyer as
may enable him to insure the goods. If he does not, the risk does not pass to the buyer. The three common
forms of contract as regards carriage by sea are:
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(i) F.O.B.
(ii) C.I.F.
(iii) Ex-ship.
This section applies to F.O.B. contracts. It does not apply to a C.I.F. contract, for the insurance in the case of
such a contract is to be effected by the seller and it is specified in the contract itself. Nor does it apply to ex-ship
contracts.
[s 39.6] F.O.B. contract.—
A, in Calcutta orders goods to B, a merchant in London. The contract contains a stipulation that B shall deliver
the goods “F.O.B.”, i.e., “free on board.” The meaning of these words is that B, the seller, is to put the goods on
board at his own expense. The seller is not responsible for any further expenses, e.g., the expenses of stowing
the goods once they are put on board. If the seller pays stowage charges, he can recover the same from the
buyer. Immediately the goods are put on board, the property and the risk pass to the buyer who is considered
to be the shipper.77 The goods, whether specified or unascertained, are at the buyer’s risk and he is
responsible for the freight and subsequent charges including insurance.76 But the seller has in such a case to
give such notice to the buyer as may enable the buyer to insure to protect himself by insurance against loss
during sea transit.78 If the seller fails to do so, the goods are deemed to be at his risk during the transit, unless
the buyer, has information from other sources about the shipment so as to enable him to insure the goods.79 It
may be as well to explain the terms “C.I.F.” and “Ex-Ship.”
[s 39.7] English case.—
If the seller sends them to the port of shipment, but the buyer does not nominate an effective ship, and the
goods in consequence remain at the port, the seller cannot sue for the price but can only maintain an action for
damages.80
[s 39.8] C.I.F. contract.—
A contract on C.I.F. terms means a contract at a price to cover cost, insurance and freight. If a merchant agrees
to sell goods at Rs 30 per ton C.I.F Bombay Docks, that sum will include price of the goods, the premium for
insuring them and freight payable for carrying them to their named destination, Bombay. In the absence of any
special provision to the contrary, the seller is bound under such a contract to do the following things:81 First, to
make out an invoice of the goods sold: [the invoice shows the cost of the goods]. Second, to ship at the port of
Page 5 of 9
shipment goods of the description contained in the contract. If the goods shipped do not correspond with the
contract description, there is a breach of the contract when the goods are shipped. Third, to procure a contract
of affreightment (bill of lading) under which the goods will be delivered at the destination named in the contract
(the bill of lading shows inter alia the date of shipment and freight). The contract of affreightment must cover the
whole transit; a through bill of lading from an intermediate port is insufficient. Fourth, to arrange for an
insurance upon the terms current in the trade which will be available for the benefit of the buyer. If the goods
are not covered by an effective policy, there is a breach of the contract even if the goods arrive safely. Fifth,
with all reasonable despatch to send forward and tender to the buyer these shipping documents, namely, the
invoice, bill of lading and policy of insurance, so that the buyer may know what freight he has to pay, and obtain
delivery of the goods if they arrive, or recover for their loss if they are lost on the voyage. If the seller does not
tender the documents within a reasonable time, that may amount to a breach of contract.82 If no place is
named in the contract for the tender of the documents, they must prima facie be tendered at the residence or
place of business of the buyer.83
A C.I.F. contract is not a mere sale of documents,84 though the buyer has to pay against delivery of
documents. It is a sale of goods, though they are deliverable by means of documents; in other words, delivery
of documents is symbolical of delivery of the goods.85 As to inspection of goods before payment, see notes
under section 41 below. C.I.F contract usually provides for payment of cash against documents and the fact
that goods have not arrived at the time when the documents are tendered does not excuse the buyer from
making payment.86
In National Insurance Co Ltd v Sky Gems,87 the Supreme Court explained the rights and liabilities of the
parties in a C.I.F. contract by reference to Lord Porter in Comptoir D’ Achat v Luis De Ridder; The Julia (quoted
in the book Schmitthoff’s Export Trade—The Law and Practice of International Trade by Leo D’ Arcy, Carole
Murray and Barbara Cleave (10th Edn), at p 29, and read as follows:
The obligations imposed on a seller under a CIF contract are well known, and in the ordinary case, include the tender
of a bill of lading covering the goods contracted to be sold and no others, coupled with an insurance policy in the
normal form and accompanied by an invoice which shows the price and, as in this case, usually contains a deduction
of the freight which the buyer pays before delivery at the port of discharge. Against tender of these documents the
purchaser must pay the price. In such a case the property may pass either on shipment or on tender, the risk generally
passes on shipment or as from shipment, but possession does not pass until the documents which represent the
goods are handed over in exchange for the price. In the result, the buyer, after receipt of the documents, can claim
against the ship for breach of the contract of carriage and against the underwriters for any loss covered by the policy.
The strict form of CIF contract may, however, be modified. A provision that a delivery order may be substituted for a bill
Page 6 of 9
of lading or a certificate of insurance for a policy would not, I think, make the contract be concluded on something other
than CIF terms.
If the issue is as regards the price that may be relevant for levy of excise, it would be the value at the factory
gate that would exclude freight and insurance charges.88
The principles which apply to a C.I.F contract apply to a C. and F. contract.89

[s 39.9] Difference between F.O.B. and C.I.F. contracts.—
In Contship Container Lines Ltd v D.K. Lall,90 referring to a claim against an insurance company by a shipping
company, for misdelivery of goods in an F.O.B. contract, the Supreme Court explained that in F.O.B. contracts
for sale of goods, the property is intended to pass and does pass on the shipment of the goods. The seller
would have no insurable interest in the goods thereby absolving the Insurance Company of the liability to
reimburse the loss, if any, arising from the misdelivery of such goods. Consequently, the claim made by the
shipper against the Insurance Company was liable to be rejected on the ground that the shipper had not
observed utmost good faith while obtaining the insurance cover and the case was required to be seen only in
the context of liability arising under an F.O.B. contract. Making a distinction between F.O.B and C.I.F. contracts,
the Court explained: While in the case of C.I.F. contract, the seller, in the absence of any special contract, is
bound to do certain things like making an invoice of the goods sold, shipping the goods at the port of shipment,
procuring a contract of insurance under which the goods will be delivered at the destination, etc., in the case of
F.O.B. contracts, the goods are delivered free on board the ship. Once the seller has placed the goods safely
on board at his cost and thereby handed over the possession of the goods to the ship in terms of the bill of
lading or other documents, the responsibility of the seller ceases and the delivery of the goods to the buyer is
complete. The goods are from that stage onwards at the risk of the buyer.
[s 39.10] Ex-ship contract.—
In the case of a contract of sale “Ex-ship” the seller has to cause delivery to be made to the buyer from a ship
which has arrived at the port of delivery, and has reached the usual place of delivery therein for the discharge
of goods of the kind in question. The seller has therefore to pay the freight and to provide the buyer with an
effectual direction to the master of the ship to deliver. Till this is done, the buyer is not bound to pay for the
goods.91 Where delivery is Ex-ship the seller commits breach of his duty under section 31 of the Sale of Goods
Act, 1930 if he stores the goods in godown and asks the buyer to take delivery of the goods from godown as it
is not delivery Ex-ship. The buyer is justified in refusing to accept any goods from godown where contract is Ex-
ship because ex-ship delivery greatly ensures that goods are really imported stuff while ex-godown leaves room
for dispute.92
Page 7 of 9
67 Escorts JCB Ltd v CCE, AIR 2002 SC 3708 [LNIND 2002 SC 656] : (2003) 1 SCC 281 [LNIND 2002 SC 656] . In such
a case, element of freight and transit insurance was not to be included in the normal value of the goods. This was so
stated in the context of excise law for levy of tax on goods and the impermissibility of adding the components of freight
and insurance in the price for determining the liability; Also see, CCE v Accurate Meters Ltd, (2009) 6 SCC 52 [LNIND
2009 SC 503] : (2009) 3 SCR 1146 [LNIND 2009 SC 503] for application of law on similar facts.
68 Jagdish Prasad v Produce Exchange Corp Ltd, AIR 1946 Cal 245 : 8 Cal LJ 170.
69 LG Lakshmana Iyer v Pachiappa Mudaliar, AIR 1961 Mad. 343 [LNIND 1960 MAD 117] : (1961) 2 Mad LJ 75.
70 Clark v Hutchins, 104 ER 683.
71 Sriranganaikulu v Venkatasubbarao, (1958) Andh LT 1155 .
72 Galbraith & Grant Ltd v Block, (1922) 2 KB 155 .
73 Swain v Shepherd, (1832) 1 Mood & R 223.
74 Clark v Hutchins, (1811) 14 East 475 : 13 RR 283 : 39 Digest (Repl.) 702, 1938.
75 Siddaiya v Muthayanna, AIR 1957 Mad. 183 [LNIND 1956 MAD 80]
76 Clark v Hutchins, (1811) 14 East 475.
77 Stock v Inglis, (1884) 12 QBD 564 at p 573 affirmed; Inglis v Stock, (1885) 10 App Cas 263 ; Wimble v Rosenberg,
(1913) 3 KB 743 at p 757; Diamond Alkali Export Corp v Bourgeois, (1921) 3 KB 443 .
Page 8 of 9
76 Clark v Hutchins, (1811) 14 East 475.
78 See The Indian Sale of Goods Act, 1930, section 39(3).
79 Northern Steel and Hardware Co v Batt & Co, (1917) 33 TLR 516 .
80 PST Energy 7 Shipping LLC v OW Bunker Malta Ltd, [2016] UKSC 23 : [2016] WLR (D) 257.
81 Johnson v Taylor Bros & Co, (1920) AC 144 , Herman & Mohatta (India) Ltd v Pran Ballar, AIR 1960 Cal 524 [LNIND
1960 CAL 49] .
82 Narayanswami v Soundarajan, AIR 1958 Mad. 43 [LNIND 1957 MAD 147] : (1957) ILR Mad 1108 : (1957) 2 Mad LJ
528.
83 Johnson v Taylor Bros. & Co, (1920) AC 144 , 145; Biddel Brothers v E. Clements Horst & Co, (1911) 1 KB 214 , at p
220, per Hamilton, J., approved AC (1912) 18; Hannson v Hamel and Horley, (1921) 26 Com Cas 236 , affirmed.
(1922) 2 AC 36 ; Diamond Alkali Co v Bourgeois, (1921) 3 KB 443 ; Steel Brothers & Co, Ltd v Dayal Khatao & Co,
(1923) 47 Bom 924, 25 Bom LR 1203.
84 C.I.F. contract is a sale of document as per Scrutton J in Arnhold Karberg v Biythe Green, Jourdain & Co, (1915) 2 KB
379 , 388 but disapproved by Banker LJ and Warrington LJ in Arnold Karberg and Go v Blythe Green Jourdain & Co,
CA (1916) 1 KB 495 , 510 and 514 respectively.
85 Olympit Oil Co v Produce Brokers Co, (1917) 1 KB 320 ; Johnson v Taylor Bros. & Co, (1920) AC 144 .
86 E Clemens Horst Co v Biddle Bros, (1912) AC 18 .
87 National Insurance Co Ltd v Sky Gems, AIR 2002 SC 545 : (2002) 2 SCC 273 .
88 CCE v Accurate Meters Ltd, AIR 2009 SC (Supp) 2827 : (2009) 6 SCC 52 [LNIND 2009 SC 503] .
Page 9 of 9
89 State of Madras v Ramalingam & Co, AIR 1956 Mad. 695 [LNIND 1956 MAD 37] : (1957) 8 STC 77 [LNIND 1956 MAD
37] : (1956) 69 LW 655 .
90 Contship Container Lines Ltd v D.K. Lall, AIR 2010 SC 1704 [LNIND 2010 SC 246] : (2010) 4 SCC 256 [LNIND 2010
SC 246] : JT 2010 (3) SC 201 [LNIND 2010 SC 246] .
91 Yang-tze Ins. Ass. v Lukmanji, (1918) AC 585 –589.
92 Herman & Mohatta (India) Ltd v Pran Ballar, AIR 1960 Cal 524 [LNIND 1960 CAL 49] , 531, para 18.
End of Document
S. 40. Risk where goods are delivered at distant place.-
MullaK Kannan
Contract
Where the seller of goods agrees to deliver them at his own risk at a place other than that where they are when
sold, the buyer shall, nevertheless, unless otherwise agreed, take any risk of deterioration in the goods
necessarily incident to the course of transit.
[s 40.1] Deterioration of goods in transit to buyer.—
Where the seller agrees to deliver the goods to the buyer at a place other than that where they are when sold,
the merchantable quality of the goods may be affected by the operation of the transit. In such a case the
section throws the risk of necessary deterioration on the buyer. A agrees to sell hoop iron to B to be sent from
port X to port Y. The iron is clean and bright when it is despatched, hut it is rusted to a certain extent before it
reaches port Y. The rusting is no more than what would necessarily occur in the course of transit, i.e., risk of
deterioration necessarily consequent upon the transmission as incidental having regard to their nature and
ordinary circumstances attending such transmission. The seller is not responsible if the iron becomes
unmerchantable to that extent.93 The words “necessarily incident to the course of transit” are intended to
distinguish them from the unusual risk which is not necessarily incident to the course of transit and hence such
unusual risk would fall on the seller. As observed by Alderson, B, “a manufacturer who contracts to deliver a
manufactured article at a distant place must, indeed, stand the risk of any extraordinary or unusual
deterioration.”
In accordance with section 62, the risk mentioned in this section may be transferred to the seller by express
agreement or by usage of trade or by the course of dealings between the parties. The section also applies to
animals sent for human food from one place to another.
Page 2 of 2
In the case of such perishable goods, the seller must be deemed to warrant that the goods will be in
merchantable condition for a reasonable time even after the completion of the transit.94
93 Bull v Robinson, (1854) 10 Exch. 342 : 102 RR 620.
94 See Beer v Walker, (1877) 46 LJCP 677 (rabbits) : 37 L.T. 278; Ollett v Gordon, (1918) 2 K.B, 41.
End of Document
S. 41. Buyer’s right of examining the goods.-
MullaK Kannan
Contract
(1) Where goods are delivered to the buyer which he has not previously examined, he is not deemed to
have accepted them unless and until he has a reasonable opportunity of examining them for the
purpose of ascertaining whether they are in conformity with the contract.
(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.
[s 41.1] Buyer’s right to inspect before acceptance.—
This section is based on the principle that a buyer cannot be said to have accepted the goods unless he had an
opportunity to examine the goods and ascertain that they are in conformity with the contract.
This section emphasizes the distinction between delivery of goods and acceptance of goods. Delivery of goods
to the buyer does not amount to acceptance thereof by the buyer.
Despite examination of the goods by the buyer in consonance with his right under this section, the buyer has a
right to reject the goods if a hidden, not apparent, defect is subsequently found out.95
Page 2 of 4
Sub-section (2) deals with the case where the seller tenders delivery of goods to the buyer; sub-section (1)
deals with the case where goods are already delivered to the buyer which he has not previously examined.
If the seller gives notice to the buyer that casks containing goods ordered by the buyer are at a particular place
ready for delivery on payment of the price, but does not allow the buyer to open the casks to enable him to
inspect the goods, it is not a valid tender of the goods.96 But the right of inspection may be waived. It may also
be excluded by agreement between the parties.97 as where goods are sold on C.I.F. terms. In such a case the
buyer is not entitled to inspect the goods before payment. He is bound to pay against the delivery of the
shipping documents, whether the goods have arrived or not. See cases cited in notes to section 39 under the
heading “C.I.F. contract”. See Indian Contract Act, 1872 section 38(3).
[s 41.2] Time and place of examination.—
Under sub-section (1), the place of examination will be the buyer’s place and it will be within a reasonable time
(see section 42) after the goods are delivered.
Under sub-section (2), the time of examination will be at the time of tender for delivery and the place will be
placed for delivery.
Where goods are sold F.O.B., the place for examination will be final place of destination.98
[s 41.3] Reasonable opportunity.—
It would be unreasonably to place no limit on the right of inspection.99 Is a purchaser of wine bottles sold in lot
entitled to open and taste every, bottle of wine or is a purchaser of 100 cotton bales entitled to pass every
pound of cotton through an expert’s hands. There must be some limit.99 Reasonable opportunity is alike for
vendor as well as purchaser.99 In that case 24 hours’ time was held to be sufficient to inspect the sampling
order of cotton in respect of the contract for 100 bales of cotton.
Where a buyer of vegetable glue went to seller’s godown and the seller offered every facility to examine the
goods but the purchaser being pressed for time examined the barrels from outside and did not get any barrels
opened and then placed the order for the goods slating that he had inspected the parcel, it was held that the
goods were examined and the buyer could not reject the goods subsequently.100
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Where the goods were installed and commissioned to the satisfaction of the purchaser and he also appreciated
the work of the seller, a plea that the buyer could not inspect the goods would make no sense. Therefore, an
objection nearly a year after the installation that the goods suffered by some defect will not be
countenanced.101 Therefore, once a reasonable period of time for inspection was available and the buyer does
not complain about the goods but in fact utilises the goods, the buyer is prevented from raising any objection as
to the quality of the goods.102 Reasonable time is a question of fact, as per section 63 of the Sale of Goods
Act, 1930, and cannot be as long as claimed by the buyer, such as in the case where debit notes were raised
by him on the seller after two and a half years after the sale.103
95 Re Beharilal Baldeoprasad, (1955) A Mad 271; Heilbutt v Hickson, (1872) LR 7 CP 438 (paper found in the soles of
shoes means for the use of the army).
96 Isherwood v Whitmore, (1843) 11 M & W 347 : 63 RR 624; Ruttonsey v Jamnadas, (1882) 6 Bom 692.
97 Pettitt v Mitchell, (1842) 4 M & G 819, 12 LJCP 9 [sale by auction].
98 Boks v Rayner & Co, (1921) 37 TLR 519 affirmed ib., 800 CA
99 Ruttonsey v Jamnadas, (1882) 6 Bom 692.
100 Thornet v Beers, (1919) 1 KB 486 .
101 Nilkamal Bito Storage Systems Pvt Ltd v Brahma Auto Industries Pvt Ltd, 2017 SCC OnLine Del 9225 : LNIND 2017
DEL 2457 .
Page 4 of 4
102 Satyapal v Slick Auto Accessories Pvt Ltd, AIR 2014 Del 115 [LNIND 2014 DEL 767] : (2014) 4 HCC (Del) 532 : 2014
SCC OnLine Del 998.
103 Unique Engineers Pvt Ltd v Nitya Elecrocontrols Pvt Ltd, 2018 SCC OnLine Del 7283 : LNIND 2018 DEL 694 .
End of Document
S. 42. Acceptance.-
MullaK Kannan
Contract
S. 42. Acceptance.-
The buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted them, or
when the goods have been delivered to him and 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.
[s 42.1] Acceptance.—
Where goods are delivered to the buyer which he has not previously examined, he is not deemed to have
accepted them unless he has had a reasonable opportunity of examining them. Mere receipt is no acceptance.
In other words in order that an act may amount to an acceptance within the meaning of this section, the two
essential conditions are that:
(i) the goods are delivered, and
(ii) the buyer had the reasonable opportunity to examine them.
If any act inconsistent with his ownership is done by the buyer before the goods are delivered, it will not amount
to acceptance.
Page 2 of 3
S. 42. Acceptance.-
In State Bank of Mysore v Machado Computer Services,104 goods were certified to have been received in full
both for the quality as well as the quantity of the goods supplied as per section 42 of the Sale of Goods Act,
1930. Further, upon such acceptance after examination of the goods specifically accepted, the description of
the goods as regards the make or the brand is also deemed to have been accepted and there could be no
defect stated to be in respect of such brand as per the second proviso to section 16 of the Sale of Goods Act,
1930. The duty of the supplier in the contract of sale was, therefore, complete. The plaintiff has accepted the
goods. The plaintiff was, therefore, held required to make payment for the goods, having accepted as per the
enjoinment under sections 31 and 32 of the Sale of Goods Act, 1930.
[s 42.2] Modes of acceptance.—
This section contemplates direct and indirect modes of acceptance. The direct method is the intimation by the
buyer to the seller that he has accepted the goods. The indirect methods are (i) exercise by the buyer of his
right of ownership on the goods such as using the goods, sale or mortgage of the goods, etc., and (ii) retaining
the goods without examining the goods despite lapse of a reasonable time after delivery. Where goods are
delivered at a place where the buyer has a reasonable opportunity of examining them, and the buyer without
examination sends them to his sub-purchaser, he does an act which is inconsistent with the ownership of the
seller, and he must be deemed to have accepted them. He cannot reject them, though he may be entitled to
damages if the goods do not correspond with the contract description.105 Where the purchaser searchingly
examined the goods and thereafter exported them to his vendee, and the American vendee rejected goods, the
seller was held not liable for damages in a suit by the purchaser on the ground that the purchaser did not lead
cogent evidence to disprove that the seller had delivered the goods contracted for.106 Where goods are
delivered to an employee of the buyer and remain on his premises for upwards of three weeks, the buyer
himself not doing any act in relation to those goods, he must be deemed to have accepted the goods.107
It may be that, owing to special circumstances, such as the difficulty of opening and reclosing metal vessels,
the goods cannot be inspected when they are delivered to the buyer, but only at their final destination. In such a
case, if on examination the goods are found to be of inferior quality, the damages will be assessed according to
the prices ruling at the date of the examination by the ultimate consignees.108
Time for rejection.—The parties may by contract limit the time within which the buyer should accept or reject the
goods. If they have not so provided, that must be done within a reasonable time.109 What is reasonable time is
Page 3 of 3
S. 42. Acceptance.-
a question of fact in each case. See the provisions of section 37 which refers to the right of acceptance or
rejection.
104 State Bank of Mysore v Machado Computer Services, 2009 (4) Bom CR 199 [LNIND 2009 GOA 92] : 2009 AIHC 3066 .
105 Hardy & Co v Hillerns, (1923) 2 KB 490. See also section 13(2); Nagardas v Velmahomed, 32 Bom LR 454; Shah
Mohanlal v Dhirubhai, (1961) 2 Guj LR 629 : AIR 1962 Guj 56 [LNIND 1961 GUJ 108] .
106 Gan Kim v Rally Bros, (1886) 13 Cal 237 PC.
107 Re A Debtor, (1939) 1 Ch 225 ; Haridas v Kalumull, (1903) 30 Cal 649 .
108 Vanden Hurk v Marten & Co, (1920) 1 KB 850 as explained in Saunt v Belcher and Gibbons, (1921) 90 LJKB 541 .
109 Bright Star Hotels Pvt Ltd v Gobind Singh, RFA 476/2007, dated 20.10.2008 (Delhi HC).
End of Document
S. 43. Buyer not bound to return rejected goods.-
MullaK Kannan
Contract
Unless otherwise agreed, where goods are delivered to the buyer and he refuses to accept them, having the
right so to do, he is not bound to return them to the seller, but it is sufficient if he intimates to the seller that he
refuses to accept them.
[s 43.1] Buyer not bound to return rejected goods.—
Where a buyer rejects goods as not being of the contract description, it is not his duty to send them back to the
seller it is enough for him to give a clear notice that they are not accepted, and then they are at the seller’s
risk.110
The object of requiring the buyer to give intimation of rejection to the seller is that the buyer should place the
rejected goods at the full disposal of the seller without obstruction. Since the seller has to take back the rejected
goods, the cost of returning, or taking back, the rejected goods has to be borne by the seller. The rule in this
section applies even though the place of delivery and the place where the goods are inspected and rejected
may be different.111 This rule is based on the presumption that the seller is at fault for delivery of the goods
which are not in conformity with the contract. He is not bound to put himself to the expenses and trouble of
returning the goods, and it is the seller’s business to take away the goods if he is so minded.112 But the buyer,
being a bailee of the goods, though an involuntary one, must take as much care of the goods as a man of
ordinary prudence would, under similar circumstances, take of his own.113 As the rejected goods must be at
the disposal of the seller, the buyer cannot keep them as security for the price which he may have paid in
advance. The buyer in such a case is not in a similar position to that of an unpaid seller within the meaning of
section 45(2) of the Sale of Goods Act, 1930.114
Page 2 of 2
110 Grimoldby v Wells, (1875) LR 10 CP 391 [treated as not really arguable]; Sumer Chand v Ardeshir, (1907) All
WN 67.
111 Heilbutt v Hickson, (1872) LR 7 CP 438 : 39 Digest (Repl.) 561, 902.
112 Phaggu Mal v Babu Lal, (1913) 35 All 325 : 19 IC 254; Buch v Gordhandas, 24 Bom LR 991 : (1923) A Bom
92 : 70 IC 877.
113 Munnalal Pansari & Sons v Ganga Prasad Sudarshan Chawrasia, AIR 1955 VP 30 and Indian Contract Act,
1872, section 151.
114 JL Lyons & Co v May & Baker Ltd, (1923) 1 KB 685 .
End of Document
S. 44. Liability of buyer for neglecting or refusing delivery of goods.-
MullaK Kannan
Contract
When the seller is ready and willing to deliver the goods and requests the buyer to take delivery, and the buyer
does not within a reasonable time after such request take delivery of the goods, he is liable to the seller for any
loss occasioned by his neglect or refusal to take delivery and also for a reasonable charge for the care and
custody of the goods:
Provided that nothing in this section shall affect the rights of the seller where the neglect or refusal of the buyer
to take delivery amounts to a repudiation of the contract.
[s 44.1] Buyer’s liability for delay in taking delivery.—
This section contemplates the case where the property in the goods has passed to the buyer and he has
become the owner thereof. The fact that the seller has been given the right to recover charges for care and
custody and to recover the loss shows that the buyer’s neglect does not entitle the seller to put an end to the
contract, that the property in the goods has passed to the buyer and that the goods are kept against the seller’s
will.115 In such a case if the buyer fails to take delivery within a reasonable time, he is liable to the seller for
any loss occasioned by his default, and also for a reasonable charge for the care and custody of the goods.115
Conversely, if the seller delays delivery, and the buyer notwithstanding the delay accepts delivery, the seller is
liable for any loss occasioned by the delay.
115 Greaves v Ashlin, (1813) 3 Camp 426 : 14 RR 471.

Page 2 of 2
115 Greaves v Ashlin, (1813) 3 Camp 426 : 14 RR 471.
End of Document
S. 45. Unpaid seller defined.-
MullaK Kannan
The Indian Partnership Act, 11th ed > The Sale of Goods Act > Chapter V Rights of Unpaid Seller
Against the Goods
Chapter V Rights of Unpaid Seller Against the Goods
(1) The seller of goods is deemed to be an “unpaid seller” within the meaning of this Act—
(a) when the whole of the price has not been paid or tendered;
(b) when a bill of exchange or other negotiable instrument has been received as conditional payment,
and the condition on which it was received has not been fulfilled by reason of the dishonour of the
instrument or otherwise.
(2) In this Chapter, 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.
[s 45.1] “Unpaid seller” defined.—
The seller of goods who is “unpaid” has certain rights conferred upon him by section 46. A seller is unpaid so
long as he has not received the whole price, also if the buyer has given him a bill for the price and the bill is
dishonoured. The expression “the whole of the price” would mean the whole amount stipulated in respect of an
entire contract and when the contract is severable, the price of the severable part as apportioned. Whether it
was given in absolute or conditional payment is a question of fact in each case. A seller partially unpaid stands
on par with the one wholly unpaid.1
If the seller endorses the bill of lading in favour of his agent, the agent is an “unpaid seller,” and he may
Page 2 of 3
exercise the rights conferred upon an “unpaid seller”, e.g., stop the goods in transit in his own name. The
reason is that the endorsement of a bill of lading vests the property in the endorsee and entitles him to
possession of the goods. If before the goods are actually delivered to the buyer, the latter becomes insolvent,
the seller becomes an unpaid seller.2
Prima facie, the terms of the High Seas sales agreement shall be that till the entire sale price was paid by the
buyer the seller would retain his lien over the goods in question and title would also pass to the petitioner only
on payment of the full price of the goods.3
A merchant who buys on his own credit for another to whom he endorses the bill of lading is in the position of a
“seller” for the purpose of exercising the rights given by section 464; and so is a broker liable on a “principal
contract”.5 A commission agent who has paid the price (or made himself liable to pay it) was entitled to
exercise rights of the unpaid seller of stoppage in transit when his principal became insolvent during the course
of transit of the goods.6 Section 38(2) of the English Sale of Goods Act, 1893 [(corresponding to section 45(2)
of the Indian Sale of Goods Act, 1930] accords with this judicial view. But a buyer of goods, who pays for them
and, finding that they are not of the contract description, rejects them, is not in the position of an unpaid seller.7
[s 45.2] Payment by bills is normally conditional payment.—
Where payment by acceptance of bills or the like is stipulated for, it is prima facie conditional on the bills being
met, but this general rule may be excluded if the intention of the parties is to treat it as a final discharge of the
debt, leaving the creditor to his remedies on the bills. It is a question of fact whether the parties intended the
taking of the negotiable instrument to operate as an absolute payment,8 but the presumption is against it.
1 Hodgson v Loy, 101 ER 1065 : (1797) 7 TR 445.
2 Gunn v Bolckow Vaughan & Co, (1875) LR 10 Ch App 491 (501).
3 Suchetan Exports Pvt Ltd v Gupta Coal (India) Ltd, (2011) 13 SCC 83 [LNIND 2011 SC 710] : (2012) 3 SCC (Civ) 263 :
[2011] 9 SCR 689 [LNIND 2011 SC 710] : 2011 (8) Scale 165 [LNIND 2011 SC 710] .
Page 3 of 3
4 Fieze v Wray, (1802) 3 East 93.
5 Ramendra Nath v Brajendra Nath, (1919) ILR 46 Cal 831; Harilal Chimanlal v Pehladrai & Co, AIR 1929 Bom 260 : 31
Bom LR 508 : 120 IC 337 (commission agent).
6 Ireland v Livingston, (1872) LR 5 HL 395 : (1861–1873) All ER Rep 585 ; Cassaboglou v Gibb, (1883) 11 QBD 797 .
7 Lvons & Co v May and Baker, (1923) 1 KB 685 ; Sha Thilokchand Poosaji v Crystal & Co, AIR 1955 Mad. 481 [LNIND
1954 MAD 214] : (1955) 1 MLJ 494 .
8 Goldshede v Cottrell, 6 Digest (Repl) 329, 2404.
End of Document
S. 46. Unpaid seller’s rights.-
MullaK Kannan
Against the Goods
(1) Subject to the provisions of this Act and of any law for the time being in force, notwithstanding that the
property in the goods may have passed to the buyer, the unpaid seller of goods, as such, has by
implication of law—
(a) a lien on the goods for the price while he is in possession of them;
(b) in case of the insolvency of the buyer a right of stopping the goods in transit after he has parted
with the possession of them;
(c) a right of re-sale as limited by this Act.
(2) Where the property in goods has not passed to the buyer, the unpaid seller has, in addition to his other
remedies, a right of withholding delivery similar to and co-extensive with his rights of lien and stoppage
in transit where the property has passed to the buyer.
[s 46.1] Unpaid seller’s rights.—
When the seller has given possession of the goods to the buyer under the contract of sale, all his rights are
completely gone. The delivery and acceptance of possession complete the sale and give the buyer unqualified,
absolute and undefeasible right of property in the goods even though the price is not paid. This section
therefore deals with a case where the seller has not parted with possession of the goods for delivery thereof to
the buyer and the seller continues in possession of the goods. The unpaid seller has, by implication of law, the
following rights, notwithstanding that the property in the goods may have passed to the buyer, namely:—
Page 2 of 3
(a) a lien on the goods for the price while he is in possession of them;9
(b) if the buyer becomes insolvent before payment, a right to stop the goods in transit after he has parted
with the possession of them;
(c) a right of resale, which implies that he is in possession.
The seller’s lien is exercisable provided the property in the goods has passed to the buyer because an owner
cannot have a lien on his own goods.10
The seller’s lien is exercisable when the price is due and unpaid, whether the buyer is insolvent or not. The right
of stoppage in transit arises only when the buyer is insolvent. The lien attaches only if the seller is in
possession. The right of stoppage arises only if he has parted with possession and his lien is gone.
[s 46.2] Insolvency of buyer.—
The insolvency referred to therein means the buyer’s inability to pay his debts as they become due or he has
ceased to pay his debts in the ordinary course of his business [vide section 2(8)].
[s 46.3] Sub-section (2).—
Suppose the property in the goods has not passed to the buyer, and the buyer becomes insolvent before the
price is paid. Here the seller, being still the owner, can have no such right as a lien, for a man cannot have a
lien on his own goods. But he has the right to withhold delivery of the goods until the price is paid, even though
the sale was on credit.11 The right is analogous to a lien11 and is sometimes called a quasi-lien.
9 The seller cannot add warehouse charges for keeping the goods till the debt is paid: EH Parakh v G Mackenzie & Co,
AIR 1934 Oudh 280 : (1934) 151 IC 117 .
10 Nippon Yusen Kaisha v Ramjiban Serowgee, AIR 1938 PC 152 , 155 : 65 IA 263 : 40 Bom LR 799.
Page 3 of 3
11 Griffiths v Perry, (1889) 28 LJQB 204 : 117 RR 397 : 1 E&E 680; Pawan Hans Helicopter Ltd v AES Aerospace Ltd,
2008 (2) Arb LR 63 : 2008 (103) DRJ 174 [LNIND 2008 DEL 828] .
11 Griffiths v Perry, (1889) 28 LJQB 204 : 117 RR 397 : 1 E&E 680; Pawan Hans Helicopter Ltd v AES Aerospace Ltd,
2008 (2) Arb LR 63 : 2008 (103) DRJ 174 [LNIND 2008 DEL 828] .
End of Document
S. 47. Seller’s lien.-
MullaK Kannan
Against the Goods > Unpaid Seller’s Lien
Unpaid Seller’s Lien
(1) Subject to the provisions of this Act, the unpaid seller of goods who is in possession of them is entitled
to retain possession of them until payment or tender of the price in the following cases, namely:—
(a) where the goods have been sold without any stipulation as to credit;
(b) where the goods have been sold on credit, but the term of credit has expired;
(c) where the buyer becomes insolvent.
(2) The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent
or bailee for the buyer.
[s 47.1] Unpaid seller’s lien.—
The lien of an unpaid seller is a right to retain possession of the goods until tender or payment of the price. A
person cannot have a lien on his own goods.12 On the basis of this principle, when the statute gives a right of
lien to the seller, it presumes that the property in the goods has passed to the buyer.12 The lien depends on
actual possession and not on title, and is not affected by his having parted with a document capable of
transferring title. He may have given a bill of lading which passes the legal property in the goods, or he may
have given a delivery order which, though it does not pass the legal title or property in the goods, enables the
person receiving it to acquire possession of the goods and acquire a title in that way, but whatever he has done
Page 2 of 5
in that respect does not destroy his right of lien as long as he keeps possession of the goods as a vendor.13
Under sub-section (2), an unpaid seller could exercise his right of lien even though his character of an unpaid
vendor has ceased and he has become the bailee or agent for the buyer. Accordingly, it has been held that
giving a delivery order by a seller to a buyer does not itself give the buyer such a possession of the goods as to
defeat the seller’s lien for the price.14 But the seller’s lien may be defeated where the circumstances of the
case are such as to estop him from denying that payment had been received for the goods to which the delivery
order related.15
[s 47.2] Lien extends only to price.—
The lien extends only to the price. It does not extend to warehouse or other charges for keeping the goods, for
they are kept against the buyer’s will. For these the seller has only a personal remedy against the buyer.16
[s 47.3] Tender of price extinguishes lien.—
The section says that the seller is entitled to a lien until payment or tender of the price. A tender of the price,
therefore, puts an end to the lien even if the seller declines to receive the money.17
The unpaid seller is entitled to a lien only in the three cases mentioned in the section. The following may be
considered in order.
[s 47.4] No stipulation as to credit—
Where goods are sold, and nothing is said as to the time of delivery or the time of payment, the seller is entitled
to retain possession until the price is paid, although the property in goods may have passed to the buyer. The
seller is liable to deliver the goods to the buyer when demanded by the buyer but he has no right to have
possession of the goods till he pays for the price.18
[s 47.5] Sale on credit.—
A sale on credit operates as a waiver of the lien during the currency of the credit. But if the goods are left in the
seller’s possession till the credit has expired, the lien revives even if the buyer is not insolvent.19 A sells to B a
quantity of sugar in A’s warehouse. It is agreed that three months’ credit shall be given. B allows the sugar to
remain in A’s possession till the expiry of the three months, and then does not pay for them. A may retain the
goods for the price. Under clause (b) the period of credit should have ended.
[s 47.6] Insolvency of buyer.—
If the buyer becomes insolvent before the price is paid, and the seller is in possession of the goods, he is
entitled to retain possession even if the goods are sold on credit and the term of credit has not expired. A sells
to B a quantity of sugar in A’s warehouse. It is agreed that three months’ credit shall be given. B allows the
sugar to remain in A’s warehouse. Before the expiry of the three months B becomes insolvent. A may retain the
Page 3 of 5
goods for the price because upon insolvency, B would have no right to claim delivery although the period of
credit has not expired.
[s 47.7] Sub-section (2): Seller holding as buyer’s bailee.—
The section says that the unpaid seller may exercise his right of lien notwithstanding that he has assented to
hold the goods as bailee for the buyer. It may be logically argued that by ceasing to possess in his original
character, and agreeing to hold possession on the buyer’s account, he has abandoned his lien; and this reason
was allowed by English authorities before the English Sale of Goods Act, 1893, when the buyer was merely in
default; but if the buyer was insolvent, the right of lien was held to revive. This distinction was done away with
by section 41 of the English Act, and an unpaid seller, though he holds the goods as bailee for the buyer, may
exercise his right of lien whether the buyer is insolvent or has merely made default in payment of the price. The
Indian section follows the English section. On 1 January 1931, A sells to B certain goods in A’s warehouse, and
receives from B a bill payable on 1 March 1931. The goods are kept at B’s request in A’s warehouse, and B
pays rent for it. B deals with the goods as his own, and sells part of them which are delivered to the sub-buyer.
B then becomes insolvent, and the bill is subsequently dishonoured. A is entitled to exercise his lien in respect
of the goods which remain in his godown.20
The seller’s lien will, however, be destroyed in some cases, e.g., an endorsement on the delivery order by the
buyer which entitles the subsequent buyer to demand delivery of the goods (delivery order treated as a
document of title according to the usage of the market).21 Jessel MR treated the case on the basis that the
seller’s act in issuing the warrants led to the loss of both his lien and his right of stoppage. He said “any man
who gives this warrant understands that it shall pass from hand to hand for value by endorsement, and that the
indorsee is to have the goods free from any vendor’s claim for purchase money.”22
The seller may lose his lien if the purchaser has endorsed the document of title to the goods to the sub-
purchaser for value who bona fide has taken the document of title after due inquiry from the manufacturer.23 In
the Anglo-India Jute Mills Co Ltd case (supra), Defendant Company sold Hessian cloth to the buyer on terms of
cash payment in exchange of delivery order which was issued by the sellers of the cloth in favour of the buyer.
Later the buyer made a pledge and secured an advance from the plaintiffs on the security of the delivery order
which was endorsed by the buyer to plaintiffs on the same day, the buyer paid the cheque to the Defendant
Company for the payment of the goods but the cheque was dishonoured and so Defendant Company refused
to deliver goods to plaintiffs under the delivery order. It was held that the Defendant Company was estopped
from denying that cash has been paid for the goods to which delivery order related and Defendant Company
had no lien as against the plaintiffs.
[s 47.8] Insolvent.—
Page 4 of 5
A person is said to be insolvent who has ceased to pay his debts in the ordinary course of business, or cannot
pay his debts as they become due, whether he has committed an act of insolvency or not (section 2(8)). The
seller is not entitled to treat the buyer as insolvent merely because he is in some temporary embarrassment. It
must appear from his admission or by other sufficient proof that he is unable to pay the price in due or
reasonable time, and therefore does not expect or intend to pay.24
[s 47.9] No lien in case of F.O.B. contracts.—
In a contract of sale on FOB basis, the unpaid seller’s lien over the goods recognised in terms of sections 46
and 47 will stand terminated upon delivery of the goods to the carrier. The reason is that the goods shall be
from the stage when goods are placed say, on board a ship be held by the carrier at the risk of the buyer and
the property in the goods stand vested in the buyer.
[s 47.10] Seller’s lien against subsequent buyer.—
See section 53 below and notes thereto.

[s 47.11] Distinction between lien and stoppage in transit.—
See under section 50.
Distinction between Lien and Pledge
Lien Pledge
1. Right to retain possession until seller’s claim is satisfied. 1. Right to retain goods as a security for the debtor’s debt.
2. Unpaid seller exercises the right against the wishes of the 2. Pledgee keeps the goods of the debtor with the consent of
buyer. the debtor.
3. Lien terminates if price is tendered. 3. Pledge is redeemed if the debtor pays the debt.
4. Does not authorise seller to resell. 4. Authorises the pledgee to sell in case of default.
Page 5 of 5
13 Imperial Bank v London and St Katherine Docks Co, (1877) 5 Ch Div 195, 200.
14 Le Geyt v Harvey, (1884) 8 Bom 501.
15 Anglo-India Jute Mills Co v Omademull, (1910) 38 Cal 127 ; Kalka Prasad Ram Charan v Harish Chandra, AIR 1957
All 25 [LNIND 1956 ALL 5] .
16 Somes v British Empire Shipping Co, (1860) 30 LJQB 229 : 8 HLC 338.
17 Martindale v Smith, (1841) 1 QB 389 ; Hazarimal v Champalal, AIR 1943 Ngp 141 (contract may provide for lien on
storage charges).
18 Bloxham v Sanders, (1825) 4 B&C 941 : 28 RR 525 : 107 ER 1309.
19 Bunney v Poyntz, (1833) 4 B&Ad 586 : 38 RR 309.
20 Mler v Gorton, (1833) 3 LJ Ex 155 : 39 RR 820; Grice v Richardson, (1877) 3 App Cas 319 .
21 Merchant Banking Co v Phoenix Bessemer Steel Co, (1877) 5 Ch Div 205.
22 Merchant Banking Co v Phoenix Bessemer Steel Co, (1877) 5 Ch Div 205, p 215.
23 Anglo-India Jute Mills Co Ltd v Omademull, (1910) 38 Cal 127 .
24 Re Phoenix Bessemer Steel Co, (1876) 4 Ch Div 108.
End of Document
S. 48. Part delivery.-
MullaK Kannan
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.
[s 48.1] Lien and part delivery.—
The unpaid seller may exercise his right of lien, after a part delivery, over the remainder of the goods, unless
such part delivery has been made under such circumstances as to show an agreement to waive the lien. Such
an agreement will be implied where the delivery of part is made under such circumstances as to operate as a
delivery of the whole. Generally a delivery of part of the goods sold is not equivalent to a delivery of the whole
as to destroy the seller’s lien25 nor could the seller be presumed to abandon his lien on the residue. If a part of
the goods are delivered but the payment is to be made against full delivery, the seller has no lien under this
section. But this lien may be exercised upon the insolvency of the buyer under the preceding section.26
Where the buyer of a parcel of hay took delivery of part thereof with the seller’s permission, it was held that the
intention of both the parties was to separate the part delivered from the residue and the vendee took
possession of a part only.27 But where the goods sold were lying at a wharf, and a delivery order for all the
goods was given to the buyer, and the buyer after weighing the whole took possession of part at the wharf, it
was held that the part delivery operated as a delivery of the whole so as to destroy the seller’s lien, and the
seller was not entitled to countermand the delivery order after the part delivery was made.28
[s 48.2] Lien and part delivery under instalment contract.—
Page 2 of 2
Where the goods are deliverable by instalments which are to be separately paid for, the seller cannot retain the
instalments paid for by reason of the non-payment of the price of the residue of the goods, though he may, on
the buyer’s insolvency, retain any instalment unpaid for till he is paid the price of that and of any other
instalment previously delivered, as his lien revives by implication of law.29 A agrees to sell goods to B by five
monthly instalments, payment to be made by cash in 14 days from the date of each delivery. The first three
instalments are delivered and paid for. The fourth instalment is delivered but not paid for. B then becomes
insolvent. A is entitled to retain the fifth instalment till he has been paid for both the fourth and the fifth
instalments.30 Suppose the third instalment was paid for but not delivered, can A retain that instalment? No; he
must deliver it, though B is insolvent.31
25 Kempp v Folk, (1882) 7 App Cas 573 , p 583.
26 Ex Parte Carnforth Haematite Iron Co, (1876) 4 Ch Div 108 (113).
27 Bunney v Poyntz, (1833) 4 B&Ad 568 : 38 RR 309.
28 Hammond v Anderson, (1803) 1 B&PNR 69 : 8 RR 763.
30 Ex Parte Chalmers, (1873) LR 8 Ch App 289.
31 Merchant Banking Co v Phoenix Bessemer Steel Co, (1877) 5 Ch Div 205.
End of Document
S. 49. Termination of lien.-
MullaK Kannan
(1) The unpaid seller of goods loses his lien thereon—
(a) when he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer
without reserving the right of disposal of the goods;
(b) when the buyer or his agent lawfully obtains possession of goods;
(c) by waiver thereof.
(2) The unpaid seller of goods, having a lien thereon, does not lose his lien by reason only that he has
obtained a decree for the price of the goods.
[s 49.1] Termination of lien.—
This section deals with the termination of the lien of the unpaid seller. The lien is lost in any of the three cases
mentioned in the section. Unpaid seller’s lien is a possessory lien and hence this right is available to the seller
so long as he is in possession but the moment he parts with possession, that right is lost. It is this principle
which is implied in clauses (a) and (b).
[s 49.2] Delivery to carrier.—
The ordinary rule is that a delivery of the goods to a common carrier for conveyance [to the buyer] is such a delivery of
Page 2 of 4
actual possession to the buyer through his agent, the carrier, as suffices to put an end to the seller’s lien.32 The seller
may, however, reserve the right of disposal of the goods, which he prima facie does when, on shipment, he takes a bill
of lading making the goods deliverable to the order of himself,33 or of his agent. This reserves not only the right of
property, but also the possession, for such a delivery is not a delivery to the buyer, but to the captain of the vessel on
behalf of the person indicated by the bill of lading, and it is by the endorsement and delivery only of the bill of lading
that a symbolical delivery of the whole is effected.34
Where the right of disposal is reserved, and the buyer becomes insolvent while the goods are in transit, the
right of lien becomes changed into a right of stoppage in transit.
Without reserving right of disposal.—The expression “without reserving the right of disposal of the goods” is
very important and significant. If the right of disposal is reserved to the seller, the seller constitutes the carrier
as his agent and bailee and the carrier would have to act according to the directions of the seller. If the seller
does not reserve the right of disposal, the seller constitutes the carrier as agent of the buyer, the carrier holding
the goods as bailee for the buyer (for modes of reserving right of disposal, see commentary under section 25).
[s 49.3] Lawful possession by buyer.—
The second case is where possession has been lawfully obtained by the buyer. The word “lawfully” means “not
tortiously.”
The lien is lost by delivery of the goods to the buyer. No delivery, however, is necessary where the goods are at
the time of the contract of sale actually in the possession of the buyer as agent or bailee of the seller. In such a
case the mere completion of the contract operates as a delivery of possession.35 Where the second-hand
refrigerator was sold and delivered to a buyer but later on the two parts of the refrigerator, i.e., the thermostat
and engine were taken away by the seller for further repairs, it was held that the seller had no lien over the two
parts on the ground that the original cost of the repairs had not been fully paid.36
Where a seller gave share certificates and a blank transfer form to his share broker who handed over the same
to the buyer against the latter’s cheque for the price thereof, there was complete delivery to the buyer although
the cheque was subsequently dishonoured and therefore there could not be any lien or stoppage in transit.37
In Walchandnagar Industries Ltd, Deputy General Manager (Commercial) Mr RJ Prakash Joyce v The Official
Page 3 of 4
Liquidator and Indian Renewable Energy Development Agency Ltd,38 the facts were that the action was at the
instance of a company which had supplied a boiler to a company in liquidation and was now seeking to exclude
the same from the list of properties sought to be sold by the secured creditor. The contention was built on the
grounds that they sold the boiler to the company in liquidation and received most of the money payable and
hence the seller had a lien on the boiler, for the balance amount due.
Referring to sections 45(1), 46, 49(1) and (2) the court held:
It is clear (i) that the title in the goods (boiler) had already passed to the company in liquidation; (ii) that the company in
liquidation took delivery of the boiler lawfully, without the applicant reserving the right of disposal. Therefore, the
applicant had lost its lien on the boiler. Consequently, the applicant had become merely an unsecured creditor, who
holds a decree in its favour (for whatever it is now worth) and can only stand in the long queue of unsecured creditors,
behind all those secured creditors and workmen. In such circumstances, the prayer made for excluding the boiler sold
by Walchandnagar Industries Ltd., to the company in liquidation, cannot be granted.
[s 49.4] Waiver.—
The third case is where the lien is lost by waiver. The lien may be waived expressly or by implication.
First, as to express waiver.—Where the contract of sale provides in express terms that the seller shall not be
entitled to retain possession until payment of the price, the case is one of express waiver.
Next, as to implied waiver.—The lien is waived by implication:
(1) when goods have been sold on credit, during the currency of the credit; but the lien revives on the
expiry of the credit;
(2) when the seller takes a bill of exchange for the price payable at a future day, during the currency of the
bill; but the lien revives if the bill is dishonoured; the same principle will apply if the seller accepts
negotiable instrument or other security for payment of price;
(3) if the seller assents to a sub-sale;
(4) if the seller parts with the documents of title so as to exclude his title by estoppel under the provisions
of section 27 above; or which are negotiable by custom of trade and according to parties;
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(5) if the seller wrongfully refuses to deliver the goods, such a refusal being a repudiation of the contract;
or if the seller wrongfully converts the remaining goods for his own use.39
32 Bolton v L&Y Rly, (1866) LR 1 CP 431, 439 : 39 Digest (Repl) 765, 2423.
33 Lakshmana Iyer v Muddaliar, AIR 1961 Mad. 342 [LNIND 1960 MAD 297]: (1961) 2 Mad LJ 75.
34 Anthony Gordon Guest, Benjamin’s Sale of Goods, 1st Edn Sweet & Maxwell, 1974, para 1077; see also sections
23(2) and 25(2).
35 Anthony Gordon Guest, Benjamin’s Sale of Goods, 1st Edn Sweet & Maxwell, 1974, para 1070.
36 Eduljee v John Bros, AIR 1943 Ngp 249 : (1944) Nag 37 : 209 IC 356.
37 Maneckji Pestonji Bharucha v Wadilal Sarabhai & Co, AIR 1926 PC 388 : 53 IA 92 : 28 Bom LR 777 : 50 Bom 360.
38 Walchandnagar Industries Ltd, Deputy General Manager (Commercial) Mr RJ Prakash Joyce v The Official Liquidator
and Indian Renewable Energy Development Agency Ltd, [2011] 162 Comp Cases 464 (Mad) : (2011) 3 Comp LJ 66
(Mad) : (2011) 2 CTC 533 [LNIND 2011 MAD 198] .
39 Gurr v Cuthbert, (1843) 12 LJ Ex 309 : 61 RR 787.
End of Document
S. 50. Right of stoppage in transit.-
MullaK Kannan
Against the Goods > Stoppage in Transit
Stoppage in Transit
Subject to the provisions of this Act, when the buyer of goods becomes insolvent, the unpaid seller who has
parted with the possession of the goods has the right of stopping them in transit, that is to say, he may resume
possession of the goods as long as they are in the course of transit, and may retain them until payment or
tender of the price.
[s 50.1] Basis of the right of stoppage in transit.—
The right of “stoppage in transit” is founded upon the plain reason of justice that one man’s goods shall not be
applied to the payment of another man’s debt. It is the right not only to countermand delivery to the purchaser
but to order delivery to the vendor.40
[s 50.2] Stoppage in transit.—
This is the second of the three rights of an unpaid seller (section 46). This right consists in stopping the goods
while they are in the possession of a carrier, or lodged at any place in the course of transmission to the buyer,
and on resuming possession thereof, and retaining them until the price is tendered or paid. In order that the
right to stop goods in transit may be exercised, the following conditions must all be satisfied; the seller must be
unpaid; the buyer must be insolvent (see notes under sections 46 and 47 of the Sale of Goods Act, 1930); the
seller must have parted with the possession of the goods; and the buyer must not have acquired it.41 This last
condition, as we shall see under section 51, is that which is shortly expressed by saying that the goods are in
transit on land or sea or air.42
Page 2 of 3
The right of stoppage in transit is against the goods only. Suppose the goods arrive at its destination, in a
damaged condition, the seller has a right against such damaged goods only; the seller cannot make any claim
to moneys paid by the underwriters to the buyers for loss of goods by reason of nonarrival of the goods.43 The
emphasis is that this right is against the goods only. This right can be exercised in respect of such part of the
goods which are in transit, even though it is lost in respect of the goods already taken delivery of by the buyer.
Lien and Stoppage in Transit Distinguished
Lien Stoppage in Transit
(1) Its essence is to retain possession, (1) Its essence is to regain possession.
(2) Seller’s possession of the goods is the sine qua non. (2) Its sine qua non is
(i) seller parting with possession of goods,
(ii) possession with a carrier (middleman), and
(iii) buyer having not acquired possession.
(3) This right can be exercised even if the buyer is not (3) This right cannot be exercised unless the buyer is
insolvent. insolvent,
(4) When this right ends, the right to stop in transit begins. (4) This right begins when the right of lien ends.
When the unpaid seller delivers the goods to a carrier for transmission to the buyer, the unpaid seller, under
section 49(l)(a) of the Sale of Goods Act, 1930, normally loses his right of lien. However, he may exercise his
right of stoppage and resume has lien (or acquire a lien, if he had no lien earlier) if the buyer becomes insolvent
while the goods are in transit.
The common factors in respect of the said rights are that (i) the property in the goods has passed to the buyer,
(ii) the seller is unpaid as defined in section 45, and (iii) part delivery of the goods does not affect exercise of
these rights in respect of the remainder of the goods not delivered, unless part delivery is delivery of the whole.
[s 50.3] Legal effect of stoppage in transit.—
The exercise of the right of stoppage in transit does not mean that the seller cancels the sale or that the
property re-vests in him.44 The seller gets the right to repossess the goods. This right of stoppage in transit
enables the unpaid seller to gain priority in regard to the goods over the general creditors of insolvent buyer as
by stopping the goods in transit the carrier is put under an obligation by section 52(2) of the Sale of Goods Act,
Page 3 of 3
1930 to redeliver the goods to the unpaid seller who thereby reacquires possession of the goods. Moreover, it
puts the seller in a position in which he can exercise his statutory power of resale under section 54(2) of the
Sale of Goods Act, 1930.
After repossessing the goods the seller is bound to deliver the goods if the price is paid or tendered within a
reasonable time either by the buyer or the Official Assignee or Receiver in bankruptcy or Assignee in
insolvency. The benefit of the contract would vest in the Official Assignee who may complete the contract for
the benefit of the creditors.45 The subsequent rights are stated in section 54.
The seller’s right of stoppage in transit is subject to the particular lien of the carrier for the conveyance of that
particular consignment but it is paramount to any general lien of the carrier against the consignee as well as the
rights of the execution creditor of the consignee. The right of seller to stop in transit could not be defeated as
the creditor could have no greater right in the goods than the purchaser himself.46
40 Narain Das v OA, AIR 1936 Sind 106 : 163 IC 875; Booth Steamship & Co v Cargo Fleet Iron Co, (1916) 2 KB 570 ,
580.
41 GIP Rly Co v Hanmandas, (1889) 14 Bom 57.
42 Kendall v Marshall, (1883) 11 QBD 356 .
43 Berndtson v Strang, (1868) LR 3 Ch App 588, 591.
44 US Steel Products Co v G W Rly, (1916) 1 AC 189; see section 54.
45 Jaffer v Budge Budge Jute Mills, (1907) 34 Cal 289 : (1906) ILR 33 Cal 702.
46 Smith v Goss, 170 ER 958 : 10 RR 684 : 1 Camp 282.
End of Document
S. 51. Duration of transit.-
MullaK Kannan
Stoppage in Transit
(1) Goods are deemed to be in course of transit from the time when they are delivered to a carrier or other
bailee for the purpose of transmission to the buyer, until the buyer or his agent in that behalf takes
delivery of them from such carrier or other bailee.
(2) If the buyer or his agent in that behalf obtains delivery of the goods before their arrival at the appointed
destination, the transit is at an end.
(3) If, after the arrival of the goods at the appointed destination, the carrier or other bailee acknowledges to
the buyer or his agent that he holds the goods on his behalf and continues in possession of them as
bailee for the buyer or his agent, the transit is at an end and it is immaterial that a further destination for
the goods may have been indicated by the buyer.
(4) If the goods are rejected by the buyer and the carrier or other bailee continues in possession of them,
the transit not deemed to be at an end, even if the seller has refused to receive them back.
(5) When goods are delivered to a ship chartered by the buyer, it is a question depending on the
circumstances of the particular case, whether they are in the possession of the master as a carrier or
as agent of the buyer.
(6) Where the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent in
that behalf, the transit is deemed to be at an end.
Page 2 of 7
(7) Where part delivery of the goods has been made to the buyer or his agent in that behalf, the remainder
of the goods may be stopped in transit, unless such part delivery has been given in such
circumstances as to show an agreement to give up possession of the whole of the goods.
[s 51.1] Sub-section (1): Duration of transit.—
In all cases stoppage in transitus it is necessary first of all to ascertain what is the transitus or passage of the goods
from, he possession of the vendor to that of the purchaser. The moment the goods are delivered by the vendor to a
carrier to be carried to the purchaser the transitus begins. When the goods have arrived at their destination and have
been delivered to the purchaser or his agent, or when the carrier holds them as warehouseman for the purchaser and
no longer as carrier only, the transitus is at an end.47
The test is not whether the goods have arrived at their destination but having arrived, whether there has been a
delivery to the buyer or his agent or a demand by the buyer or his agent for delivery of the goods and the
wrongful refusal on the part of the carrier to deliver the goods to the buyer or his agent.48 So the unpaid seller’s
right of stoppage ends if the buyer (or his agent) is ready and willing to take delivery but the carrier wrongfully
refuses to deliver. And the carrier has no legal justification for refusing to deliver if—e.g., he has no lien over the
goods for unpaid freight and has not got valid notice of stoppage in transit. There has been a difficulty in some
cases where the question would be whether the original transit is at an end and a fresh transit has commenced.
When the transit is a transit which has been caused by the terms of the contract or by the directions of the
purchaser to the vendor or to the carrier, the original transit continues, but if after the original transit, the further
transit is to continue to the consequence of fresh directions given by the purchaser for a new transit, such a
transit may not be part of the original transit.48 Sub-section (3) clearly gives a clue or a guideline that it is the
carrier’s acknowledgement to the buyer to hold the goods on his behalf that such acknowledgement puts an
end to the original transit. The goods need not be in motion. If the goods are lodged at any place in the course
of transmission to the buyer, e.g., with a forwarding agent,49 or with a bonded warehouseman, who happens to
be the vendor, the mere fact that the buyer agrees to pay warehouse charges for goods retained by the unpaid
seller on his premise does not mean that the seller has lost either his possession or his lien.50 [See also
section 47(2) of the Sale of Goods Act, 1930.] The vendors were also warehousemen of the goods sold under
the arrangement under which the purchasers had to pay warehouse rent. It was held that the goods remained
in the possession of vendors and as no actual delivery had been made to purchasers, the vendor’s lien revived
on the insolvency of purchasers.50 “The essence of stoppage in transitu is that the goods should be in the
possession of a middle man or of some person intervening between the vendor who has parted with and the
purchaser who has not yet received them.”51 The mere arrival of the goods at their destination is not sufficient
to defeat the seller’s right of stoppage. The transit continues until the buyer takes delivery of the goods from the
carrier.
Page 3 of 7
In the Ex-parte Golding Davis & Co52 case, there was a contract between supplier and his buyer for delivery of
drums at Liverpool. The buyer resold the drums to his sub-buyer at NY when the ship was lying at Liverpool.
Later on, the buyer became insolvent without paying the supplier, the bill of lading was made out in the name of
the sub-buyer, but the goods were not delivered to him. It was held that the original seller was entitled to stop
the goods in transit which were never ceased nor were altered. There was no new or different journey than
indicated. Mere transfer of bill of lading or sale of goods by which the property in the goods may effect transfer
but it does not thereby terminate the transit. [See also section 46(1) of Sale of Goods Act, 1930]
Illustrations
(a) B, living at Madras, orders goods of A, at Patna, and directs that they shall be sent to Madras. The goods
are sent to Calcutta, and there delivered to C, a wharfinger, to be forwarded to Madras. The goods, while they
are in the possession of C, are in transit.
(b) B, at Delhi, orders goods of A, at Calcutta. A consigns and forwards the goods to B at Delhi. On arrival
there, they are taken to the warehouse of B, and left there. B refuses to receive them, and immediately
afterwards stops payment. The goods are in transit.
(c) B, a merchant of Bombay, orders goods of A, a merchant of Calcutta, to be delivered at a named station in
Bombay. A delivers the goods to a railway company for conveyance to Bombay. B endorses and delivers the
railway receipt to C. On arrival of the goods at the station C pays the freight and loads the goods in his carts.
The transit is at an end, though the carts may not have left the goods yard of the railway station.53
[s 51.2] Sub-section (2): Anticipation by buyer of end of transit.—
If the buyer or the agent appointed by him to take delivery obtains delivery of the goods, or with or without the
consent of the carrier,54 before their arrival at the place to which under the contract the goods are to be
consigned, the transit is at an end. The effect of this sub-section is that the buyer may anticipate the end of the
transit, and thus put an end to the seller’s right of stoppage in transit. The buyer may under this sub-section
“obtain delivery” of the goods by the carrier’s attornment to him before the arrival of the goods at the appointed
destination.55 Sub-section (3) provides for the case of the carrier’s attornment after the arrival of the goods at
the appointed destination.
[s 51.3] Sub-section (3): Attornment by carrier to buyer.—
Page 4 of 7
This sub-section provides that if, after the arrival of the goods at the place to which under the contract the
goods are to be consigned, the carrier expressly or by implication enters into a new agreement, distinct from
the original contract for carriage, to hold the goods for the buyer, not for the purpose of expediting them to the
place of original destination pursuant to that contract, but in a new character, for the purpose of custody on his
account, and subject to in new or further order to be given by him, the original transit is at an end.56 It is
immaterial that the goods are to be conveyed from the original destination to a further destination to which the
buyer may wish to consign them.
It may be observed that the seller’s assent is not necessary under this clause. The mere fact that the freight is
not paid is not conclusive against such an agreement under this clause.57
Illustration
B, who lives at Poona, orders goods of A at Bombay. A sends them to Poona by C, a carrier appointed by B.
The goods arrive at Poona and placed by C, at B’s request, in C’s warehouse. The goods are held by C no
longer as carrier, but as warehouseman or bailee for B, and they are no longer in transit. (Note that there is no
significance in the fact that C was appointed as his carrier by B. C’s capacity, whether he was appointed by A
or B, is that of a carrier, and it continues to be so until he attorns to B.)
[s 51.4] Sub-section (4): Goods rejected by buyer.—
This sub-section is based on the principle laid down in Bolton v L & Y Rly Co.58 It ruled that:
the question of rejection will often depend on the intention of the consignee; if he has no intention of taking possession,
the transit is not at an end, despite the fact that the carrier intended to deliver the goods.59 The arrival which is to
divert the vendor’s right of stoppage in transit must be such as that the buyer has taken actual or constructive
possession of the goods; and that can not be so long as he repudiates them.60
Thus a bankrupt buyer by refusing to take delivery of the goods may give the unpaid seller the opportunity to
exercise his right of stoppage in order to gain priority over the general creditor of the buyer.61
[s 51.5] Sub-section (5): Delivery on ship chartered by buyer.—
Page 5 of 7
Whether a vessel chartered by the buyer is to be considered his own ship depends on the charter-party. If the
charterer is the owner for the voyage, i.e., if the ship has been demised to him and he has employed the
captain, so that the captain is his servant, then a delivery on board of such a ship would be a delivery to the
buyer [see Illustration (a) below]. But though there is in such a case an actual delivery to the buyer’s agent, the
seller may annex terms to such delivery, and so prevent it from being absolute and irrevocable; he may, in
other words, preserve his right of stoppage in transit by taking bills of lading, making the goods deliverable to
his order or assign. This the seller may also do even if the buyer sends his own ship as in the illustrations given
below. In fact, there is little difference for the present purposes between the buyer sending his own ship and his
sending a ship demised to him under a charter party.
If the owner of the vessel chartered by the buyer has his own captain and crew on board, so that the captain is
the servant of the owner, and the effect of the charter is merely to secure to the charterer the exclusive use and
employment of the vessel, then a delivery by the seller of goods on board is not a delivery to the buyer, but to
an agent for carriage.62
Illustrations
(a) B, a merchant of London, orders 100 bales of cotton of A, a merchant at Bombay. B sends his own ship to
Bombay for the cotton. The transit is at an end when the cotton is delivered on board the ship.
(b) B, a merchant of London, orders 100 bales of cotton of A, a merchant at Bombay. B sends his own ship to
Bombay for the cotton. A delivers the cotton on board the ship, and takes the bill of lading from the master,
making the cotton deliverable to A’s order or assigns. The cotton arrives at London, but, before coming into B’s
possession, B becomes insolvent. The cotton has not been paid for. A may stop the cotton.
[s 51.6] Sub-section (6): Wrongful refusal by carrier to deliver.—
If the carrier wrongfully refuses to deliver the goods to the buyer, the transit is at an end, but not if he does so
rightfully.
[s 51.7] Sub-section (7): Part delivery.—
Generally delivery of a part is not equivalent to delivery of the whole. The burden of proof lies on the party who
alleges the contrary. Delivery of an essential part of a machine has been held to operate as a delivery of the
whole.63
Page 6 of 7
[s 51.8] Wrongful delivery by carrier.—
Any tortious act of the carrier after the goods are “at home” (i.e., have arrived at the place of destination), such
as delivery to a person purporting to claim under the unpaid seller’s authority, but not having such authority in
fact, cannot defeat the buyer’s right.64 Nor, on the other hand, does a mistaken or otherwise wrongful delivery
of goods by the carrier after notice to stop in transit defeat the right of the unpaid vendor.65
[s 51.9] Landing at public wharves.—
Public wharves in India are governed by the Major Port Trusts Act, 1963 and respective State Port Trust
Acts.66
When a shipowner lands the goods under the statute and his freight has been paid, his right of control and lien
over the goods is gone and thenceforward the goods are held by the statutable wharfingers for the consignee
alone. So long as the freight is not paid the goods are subject to the shipowner’s lien for freight and therefore
transit is not ended. But as soon as the freight is paid, the transit would be at the end.66
47 Per Cave, J., in Bethell v Clark, (1887) 19 QBD 553, 561 : 20 QBD 615; see Bapuji Sorabji Framji v Clan Line
Steamers Ltd, 1910 (12) Bom LR 553 [LNIND 1910 BOM 24] : 34 Bom 640.
48 Bird v Brown, (1850) 80 RR 775 : 4 Exch 786. See section 51(6) of the Indian Sale of Goods Act.
48 Bird v Brown, (1850) 80 RR 775 : 4 Exch 786. See section 51(6) of the Indian Sale of Goods Act.
49 Colin Blackburn, A Treatise on the Effect of the Contract of Sale, p 234.
50 Grice v Richardson, (1877) 3 App Cas 319 .
50 Grice v Richardson, (1877) 3 App Cas 319 .
51 Per Lord Cairns, J, in Schotsmans v Lancashire and Yorkshire Rly Co, (1867) LR 2 Ch App 332, 338.
52 Ex-parte Golding Davis & Co, (1883) 13 ChD 628 .
53 GIP Rly Co v Hanmandas, (1889) 14 Bom 57; see also 17 Bom 62.
54 Whitehead v Anderson, 9 M&W 534.
55 Anthony Gordon Guest, Benjamin’s Sale of Goods, 1st Edn Sweet & Maxwell, 1974, para 1100.
Page 7 of 7
56 Plischke v Allison Bros Ltd, (1936) 2 All ER 1009 .
57 Kendal v Marshal Stevens & Co, (1883) 11 QBD 356 ; Colin Blackburn, A Treatise on the Effect of the Contract of
Sale, 3rd Edn, pp 398–399.
58 Bolton v L & Y Rly Co, (1866) LR 1 CP 431.
59 Bolton v L & Y Rly Co, (1866) LR 1 CP 431, 438.
60 Bolton v L & Y Rly Co, (1866) LR 1 CP 431, 440.
61 Ex parte Cooper, (1879) 11 Ch Div 68.
62 Anthone Gordon Guest (ed), Benjamin’s Sale of Goods, 6th Edn, Sweet & Maxwell, 2003, para 1018; Schotsmans v
Lancashire & Yorkshire Rly, Co (1867) LR 2 Ch App 332, 335, 336.
63 Ex parte Cooper, (1879) 11 Ch Div 68.
64 Bird v Brown, (1850) 4 Ex 786 : 80 RR 775; Lilladhar v George Wreford, (1892) 17 Bom 62.
65 Litt v Cowley, (1816) 7 Taunt. 169 : 129 ER 68.
66 See Lilladhar v George Wreford, (1892) 17 Bom 62.
66 See Lilladhar v George Wreford, (1892) 17 Bom 62.
End of Document
S. 52. How stoppage in transit is effected.-
MullaK Kannan
Stoppage in Transit
(1) 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 in
time to prevent a delivery to the buyer.
(2) 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.
[s 52.1] Mode of stoppage in transit.—
The two modes are either taking actual possession of the goods or giving notice to the carrier or bailee or his
agent not to deliver the goods to the buyer or his agent. This remedy could be exercised by obtaining the
court’s injunction or if the goods are in the hands of the master, by arrest of the ship.67
[s 52.2] Notice.—
The section does not prescribe any form of notice, it may be oral or in writing. Telegram stating “don’t deliver”
Page 2 of 3
may be sufficient.68 Section provides that notice be given to the person who is actually in possession (i.e.,
agent of carrier or the principal). The section provides the precautions to be adopted in such cases. The
essence is diligent communication before delivery is effected. Notice to principal must be given in advance so
as to enable the principal to give effective notice to the person in actual possession.
[s 52.3] Notice by unauthorised person.—
Notice of stoppage in transit if given by an unauthorised person will not be valid unless the act is ratified by the
seller before the transit is at the end.69 If ratification is made after the transit has terminated, ratification is
ineffectual to alter retrospectively the ownership of the goods which had vested in the Official Assignee of the
bankrupt buyer.69
[s 52.4] Carrier’s duty.—
As soon as the carrier receives notice of the seller’s claim, he has to use reasonable diligence in
communicating it to his servant or agent to prevent delivery of the goods to the buyer and then re-deliver the
goods to the seller or according to the seller’s directions. In case of doubt, the carrier may interplead.70
The carrier cannot insist upon the buyer’s consent. The carrier has no other alternative but to comply with the
seller’s claim as aforesaid. If he refuses to do so, he may be sued in conversion.70 Failure to exercise due and
reasonable diligence may expose the carrier to a suit for damages for breach of his statutory obligations.71
[s 52.5] Seller’s duty.—
The carrier must give effect to the seller’s claim as soon as he is satisfied that it is made by or on behalf of the
seller. In case of real doubt, the carrier ought to interplead72 lest by re-delivering the goods to the seller he
should render himself liable at the suit of the buyer.73 Correlative to the duty of the carrier to the seller is the
duty of the seller to the carrier to give directions as to the delivery of the goods—and to pay the freight due in
respect of the goods. Failure to do so may render him liable in damages to the carrier.74
67 The Tigress, (1963) 32 LJ Adm 97, 101, 102 : BR&L 38 : 167 ER 286; Tailor v GE Rly, (1901) 1 KB 774 .
68 Rijhumal v Michumal, 26 IC 424 : 8 Sind LR 65.
69 Bird v Brown, (1850) 4 Exch 786 : 80 RR 775.
69 Bird v Brown, (1850) 4 Exch 786 : 80 RR 775.
70 Jackson v Nicoll, (1839) 5 Bing NC 508.

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70 Jackson v Nicoll, (1839) 5 Bing NC 508.
71 Litt v Cowley, (1816) 7 Taunt 169 : 17 RR 482 : 129 ER 68.
72 The Tigress, (1863) 32 LJ Adm 97 : BR&L 38 : 167 ER 286.
73 Taylor v GE Rly, (1901) 1 KB 774 .
74 Booth Steamship Co v Cargo Fleet Iron Co, (1916) 2 KB 570 .
End of Document
S. 53. Effect of sub-sale or pledge by buyer.-
MullaK Kannan
Against the Goods > Transfer by Buyer and Seller
Transfer by Buyer and Seller
(1) Subject to the provisions of this Act, the unpaid seller’s right of lien or stoppage in transit is not affected
by any sale or other disposition of the goods which the buyer may have made, unless the seller has
assented thereto:
Provided that where a document of title of goods has been issued or lawfully transferred to any
person as buyer or owner of the goods, and that person transfers the document to a person who
takes the document in good faith and for consideration, then, if such last mentioned transfer was
by way of sale, the unpaid seller’s right of lien or stoppage in transit is defeated and, if such last
mentioned transfer was by way of pledge or other disposition for value, the unpaid seller’s right of
lien or stoppage in transit can only be exercised subject to the rights of the transferee.
(2) Where the transfer is by way of pledge the unpaid seller may acquire the pledgee to have the amount
secured by the pledge satisfied in the first instance, as far as possible, out of any other goods or
securities of the buyer in the hands of the pledgee and available against the buyer.
[s 53.1] Effect of sub-sale or pledge by buyer on lien and stoppage.—
Suppose the buyer, without paying the whole of the price, sells the goods or pledges them to another person.
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Does the sub-sale or pledge affect the unpaid seller’s right of lien or stoppage in transit, and, if so, to what
extent? The present section affords an answer to this question.
Sub-section (1) says that neither the right of lien nor the right of stoppage is affected by a sub-sale or pledge by
the buyer, unless the seller has assented thereto. The assent must be such an assent as in the circumstances
shows that the seller intends to renounce his rights against the goods. It is not enough to show that the fact of
the sub-sale or pledge has been brought to his notice and that he has assented to it merely in the sense of
acknowledging the receipt of the information.75 In Mordaunt Bros v British Oil & Cake Mills Ltd,76 the
Defendants sold a quantity of oil to a merchant who resold a portion of it to the Plaintiffs giving them delivery
orders addressed to the Defendants requiring them to deliver to the plaintiffs ex our contract. The Defendants
retained the orders when presented and either made no comment or told the plaintiffs that they were in order
and entered the plaintiff’s name in their books. The merchant who bought from the Defendants, at first kept-up
the payments and the Defendants duly delivered the oil to the plaintiffs. Later the merchant defaulted in
payment and so the Defendants claimed to exercise their right of lien and refused to make further deliveries to
the plaintiffs. It was held that the Defendants were entitled to do so as it did not show that the Defendants had
intended to renounce his rights against the goods.
[s 53.3] Waiver of rights.—
There could be instances of acts of the seller accepting the delivery order presented by sub-buyer and entering
the sub-buyer’s name in his books for delivery of the goods, or the seller agreeing to deliver to the sub-buyer 60
maunds of barley out of the 80 maunds of barley out of his granary agreed to be sold to the buyer77 or the
seller’s agent’s endorsement on the buyer’s delivery order that the goods would be delivered to the sub-buyer
who consequently took part of the delivery of the goods. It was held in such cases that the seller had waived his
lien and was estopped from exercising his lien or right of stoppage as the seller had recognised the sub-buyer’s
title or had assented. This sub-section, however, has to be read along with the proviso.
[s 53.4] Proviso.—
The proviso to sub-section (1) contemplates the case where (i) the seller has issued or lawfully transferred a
document of title to goods, e.g., a bill of lading or a railway receipt [section 2(4)] to a person as buyer, and (ii)
the buyer transfers the document by way of sale or pledge to a person who takes the document in good faith
and for consideration. In such a case the proviso says that if the transfer was by way of sale, the unpaid seller’s
right of lien or stoppage is defeated, and if it was by way of pledge, his right of lien or stoppage can only be
exercised subject to the rights of the pledgee. So the effect of the rule is that the seller may still exercise his
rights by paying off the pledgee. The rule also accounts for the description of the bill of lading as negotiable
instruments “against stoppage in transitu only.”78
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The words “lawfully transferred to the buyer” the “document of title” predicate two things that there must be
firstly a document of title within the meaning of its definition. The test is whether the document is used in the
ordinary course of business as proof of the possession of the goods or as proof of the control of the goods or as
authorising or purporting to authorise either by endorsement or delivery the possessor of the document to
transfer the goods thereby represented or to receive the goods. A delivery chit will not be a document of title.79
Secondly, it must be lawfully transferred according to law.
[s 53.5] Consideration.—
The pledge may be to secure an advance made specifically upon the document of title, or it may be to secure
an antecedent debt. In this respect the law as laid down in the present section differs from that which was laid
down in section 103 of the Indian Contract Act, 1872. Under that section a transfer of a document of title by way
of pledge prevailed over the unpaid seller’s rights only if the transfer was made to secure an advance made
specifically upon it. A document of title given to secure an antecedent debt was not effectual against the unpaid
seller. In this respect section 103 adopted the decision of the Judicial Committee in Rodger v Comptoir
d’Escompte de Paris.80 But in Leask v Scott,81 the Court of Appeal in England dissented from this decision. It
was held in that case that a transfer of a document by way of pledge to secure a debt, though antecedent,
prevails over the rights of an unpaid seller. The Court observed that there was no principle or authority to
support the novel distinctions introduced by the Judicial Committee. The antecedent debt may be a debt due
upon a general balance of account between the buyer and the pledgee or it may be any other existing debt due
from the buyer to the pledgee. The word used in this section is “consideration,” and an antecedent debt would
be “consideration” within the meaning of the section. The result is that under the law as contained in the
section, a transfer of a document of title by way of pledge to secure a balance of account, or any other existing
debt, will prevail over the rights of an unpaid seller. But the facts connected with the transfer must show that it
was agreed that such debt should be the consideration.82 The pledge of a document of title specifically for a
definite sum does not of itself and without any agreement entitle the pledgee to hold the goods against the
unpaid seller in respect of the pledgee’s general balance of account against the buyer, even if the pledgee is
the buyer’s factor.83 See illustrations below. Further, the right of stoppage in transit is not affected under this
proviso if transfer of bill of lading is made by the seller to the buyer or the bill of lading is issued in the first
instance by the carrier to the buyer without the privity of the seller. Also, if bill of lading though issued in the
sub-buyer’s name but is not delivered to him, it will not defeat stoppage in transit.84
[s 53.6] In good faith.—
The transfer of a document of title, in order to affect the unpaid seller’s right, must be to a person who takes it
“in good faith.” A thing is to be deemed to be done “in good faith” if it is in fact done honestly, whether it is done
negligently or not.85 Mere notice of the fact that the goods have not been paid for does not negative good faith,
for a man may be perfectly honest in buying or in taking a pledge of goods which he knows have not been paid
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for. But he cannot be said to be acting in good faith if he has notice of such facts as render the document of title
not fairly and honestly transferable,86 e.g., notice that the buyer is insolvent.87
Illustrations
(a) A sells and consigns certain goods to B, and sends him the bill of lading. A being still unpaid, B becomes
insolvent, and, while the goods are in transit, assigns the bill of lading for cash to C, who is not aware of B’s
insolvency. A cannot stop the goods in transit.
(b) A sells and consigns certain goods to B. A being still unpaid, B becomes insolvent, and, while the goods are
still in transit, assigns the bill of lading for cash to C, who knows that B is insolvent. The assignment not being in
good faith, A may still stop the goods in transit.
(c) A sells and consigns goods to B of the value of Rs 12,000. B assigns the bill of lading for these goods to C,
to secure specific advance of Rs 5,000 made to him upon the bill of lading by C. B becomes insolvent, being
indebted to C to the amount of Rs 9,000 including the Rs 5,000. A is not entitled to stop the goods except on
payment or tender to C of Rs 5,000. He is not bound to pay or tender the balance of Rs 4,000.
(d) A sells and consigns goods to B of the value of Rs 12,000. B assigns the bill of lading for these goods to C,
to secure the sum of Rs 5,000 due from him to C, upon a general balance of account. B becomes insolvent. A
is not entitled to stop the goods in transit except on payment or tender to C of the Rs 5,000.
If the pledgee obtains the goods by virtue of pledge and sells them, the seller is entitled to claim that the
balance of the price shall be paid directly to him and not to the insolvent buyer.88 This decision of the House of
Lords was concerned with the rights of pledgee over those of the seller but Professor Atiyah89 considers the
decision recognising the right of stoppage of the unpaid seller in that circumstance.
[s 53.7] Burden of proof.—
The burden of proof is on the second buyer to prove that he acted in good faith and has given valuable
consideration.90
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This sub-section means that where the pledgee has other security besides the goods comprised in the
document of title, the unpaid seller can call on him to resort to that security before resorting to the goods
covered by the document of title.91 This is known as marshalling the securities.
[s 53.9] Railway receipt.—
Note that a railway receipt is a document of title to goods.92 See section 2(4).
75 Mordaunt Brothers v British Oil and Cake Mills Ltd, (1910) 2 KB 502 .
76 Mordaunt Brothers v British Oil & Cake Mills Ltd, (1910) 2 KB 502 .
77 Knights v Wiffen, (1870) LR 5 QB 660. Maund is unit of weight used in Indian subcontinent, whose value, subject to
small variations, hovered around 37 kg/82 lbs.
78 Willes, J., in Fuentes v Montis, (1868) LR 3 CP 268, 276.
79 Hukumat Rai Arjandas v Nandu Virumal, AIR 1941 Sind 78 : 195 IC 137.
80 Rodger v Comptoir d’Escompte de Paris, (1868) LR 2 PC 393.
81 Leask v Scott, (1877) 2 QBD 376 .
82 Glegg v Bromley, (1912) 3 KB 474 .
83 Spalding v Ruding, (1843) 3 Beav 376 : 49 ER 871.
84 Ex parte Golding Davis & Co, (1880) 13 Ch Div 628 : 4 RC 851.
85 General Clauses Act, 1897, section 3(20); See Rash Behari v Narain Das, AIR 1923 Cal 182 : 50 Cal 399 : 80 IC 485.
86 Cuming v Brown, (1808) 9 East 506 : 9 RR 603.
87 Vertue v Jewell, (1814) 4 Camp 31.
88 Kemp v Falk, (1882) 7 App Cas 573 .
89 Judah Philip Benjamin, Benjamin’s Sale of Goods, 5th Edn, Sweet & Maxwell, 1975, p 264.
90 Rash Behari v Narain Das, AIR 1923 Cal 182 : 50 Cal 399 : 80 IC 485.
91 Re Westzinthus, (1833) 5 B&Ad 817 : 39 RR 665.
92 See Ramdas v Amerchand & Co, (1916) 43 IA 164 : 40 Bom 630.

Page 6 of 6
End of Document
S. 54. Sale not generally rescinded by lien or stoppage in transit.-
MullaK Kannan
Against the Goods > Transfer by Buyer and Seller
Transfer by Buyer and Seller
(1) 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.
(2) 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.
(3) 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.
(4) Where the seller expressly reserves a right of resale 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.
[s 54.1] Re-sale by unpaid seller.—
Page 2 of 5
This section deals principally with re-sale by an unpaid seller who has exercised his right of lien, or has
exercised the right of stoppage in transit and resumed possession of the goods.
[s 54.2] Sub-section (1): Sale not rescinded by lien or stoppage in transit.—
To understand sub-section (1), we start with the fundamental proposition that in a contract for the sale of goods
mere default on the part of the buyer in payment of the price does not entitle the seller to rescind the contract of
sale unless the right to rescind is expressly reserved [sub-section (4)]. Is the position altered if an unpaid seller
has exercised his right of lien so as to entitle him to retain possession of the goods until payment of the price, or
has exercised his right of stoppage in transit and thereby again secured his lien? Sub-section (1) says, No. A
contract of sale, it says, is not rescinded by the mere exercise by an unpaid seller of his right of lien or stoppage
in transit. His only remedy, it would seem, is to re-sell the goods as provided by sub-section (2) and claim
damages arising out of the re-sale.93 These damages represent the difference between the contract price and
the price realised at the re-sale.
[s 54.3] Sub-section (2): Re-sale.—
As regards the rights and remedies of an unpaid seller who has exercised his right of lien or stoppage in transit,
Lord Blackburn expressed the opinion long ago:
that, viewing it as a practical question, the most convenient doctrine would be to consider the vendor as entitled in all
cases to hold the goods as a security for the price, with a power of re-sale to be exercised, in case the delay of
payment was unreasonably long, in such a manner as might be fair and reasonable under all the circumstances.94
The statutory power of re-sale under section 54(2) arises if the property in the goods has passed to the buyer.
Where the property in the goods has not passed to the buyer, the seller has no right of re-sale under section
54(2). So if the goods are unascertained goods (i.e., no portion of a specified larger stock of goods lying in the
seller’s godown was appropriated to the contract by the seller with the buyer’s consent), the seller had no right
of re-sale of the goods under section 54(2) of the Sale of Goods Act, 1930. In such a case the claim to recover
the deficiency of re-sale is not sustainable but the seller is entitled to claim by way of damages the difference
between the contract price and the market price on the date of the breach, i.e., the refusal by the buyer to
accept the goods.95 Where the contract expressly reserves the right of re-sale, the condition of the passing of
the property is not required. He should before exercising the right of re-sale, give notice to the buyer of his
intention to re-sell and thus give him an opportunity to pay for and take delivery of the goods. The notice should
be given without unreasonable delay after the breach and the goods should be sold within a reasonable time
after the notice, otherwise the seller will not be entitled to damages arising on the re-sale, but to damages as
Page 3 of 5
represented by the difference between the contract price and the market price at the date of the breach.96 If
the re-sale without proper notice results in a profit, the difference between the contract price and the price
realised on re-sale is payable to the buyer. But a buyer’s cause of action is not rendition of accounts.97 This
section does not apply if the sale has not taken place at all for non-payment of money, if it is made a condition
in the contract for sale. Consequently, the unpaid seller in whom the title still vests and who could re-sell shall
not be governed by the rights set out through this section. 98 In case of goods of a perishable nature, the notice
of intention to re-sell does not appear to be compulsory.
The term “perishable” is not defined but means “perishable not only physically but in a commercial sense
becoming unmerchantable,” for example, dates becoming impregnated with sewage and in such a condition as
to be no longer merchantable as dates99 or the cement becoming so wet as to lose its properties as
cement.100
In exercising his right of re-sale, the seller continues his capacity as an unpaid seller and he does not thereby
become an agent of the buyer.101
Pakka Adatia.—An agent who has made himself personally liable for the price of goods purchased from his
principal has the same rights to re-sell and of stoppage in transit as a vendor.102
[s 54.4] Delay in re-sale.—
Sub-section (2) lays emphasis on the requirement of “reasonable time” to entitle an unpaid seller to exercise his
right of re-sale after notice. The seller should therefore not be guilty of delay. Where, however, the buyer asked
from time to time adjournments or extensions of time to enable him to make payment and ultimately the seller
had to re-sell the goods, it was held that the delay caused thereby was fully justified as the delay on the part of
the seller was mainly due to unreasonable and unfair attitude adopted by the buyer with a view to gain time.
Hence the seller was not acting with undue delay in not exercising his right of re-sale immediately.103
As per the Supreme Court decision, section 54(2) does not permit an unpaid seller to exercise his right of re-
sale without a notice. If the seller does not give the notice and sells the goods; he must content himself with
what the goods fetch and cannot ask for more. But as soon as he gives notice, his right to re-sale arises and if
for any reason (such as re-sale taking place after an unreasonable time of the giving of the notice) though the
re-sale is not proper, it does not mean that the seller is deprived of the damages contemplated by section 54(2).
In such a case the damages are to be ascertained not at the difference between what the re-sale realises and
Page 4 of 5
the price of the goods but the difference is between what the court holds should have been realised by the
seller on a proper re-sale and the purchase-price.104
On a re-sale by the unpaid seller, the purchaser acquires a good title thereto as against the original buyer, even
if no notice of re-sale has been given to him. This is as it should be, for the original buyer being in default, is not
entitled to the possession of the goods, and therefore cannot sue to recover the goods or their value.
[s 54.6] Sub-section (4): Express reservation of right of re-sale.—
A re-sale by the seller, where a right of re-sale is expressly reserved in a contract of sale, has the effect of
rescinding the contract, but it does not prejudice any claim which the seller may have for damages against the
buyer. Stated briefly, the exercise of an expressly reserved power of re-sale rescinds the contract of sale in
which the power is contained.
A common type of cases in which an express right of re-sale is reserved is afforded by what are called
contracts of “indents.” These indents are as a rule in printed forms, and almost every indent contains a clause
that on default on the part of the buyer to pay for and take delivery of the goods within a specified time the
seller should be at liberty to re-sell the goods, and that the buyer should pay all loss arising on the re-sale with
interest. In such cases the seller is entitled to re-sell the goods on default on the part of the buyer, even if the
property in the goods has not passed to the buyer, and to sue the buyer for the loss on re-sale.105 But it is
necessary to the exercise of this power that the goods contracted for should at least have been appropriated for
the purposes of the contract. If there has been no such appropriation, there is nothing to which the power of re-
sale under the contract could attach, and the seller is not entitled in such a case to the loss on re-sale, but to
the difference between the contract price and the market price at the dale of the breach.106 But it has been
held that it is competent to the parties by an apt clause to provide for the exercise of the power of re-sale even
if no goods are appropriated to the contract.107
[s 54.7] Rescission and arbitration clause.—
The rescission contemplated in sub-section (4) is something less than a complete annulment of the contract
and the arbitration clause contained in the contract of sale is not wiped out and the seller’s claim as to damages
can be referred to arbitration despite rescissioan.108
93 The decision in Baldeo Doss v Howe, (1880) 6 Cal 64 , does not seem to be good law.
Page 5 of 5
94 Kemp v Falk, (1882) 7 App Cas 573, 581.
95 PSNS Ambalavana Chettiar & Co Ltd v Express Newspapers Ltd, AIR 1968 SC 741 [LNIND 1967 SC 322] : (1968) 2
SCJ 259 .
96 Prag Narain v Mul Chand, (1897) 19 All 535 ; Hirji Bhannal v Bombay Cotton Ltd, AIR 1958 Bom 411 [LNIND 1956
BOM 142] : (1957) 59 Bom LR 4 : ILR 1957 Bom 163 .
97 UOI v Munna Lal, AIR 1956 P&H 34 .
98 Pawan Hans Helicopter Ltd v AES Aerospace Ltd, 2008 (2) Arb LR 63 : 2008 (103) DRJ 174 [LNIND 2008 DEL 828].
99 Asfar & Co v Blundell, (1896) 1 QB 123 .
100 Duthie v Hilton, (1868) LR 4 CP 138.
101 Dhanrajmal Gobindram v Shamji Kalidas & Co, AIR 1961 SC 1285 [LNIND 1964 SC 398] : (1962) 64 Bom LR 169 :
[1961] 3 SCR 1029 .
102 Harparshad v Jindar Parshad, (1934) 15 Lah 496 : 150 IC 109 : (‘34) AL 191; Balmukund v Jagan Nath, AIR 1963 Raj.
212 [LNIND 1962 RAJ 143] ; Girdharlal v Jethmal, AIR 1963 AP 185 [LNIND 1962 AP 22] .
103 Sheo Narain v New Sevan Sugar and Gur Refining Co Ltd, AIR 1938 All 272 .
104 Hirji Bharmal v Bombay Cotton Ltd, AIR 1958 Bom 411 [LNIND 1956 BOM 142] : (1957) 59 Bom LR 4 .
105 Moll Schutte & Co v Luchmi Chand, (1898) 25 Cal 505 , dissenting on this point from Yule & Co v Mahomed Hossain,
(1896) 24 Cal 124 ; Basdeo v John Smidt, (1899) 22 All 55 , 65; Best v Haji Muhammad, (1898) 23 Mad 18; Sheo
Narain v New Sevan Sugar and Gur Refining Co Ltd, AIR 1938 All 272 : 175 LC 552.
106 Angullia & Co v Sassoon & Co, (1912) 39 Cal 568 .
107 Angullia & Co v Sassoon & Co, (1912) 39 Cal 568 , at p 581.
108 Gulabchand v Sarangpur Cotton Mfg. Co, AIR 1959 Bom 158 [LNIND 1957 BOM 195] : 60 Bom LR 37; Karam Narain
v Volkart Bros, AIR 1946 Lah 116 : (1946) Lah 692 (FB); Dhanrajmal Gobindram v Shamji Kalidas & Co, AIR 1961 SC
1285 [LNIND 1964 SC 398] : 64 Bom LR 169 : [1961] 3 SCR 1020 [LNIND 1964 SC 398] .
End of Document
S. 55. Suit for price.-
MullaK Kannan
The Indian Partnership Act, 11th ed > The Sale of Goods Act > Chapter VI Suits for Breach of the
Contract
Chapter VI Suits for Breach of the Contract
(1) Where under a contract of sale the property in the goods has passed to the buyer and the buyer
wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller
may sue him for the price of the goods.
(2) Where under a contract of sale the price is payable on a 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.
[s 55.1] Suits for breach of the contract.—
This chapter deals with suits for breach of a contract of sale. These are:
(i) a suit for the price by the seller against the buyer [section 55];
(ii) a suit for damages by the seller against the buyer for non-acceptance of the goods [section 56];
(iii) a suit for damages by the buyer against the seller for non-delivery of the goods [section 57];
(iv) a suit for specific performance by the buyer against the seller [section 58];
(v) a suit by the buyer against the seller for breach of warranty [section 59];
Page 2 of 4
(vi) a suit for damages by seller or buyer for anticipatory breach of contract [section 60].
[s 55.2] Suit for price.—
Sub-section (1) deals with a contract where the property in the goods has passed irrespective of delivery. This
will involve two types of cases as follows:
(i) suit for price of goods sold and delivered;
(ii) suit for price of goods bargained and sold (even though not delivered).
Besides the second remedy, where the goods have not come into the actual possession of the buyer, the seller
has the right of lien and stoppage in transit—dealt with in sections 46 to 54 above.
Even if the property in the goods has not passed to the buyer, the seller may maintain an action for the price if
the price is payable on a day certain, the words “payable on a day certain” mean “at a time specified in the
contract not depending upon a future or contingent event.”1 The contingent events contemplated by sub-
section (2) are (i) non-delivery, (ii) non-appropriation of the goods to the contract, and (iii) property in the goods
continuing to vest in the seller; otherwise the seller’s only remedy is a suit for damages for non-acceptance of
the goods under section 56 below.
[s 55.3] “Buyer wrongfully neglects or refuses to pay”.—
These are the important and key words. The said expression has been used in both the sub-sections.
Therefore, when a seller becomes entitled to sue for the price, he has to prove the said acts on the part of the
buyer. The meaning of the term “wrongful” must be determined by looking to the term of the contract.
Consequently, if the sale be on credit, no action lies until the period of credit has expired.2
Price may be payable either against delivery or after a time where the goods are sold on credit; the period of
credit should be allowed to expire before a seller can sue for the price. If a negotiable instrument has been
accepted for the payment of the price, unless the negotiable instrument is dishonoured the seller cannot sue for
the price. Where a bill of cheque is given for the price, generally it operates as conditional payment.3 If the bill
is dishonoured, the debt revives and the buyer may sue either on the bill or on the original consideration.4
Page 3 of 4
In Stein Forbes & Co v County Tailoring Co,5 goods were sold C.I.F., payment by cash against documents on
arrival of ship. The goods were shipped in three instalments and buyer wrongfully refused to pay against
documents relating to third shipment. It was held that as the property in the goods has not passed to the buyer,
no action for price can be brought by the seller under section 49(1) of the English Sale of Goods Act, 1979
corresponding to section 55(1) of the Sale of Goods Act, 1930 despite the fact that it is the wrongful act of the
buyer which prevented the passing of the property in his own favour. Also, the facts of the case did not satisfy
section 49(2) of the English Sale of Goods Act, 1979 [section 53(2) of the Sale of Goods Act, 1930] i.e., “the
price is payable on a day certain irrespective of delivery”, as their contract clearly provided payment of price
against delivery, i.e., against delivery of the document.
Lastly, the distinction between action for the price and an action for damages is of some practical significance.
As Prof Atiyah remarks,
In purely monetary terms there will usually be a substantial difference between the price of the goods and damages for
non-acceptance. Moreover, if the property has passed to the buyer and the seller is entitled to sue for the price, he is
under no obligation to mitigate his damages by attempting to re-sell the goods or otherwise.6
1 Shell-Mex Ltd v Elton Cop Dyeing Co Ltd, (1928) 34 Comp Cases 39, 43.
2 Ferguson v Carrington, 109 ER 22 : 9 Karn & C 59. See also Helps v Winterbottom, 109 ER 1203, 39 Digest (Repl)
735, 2137.
3 Gunn v Bolckow Vaghan & Co, (1875) 10 Ch App 491.
4 Davis v Reilly, (1898) 1 QB 1 .

Page 4 of 4
5 Stein Forbes & Co v County Tailoring Co, (1916) 86 LJ KB 448.
6 The Sale of Goods Act, 5th Edn, pp 272–273.
End of Document
S. 56. Damages for non-acceptance.-
MullaK Kannan
Contract
Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for
damages for non-acceptance.
[s 56.1] Damages for non-acceptance.—
This section deals with a suit for damages by the seller. The next section deals with a suit for damages by the
buyer. Before suing for damages, the buyer may consider if he is entitled to specific performance (as
contemplated in section 58); the parties may also wait till the date of delivery and either sue for price of goods
or delivery of goods (as contemplated in section 60).
The previous section dealt with a seller’s right to file a suit for the price of the goods. In this connection the
provisions of section 60 may also be considered by the students. This section and section 60 deal with the
seller’s rights to sue for damages.
But before the seller becomes entitled to sue for damages, there must be either a wrongful neglect or refusal on
the part of the buyer to accept and pay for the goods. If the seller’s case does not fall under any of the sub-
sections of the preceding section, he will have to sue for damages under this section.
[s 56.2] Measure of damages.—
The section says that where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller
Page 2 of 3
may sue him for damages for non-acceptance of the goods. The next section provides that 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. Both these sections are silent as to the measure of damages, as that subject is dealt with in
section 73 of the Indian Contract Act, 1872, to which the student is referred. It is unnecessary to repeat here
what has been stated in the notes under that section. It is sufficient to state here the leading rules applicable to
cases both under this and the following section.7 They are as follows:
(i) Where there is an available market for the goods in question, the measure of damages is prima facie to
be ascertained by the difference between the contract price and the market price at the date of the
breach.
(ii) Where there is no such market, the measure of damages is the estimated loss directly and naturally
resulting, in the ordinary course of events, from the breach of the contract. Thus if the exact sort of
goods which the buyer has contracted for may not be obtainable, he may buy similar goods and may
claim from the seller the difference in price.8 If no such purchase is made by the buyer, but the buyer
has during the contract period settled contracts for the same kind of goods with other persons, the
rates at which those contracts were settled may afford a basis for ascertaining the damages.9 When
on the breach of a contract for sale of goods the goods cannot be replaced in the market, the proper
measure of damages is the profit which the purchaser would have made if the contract had been
carried out.10
[s 56.3] Nature of damages.—
Section 56 and section 57 deal with the question of damages arising from non-acceptance or from non-delivery.
Section 60 deals with the question of damages arising as a result of “anticipatory breach.” Section 59 deals with
the question of damages arising in consequence of a breach of warranty. Section 61 refers to a question of
special damages. The measure of damages under section 59 and under section 61 would be quite different
from the one under sections 56, 57, 58 and 60.
7 English Sale of Goods Act, 1979, sections 50 and 51; B Muniswami Chetty & Co v D Muniswami Chetty & Co, AIR
1944 Mad. 416 [LNIND 1944 MAD 59] : (1945) Mad 180.
Page 3 of 3
8 Hinde v Liddell, (1875) LR 10 QB 265.
9 Jagmohandas v Nusserwanji, (1902) 26 Bom 744.
10 Leavey & Co Ltd v George H Hirst & Co Ltd, (1944) 1 KB 24 .
End of Document
S. 57. Damages for non-delivery.-
MullaK Kannan
Contract
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.
[s 57.1] Buyer’s remedies.—
The breach of contract for which a buyer may have to take action are:
(i) for specific performance (section 58).
(ii) a suit for damages for seller’s default in delivering the goods even when the property has passed to
him (section 57).
(iii) defect in the goods delivered, i.e., breach of warranty (section 59).
Under the aforesaid categories (ii) and (iii) the buyer may sue for damages or for wrongful detention, trover or
conversion of the goods. This remedy would be open when the property in the goods has passed to the buyer.
[s 57.2] Damages for non-delivery.—
Page 2 of 2
A buyer may sue for damages for non-delivery of the goods provided the seller wrongfully neglects or refuses to
deliver the goods. The wrongful neglect or refusal to deliver the goods may arise in the following circumstances:
(i) where the buyer has prepaid the price wholly or partly and the goods are not delivered.
(ii) where the seller has unreasonably delayed delivering the goods.
Where a buyer has failed to pay the price within 15 days of the date of delivery of the goods in respect of prior
deliveries and the seller withholds the delivery, the seller cannot be said to be neglecting or refusing to deliver
the goods. The seller would be entitled to prove impossibility of performance of the contract on his part.
End of Document
S. 58. Specific performance.-
MullaK Kannan
Contract
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.
[s 58.1] Equitable rights.—
This section is the only one in the Sale of Goods Act, 1930 which deals with the equitable right to a specific
performance. The present section makes the power of the Court to decree Specific delivery of chattel subject to
the provisions of Chapter II of the Specific Relief Act, 1877 (Specific Relief Act, 1963). By this, the specific relief
may be granted when compensation in money would not afford the buyer adequate relief or when it would be
extremely difficult to ascertain the actual damage caused,11 but the court will not grant relief when the goods
were articles of commerce readily available in the market. In Behnke v Bede Shipping Co Ltd,12 the article was
found to be of peculiar importance and of unique value and so the court granted the relief, against the seller.
There was a contract to sell a ship to a German Shipowner. The ship was an old ship but her engine and
boilers were new and such as to justify the German Regulations and be registered.
[s 58.2] Specific performance.—
This section furnishes a remedy to a buyer. This section does not apply unless the goods are specific or
ascertained. Thus a contract to supply all coal that may be required for the buyer’s steel works is not a contract
for specific or ascertained goods, and it cannot, therefore, be specifically enforced.13 A contract to sell a moiety
Page 2 of 2
of special wheat about to be shipped is not a contract for the sale of “specific or ascertained goods” on the
ground that there was no ascertainment or identification of the moiety of the goods out of the cargo in bulk.”14
11 Specific Relief Act, 1963, section 10.
12 Behnke v Bede Shipping Co Ltd, (1927) 1 KB 649 .
13 Dominion Coal Co v Dominion Iron & Steel Co, (1909) AC 293 .
14 Re Wait, (1927) 1 Ch 606 .
End of Document
S. 59. Remedy for breach of warranty.-
MullaK Kannan
Contract
(1) 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.
(2) The fact that a buyer has set up a 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:
[s 59.1] Remedy for breach of warranty.—
The distinction between a condition and a warranty has already been pointed in section 12 above.
Breach of conditions or warranties may be relating to title to the goods, quality, merchantability, description and
fitness of the goods. See comments under sections 14, 15, 16 and 17.
A breach of a condition, e.g., a condition as to fitness (section 16), entitles the buyer to treat the contract as
repudiated and to reject the goods; but he may elect to treat the breach of the condition as a breach of warranty
in which case he is entitled to the remedy prescribed by the present section (section 13). If the buyer has
Page 2 of 3
already accepted the goods, the breach of the condition can only be treated as a breach of a warranty (section
13(2)), and the buyer’s remedy is that prescribed by the present section. A breach of a warranty, as
distinguished from that of a condition, docs not entitle the buyer to reject the goods (section 12), his only
remedy is that prescribed by the present section.
[s 59.2] Four remedies.—
(i) He may claim a deduction from the price if the loss occasioned by the breach of warranty is less than the
price. “The rule of a reduction or extinction of the price is not a set-off but it applies only to cross claims under
the same contract”,15 (ii) He may refuse to pay the price altogether, if the loss equals the price, (iii) If the loss
exceeds the price, he may not only refuse to pay the price, but also claim the excess, (iv) Or he may pay the
price in all these cases, and sue the seller for damages for the breach of warranty. Buyer may either sue for his
claim or may claim a set-off or may file a counter-claim.
[s 59.3] Measure of damages for breach of warranty.—
The section is silent as to the measure of damages for breach of warranty, presumably because the Legislature
thought that damages would be governed by the provisions of section 73 of the Indian Contract Act, 1872. On
that footing the measure of damages would be the loss or damage directly and naturally resulting in the usual
course of things from the breach of warranty.16 In the case of breach of warranty of quality such loss is prima
facie the difference between the value of the goods at the time of delivery to the buyer and the value they would
have had if they answered to the warranty.17
The special value of the goods to the buyer is not to be taken into account. The value of the goods as
warranted is their intrinsic value and not any special value which the goods may have to the buyer. Where 20
tons of super phosphate guaranteed to contain 30% of phosphate of lime was sold at 5 gms a ton and the
goods delivered contained low percentage of phosphate of lime and such goods were valued at 2 gms per ton,
the damages were awarded at the rate of 3 gms per ton.18 In case of a sale of cigarettes which turned out to
be mildewed and unfit for consumption, damages were awarded on the basis of the difference between the
contract price and the price realised on sale.19
As a general rule the date at which the difference between the two values is to be fixed is the date of delivery
unless the circumstances warrant taking the value as of a later date.20 If there is no difference in the values,
the court may award the nominal damages. In case of a chain of contracts, the seller may have to pay to his
purchaser damages which were obtained by the last purchaser in the chain.21
Although a buyer is entitled to claim damages, one important duty cast upon him is that he should take
Page 3 of 3
reasonable steps to minimize the damages. The act of the last seller in defending the action for damages
instituted by the last ultimate buyer was held to be a reasonable step.22 The buyer can recover no more than
he would have suffered if he had acted reasonably.
This sub-section clearly indicates that the right to claim damages is in addition to the right to claim diminution or
extinction of the price. If in a suit by the seller for the price the buyer has set up his claim for diminution of price,
he is thereby not precluded from filing a suit for damages. This is clearly intended to state that the right to
damages is an additional right and not an alternative one.
15 Benjamin’s Sale of Goods Act, Sweet & Maxwell 1974.
16 As to the English law, see the Sale of Goods Act, 1893, section 53(2), (3).
17 Mangilal v Shantibai, AIR 1956 Ngp 221 .
18 Dingle v Hare, (1859) 7 CB 145 (NS) : 121 RR 424.
19 UOI v Rallia Ram, AIR 1963 SC 1685 [LNIND 1963 SC 120] : (1964) 3 SCR 164 [LNIND 1963 SC 120] .
20 Van Den Hurk v R Martens, (1920) 1 KB 850 (goods intended for export—known to seller and buyer).
21 Kasler & Cohen v Slavouski, (1928) 1 KB 78 (Fur Collars); British Oil and Cake Co v Burstall, (1923) 39 TLR 406 (oil
cakes).
22 Kasler and Cohen v Slavouski, (1928) 1 KB 78 .
End of Document
S. 60.
MullaK Kannan
Contract
S. 60.
Repudiation of contract before due date.-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 and wait till the date of delivery, or he
may treat the contract as rescinded and sue for damages for the breach.
[s 60.1] Repudiation of contract before due date: anticipatory breach.—
Very often situations may arise wherein the performance is to take place in future but before the time for
performance arrives, the promisor says that he will not carry out his part of the performance when the time for
performance arrives. Strictly speaking, it is no breach not to do an act at a time when its performance is not yet
contractually due. It is for this reason that this section gives an option to the promisee either to wait till the date
of performance treating the contract as subsisting or to treat the contract as rescinded in anticipation. This
section reproduces the rule laid down in Frost v Knight.23 The law on the subject was thus stated by Cockburn,
CJ, in that case:
The promisee, if he pleases, may treat the notice of intention as inoperative, and await the time when the contract is to
be executed and then hold the other party responsible for all the consequences of non-performance but in that case he
keeps the contract alive for the benefit of the other party as well as his own; he remains subject to all his own
obligations and liabilities under it, and enables the other party not only to complete the contract, if so advised,
notwithstanding his previous repudiation of it, but also to take advantage of any supervening circumstances which
would justify him in declining to complete it. On the other hand, the promisee, may if he thinks proper, treat the
repudiation of the other party as wrongful putting an end to the contract, and may at once bring his action as on a
breach of it; and in such action he will be entitled to such damages as would have arisen from the non-performance of
Page 2 of 5
S. 60.
the contract at the appointed time, subject, however, to abatement in respect of any circumstances which may have
afforded him the means of mitigating his damage.
The question whether or not there has, in fact, been repudiation depends on the facts of each particular
case.24
A contract is repudiated when a party to the contract shows by his conduct an intention not to be bound by the
contract or which he refuses to perform or has disabled himself from performing it.25 This section gives an
option to the party. The party cannot sue for damages on ground of anticipatory breach and at the same time
treat the contract as subsisting.
[s 60.2] Repudiation and rescission.—
The rescission is the result of repudiation together with the acceptance of repudiation. Both should co-exist for
the purpose of rescission. Acceptance of repudiation may be by an institution of a suit.
[s 60.3] Anticipatory breach and measure of damages.—
The measure of damages is not affected by the date of the buyer’s refusal to accept. It is fixed by the difference
between the contract price and the market price on the day when they ought to have been delivered or
accepted,26 as the case may be, or on the several days if the delivery was to be by instalments,27 the
fundamental principle being that the plaintiff is to be put, as near as may be, in the same condition as if the
contract had been performed. Thus if A agrees in January 1931, to sell and deliver goods to B on 31 August
1931, and on 10 June 1931, B intimates to A that he will not pay for and take delivery of the goods, and A treats
the repudiation as an immediate breach of the contract, A may at once sue B for damages for the breach. But
the measure of damages is not fixed by the difference between the contract price and the market price on 10
June 1931, but by the difference between the contract price and the market price on 31 August 1931. If the
goods were to be delivered by instalment at the end of the three months of August, September and October,
the measure of damages is the sum of the differences between the contract price and the market price of the
several instalments on the respective final days of performance.27 The same rules apply where the seller,
before the due date, has refused to carry out the contract.28 In Millett v Van Heck & Co,29 the seller
repudiated the contract before the date of performance and this was accepted by the buyer who claimed that
the damages should be fixed by reference to the market price at the date of rescission, but this was rejected as
the Sale of Goods Act, 1930 never intended to vary what was the rule of law at the time when it was passed,
namely, that the damages are to be fixed in reference to the time for performance of the contract subject to
questions of mitigation. The measure of damages is not affected by the date of the defaulting party’s
repudiation and is fixed by the difference between the contract price of the goods and the market price on the
day when delivery ought to have been accepted, i.e., the date fixed for delivery.
Page 3 of 5
S. 60.
If either party accepts the repudiation of the other as an immediate breach, he must act reasonably by way of
minimising the loss caused thereby. As stated in section 73 of the Indian Contract Act, 1872 “in estimating the
loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience
caused by the non-performance of the contract must be taken into account.” Thus, if the contract is for delivery
in May, and the buyer repudiates the contract in April, the seller will not be justified in holding back the goods
on a falling market, and thus enhancing the damages, if he could have sold them at a higher price in April.30
Conversely, if the repudiation is by the seller, the buyer has no right to wait on a rising market and claim
damages for the increased price in May, if he could have bought against the contract at a lower price in April.31
In either case the party must act in a reasonable way to mitigate the effects of the breach.
Where the contract is one for the manufacture and delivery of goods, e.g., chairs, and it is repudiated by the
buyer before the due date, the measure of damages is ordinarily the difference between the contract price and
the cost of production and of delivery, that is to say, the seller’s profit.32
[s 60.4] Election to treat contract as subsisting—Legal effect—Grounds to justify repudiation.—
The wrongful repudiation of a contract by one party may operate as a waiver of conditions precedent to be
performed by the other. The leading case on the subject is Braithwaite v Foreign Hardwood Co,33 In that case
the plaintiff agreed to sell rosewood to the defendants to be delivered by instalments and paid for by cash
against bills of lading. The defendants repudiated the contract before the first instalment arrived. They alleged
that the plaintiff (seller) had broken a term that he would not ship rosewood to the buyers’ competitors.
Ultimately, however, it was realised that the contract contained no such term and so the above-mentioned
buyers’ repudiation could not be justified on the ground given by the buyers. The plaintiff did not, however,
accept the buyers’ repudiation and kept the contract subsisting. On its arrival the plaintiff tendered the bill of
lading, but the defendants repeated their refusal, and the plaintiff resold the goods. The plaintiff similarly
tendered the second instalment, but this also was refused by the defendants, and resold by the plaintiff. The
defendants subsequently discovered that the first instalment was inferior to the contract quality. The plaintiff
sued for non-acceptance of the goods. The defendants contended as to the first instalment, a certain quantity of
rosewood was not of the contract description and was of inferior quality. It was held that the defendants had by
repudiating the contract waived the performance of the conditions by the plaintiff and that the plaintiff was
entitled to recover the difference between the contract price and the price realised at the re-sale in respect of
both instalments. This case has been supposed to imply that a party repudiating for one reason cannot
afterwards justify his repudiation on any other ground. This reasoning was felt incorrect in a different case by
the House of Lords observing that for giving a reason should not place him in a worse position than a party who
gives no reason and can justify his repudiation on any ground.34 Lord Sumner in the House of Lords felt that
defendants repudiating the contract for wrong reason or for no reason at all should have the right to prove that
there were at the time facts in existence which provided a good reason or justification in answer to plaintiff’s
case.35 Accordingly he felt better to allow defendants to raise different grounds which he had not depended on
Page 4 of 5
S. 60.
at the time of repudiating the contract. The Privy Council have accordingly held that a party repudiating is
entitled to justify his repudiation on any ground which existed at the time when he repudiated,36 whether he
knew of that ground or not at the time or whether he gave no reason or whether he gave some other and invalid
reasons.
23 Frost v Knight, (1872) LR 7 Ex 111, at pp 112, 113.
24 Hiralal & Sons v Aspirants Mill, AIR 1956 P&H. 13 .
25 Rash Behary v Nrittya Gopal, (1906) 33 Cal 477 , 481.
26 Phillpotts v Evans, (1839) 5 M&W 475 : 52 RR 802; Maung Po Kyaw v Saw Tago, AIR 1933 Rang 25 .
27 Brown v Muller, (1872) LR 7 Ex 319.
27 Brown v Muller, (1872) LR 7 Ex 319.
28 Roper v Johnson, (1873) LR 8 CP 167; Krishna Jute Mills Co v Innes, (1911) 21 Mad LJ 18 : 9 IC 104.
29 Millett v Van Heck & Co, (1921) 2 KB 369 .
30 Roth v Taysen, (1896) 1 Comp Cases 306.
31 Nickoll v Aston, (1900) 2 QB 298 , 305.
32 Cort v Ambergate Rly Co, (1851) 17 QB 127 .
33 Braithwaite v Foreign Hardwood Co, (1905) 2 KB 543 .
34 British & Benningtons Ltd v NW Cachar Tea Co, (1923) AC 48 (UKHL).

Page 5 of 5
S. 60.
35 British & Benningtons Ltd v NW Cachar Tea Co, (1923) AC 48 at 71.
36 Nune Sivayya v Maddu Ranganayakulu, AIR 1935 PC 67 : (1935) 62 IA 89 : 58 Mad 670 : 37 Bom LR 538 : 154 IC
1097 : (1935) 41 LW 775 .
End of Document
S. 61.
MullaK Kannan
Contract
S. 61.
Interest by way of damages and special damages.-
(1) 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.
(2) 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.
[s 61.1] Interest.—
This section saves the right which a party may have to recover interest or special damages, or to recover
money paid on failure of consideration. The Interest Act (Act XXXII of 1839) permitted interest to be awarded at
the current rate in the case as under:—
Page 2 of 5
S. 61.
(a) on all debits or certain sums payable at a certain time under a written instrument from the due date
mentioned in the agreement.
(b) in other cases from the date the demand in writing is made for interest from the date of demand.
Sub-section (1) affirms the principle laid down by the proviso in the Interest Act, 1839, which lays down that
“interest shall be payable in all cases in which it is now payable by law.” This proviso applies to cases in which
Court of Equity exercises jurisdiction to allow interest.37 Interest which can be said to be payable in law would
be such as (i) under sub-section (2), and (ii) under section 80 of the Negotiable Instruments Act, 1881. Interest
prior to the suit may be awarded: (i) if there is an agreement for the payment of interest at a fixed rate, or (ii) it is
payable by usage of trade having the force of law or (iii) under the provisions of substantive law.37 The
provisions of the substantive law, i.e., the Interest Act have been stated above. The legislature has, therefore,
laid down rules as regards interest for two specific cases which constantly arise in practice. This was necessary
in view of the conflict of decisions on the subject.
[s 61.2] Interest in suit for price.—
If under a contract of sale the seller lends the goods to the buyer, and the buyer wrongfully refuses to accept
and pay for them, the Court may award interest on the price from the date of the tender. If the price is payable
on a day certain irrespective of delivery, interest will run from that day and if the goods are sold on credit,
interest will run from the expiry of the credit.
[s 61.3] Contract to the contrary.—
A clause in a tradesman’s bill charging interest at a certain rate does not constitute a contract to the contrary.38
[s 61.4] Interest in suit for refund of price.—
If the buyer pays the price, and the seller fails to deliver the goods, the buyer is entitled in a suit for a refund of
the price to interest from the date of payment of the price. Interest at 6% per annum was allowed from the date
the price is payable39 and from the sale of the transaction.40 In Vijay Industries v NATL Technologies Ltd,41
the Supreme Court drew the justification for awarding interest not merely to the provisions of section 61(2)(a) of
the Sale of Goods Act, 1930 but found that interest may be held to be payable in terms of section 3 of the
Interest Act, 1978 as also in terms of sections 5 and 6 of the Interest on Delayed Payments to Small Scale and
Ancillary Industrial Undertakings Act, 1993. In Bharat Electronics Ltd v Shyam Telecom Ltd,42 the defendant
had accepted a part of the supply of equipment effected by the plaintiff and complained that the contract failed
with regard to another part on account of defect in the goods. The defects in those units were rectified by the
plaintiff company after the last date stipulated for supply of the equipment but as the defendant did not accept
them at a later date no liability to pay arose. As regards the units which were free of defects, the court held that
defendant had no right to ask the plaintiff to take all the goods back. Adverting to the claim for interest for goods
Page 3 of 5
S. 61.
sold at “cash credit rate”, the court observed that there was no agreement between the parties for payment of
interest. No custom or usage for term for payment of interest had either been pleaded or proved by the Plaintiff.
Interest could not be awarded as damages. However, since this was a suit for price for goods sold and
delivered, the Court said that in view of this provision, it could award interest to the Plaintiff at such rate as it
found fit on the price of the goods, from the date of tender of the goods or from the date on which the price was
payable. Taking into consideration the nature of transaction between the parties, the Plaintiff was awarded
interest at the rate of 12% per annum. In GG Ravi v K Sathiyamoorthy,43 also the trial court’s award of interest
at 12% for price not paid was upheld by the High Court of Madras.
[s 61.5] Interest on damages.—
Under the English common law no interest can be recovered on damages.44 The same rule, it would seem,
applies in India.45 See, however, the provisions of section 34 of the Civil Procedure Code, 1908 and Interest
Act No. 14 of 1978.
[s 61.6] General damages and special damages.—
Sub-section (1) refers to the recoverability of special damages. Section 73 of the Indian Contract Act, 1872
refers to general damages as well as special damages. The words “compensation for any loss or damage
which naturally arose from the usual course of things from such breach” in section 73 refer to general damages.
The words “or which the parties knew when they made the contract to be likely to result from the breach of it” in
section 73 refer to special damages. A loss which was actually in contemplation of the parties at the time of
entering into the contract is a special loss.
[s 61.7] Special damages.—
Where the breach of a contract has occasioned a special loss which was actually in contemplation of the
parties at the time of entering into the contract, the party who suffers by the breach is entitled to special
damages.46 This case is covered by the latter part of the first paragraph of section 73 of the Indian Contract
Act, 1872. The best instance is illustration (j) to that section.
Special damages may be, however, illustrated, e.g., in case of a failure to deliver a machine in time, the special
damages awarded were the cost of stacking wheat, loss due to deterioration in wheat as they were damaged
by rain and the expenses of drying the wheat but not any loss due to the fall of market price47 where the seller
knew that the buyer had bought the goods for re-sale to a party in Russia and the seller delivered goods late,
the buyer was held entitled to special damages in the form of increased freight and insurance which he had to
pay due to approach of winter;48 where the seller knew that the coal was required by the buyer to be supplied
to a steamer but as coal was not delivered in time the steamer was delayed, the buyer had to pay damages and
cost of the suit brought against him by the shipping company; the buyer was held entitled to special damages
Page 4 of 5
S. 61.
from the seller in the form of damages and cost of defending the suit, both of which he had to pay in the suit by
the shipping company.49
[s 61.8] Recovery of money paid for failure of consideration.—
Money paid under a contract of sale, when the consideration on which it was paid had failed, can be recovered
as money had and received.50 On this principle the buyer is entitled to recover the price paid to the seller if it
turns out that the seller had no title to the property (section 14), as where the goods sold were stolen goods,51
or the goods sold are not of the contract description (section 15), or there has been a breach of a condition as
to quality or fitness (section 16).
[s 61.9] Partial failure of consideration.—
Where a sum of money has been paid for an entire consideration and there is only a partial failure of
consideration neither the whole nor any part of such sum can be recovered. Where, however, the consideration
is severable, a failure of part is a failure of that part only and the buyer’s rights are unaffected by the
acceptance of the other parts of the consideration.
37 Bengal Nagpur Rly v Ruttanji, AIR 1938 PC 67 [LNIND 1937 PC 91] : Bom LR 746 : 65 IA 65.
37 Bengal Nagpur Rly v Ruttanji, AIR 1938 PC 67 [LNIND 1937 PC 91] : Bom LR 746 : 65 IA 65.
38 Standard Printing Machinery Co v Vinayagam & Co, (1959) 1 Mad LJ 167.
39 State of Madras v MAS Mohta, AIR 1964 Mad. 508 [LNIND 1963 MAD 286] .
40 Kurupati V Mallayya v Thondepu Ramaswami & Co, AIR 1964 SC 818 [LNIND 1962 SC 426] : 1963 Supp (2) SCR 995
.
41 Vijay Industries v NATL Technologies Ltd, AIR 2009 SC 1695 [LNIND 2008 SC 2453] : (2009) 3 SCC 527 [LNIND
2008 SC 2453] .
Page 5 of 5
S. 61.
42 Bharat Electronics Ltd v Shyam Telecom Ltd, CS (OS) No. 474/1997, dated 20.1.2011 (Delhi HC) : LNIND 2011 DEL
96 .
43 GG Ravi v K Sathiyamoorthy, AS No 799 of 2009, dated 24.01.2017 (Madras HC) : LNIND 2017 MAD 297 .
44 See London, C&D Rfy Co v South Eastern Railway Co, (1893) AC 429 , and per Lindley, LJ same case in Court of
Appeal (1892) 1 Ch at p 140.
45 See Jamal v Moolla Dawood Sons & Co, (1916) 43 Cal 493 , 503 : 43 IA 6, 11; Bengal Nagpur Rly. v Ruttanji, AIR 1938
PC 67 [LNIND 1937 PC 91] : 40 Bom LR 746 : 65 LA 65; UOI v Rallia Ram, AIR 1963 SC 1685 [LNIND 1963 SC 120]
: [1964] 3 SCR 164 [LNIND 1963 SC 120] .
46 Hydraulic Engineering Co v Mc-Haffice, (1878) 4 QBD 670 , 677.
47 Smeed v Foord, (1859) 1 EI & EI 602 : 117 RR 365 : 28 LJQB 178.
48 Borries v Hutchinson, (1865) 18 CB (NS) 445 : 144 RR 563.
49 Agius v Great Western Colliery Co, (1899) 1 QB 413 .
50 Damodhar v Allabux, AIR 1943 Ngp 332 : (1943) Nag 762 : 210 IC 625.
51 Rowland v Devall, (1923) 2 KB 500 .
End of Document
S. 62. Exclusion of implied terms and conditions.-
MullaK Kannan
The Indian Partnership Act, 11th ed > The Sale of Goods Act > Chapter VII Miscellaneous
Chapter VII Miscellaneous
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.
Exclusion of Implied Terms and Conditions[s 62.1] By express agreement.—
This section provides that any right or liability arising under a contract of sale by implication of law may be
negatived or varied by express agreement. As observed by Lord Blackburn,
there is no rule of law to prevent parties from making any bargain they please.1
Thus the conditions and warranties implied under sections 14 to 17 may be negatived or varied by express
agreement and so the rules as to the passing of property under sections 20 to 24. Under sub-section (4) of
section 16 it is laid down that an express warranty or condition would not negative a warranty or condition
implied by this Act unless inconsistent therewith. Therefore before it is held under this section that an express
agreement varies those conditions implied by law, the court must also hold that the express conditions are
inconsistent with those implied by this Act. The words “by implication of law” under this section are wider than
the words “warranty or condition implied by this Act” in sub-section (4) of section 16. The expression “express
agreement” should be understood in the light of section 9 of the Contract Act, in other words, it should have
been expressed in words, oral or written.
[s 62.2] How to imply a term in a contract.—
Page 2 of 3
The law as to the imparting of implied conditions into contracts of sale is somewhat difficult. It is explained by
Atkin, LJ, in a luminous judgment in Tournier v National Provincial and Union Bank of England.2
Ordinarily a term may be implied in any contract provided it is such a necessary term that both parties must
have intended that it should be a term of the contract and have only not expressed it because its necessity was
so obvious that it was taken for granted;2 a term cannot be implied simply because it is a reasonable one or
that a reasonable man would not have entered into the contract unless it was included.2 The said observations
are quite general and apply to any contract.
[s 62.3] By course of dealing.—
This is the second method for determining whether the parties have negatived or varied the rights, duties and
obligations implied by law or not. The course of dealing must be quite clear and unambiguous. The course of
dealing may arise with equal force whether from a written or oral bargain or from the repeated occurrence of
similar methods as between the parties.3
[s 62.4] Usage of trade.—
See Indian Evidence Act, 1872, section 92(5).
As regards a person who is ignorant of the existence of a usage of trade, the usage may control the mode of
performance of the contract, but cannot change its intrinsic character. Thus if a person employs a broker to buy
goods on his behalf, and the broker, instead of buying the goods on account of his principal as a broker should
do, buys the goods on his own account and sends them to his principal, the principal is not bound to accept
them, even though there is a usage of trade allowing the broker to do so, if the principal was not aware of the
usage. It is the duty of a person employed as a broker to establish privity of contract between his principal and
the seller of goods, and it is a breach of the duty if he converts himself into a principal as, indeed, he does by
buying the goods on his own account. This alters the intrinsic character of the contract, which the law would not
allow as against a person who is ignorant of the usage.4
1 Calcutta Co v De Mattos, (1863) 32 LJ QB 322, 329.
2 Tournier v National Provincial and Union Bank of England, (1924) 1 KB 461 , 483.
2 Tournier v National Provincial and Union Bank of England, (1924) 1 KB 461 , 483.
Page 3 of 3
3 Pocahontas Fuel Co v Ambatielos, (1922) 27 Comp Cases 148 (152–153) : (1922) 10 ULR 152.
4 Robinson v Mollett, (1875) LR 7 HL 802.
End of Document
[s 63]
MullaK Kannan
[s 63]
Reasonable time a question of fact.- Where in this Act any reference is made to a reasonable time, the question
what is a reasonable time is a question of fact.
[s 63.1] Reasonable time.—
The effect of the rule laid down in this section is that in contracts for the sale of goods the question what is a
reasonable time is a question of fact.
“Reasonable time” would depend upon the particular circumstances, nature of commodity, the question of
transports and the time during which the contract was entered into and so on.5 Usage of a particular trade may
be taken into consideration in determining the question of reasonable time in respect of a contract relating to
that trade.6
5 Dinkerrai v Shukhdayal, AIR 1947 Bom 293 : 48 Bom LR 821 : ILR (1948) Bom 91 ; See also Bengal Coal Co v
Homee Wadia, (1900) 24 Bom 97.
6 Moult v Halliday, (1898) 1 QB 125 : 77 LT 794 : 67 LJB 451 : 14 TLR 109.
End of Document
[s 64] Auction sale.-
MullaK Kannan
In the case of a sale by auction—
(1) where goods are put up for sale in lots, each lot is prima facie deemed to be the subject of a separate
contract of sale;
(2) the sale is complete when the auctioneer announces its completion by the fall of the hammer or in
other customary manner; and, until such announcement is made, any bidder may retract his bid;
(3) a right to bid may be reserved expressly by or on behalf of the seller and, where such right is expressly
so reserved, but not otherwise, the seller or any one person on his behalf may, subject to the
provisions hereinafter contained, bid at the auction;
(4) where the sale is not notified to be subject to a right to bid on behalf of the seller, it shall not be lawful
for the seller to bid himself or to employ any person to bid at such sale, or for the auctioneer knowingly
to take any bid from the seller or any such person; and any sale contravening this rule may be treated
as fraudulent by the buyer;
(5) the sale may be notified to be subject to a reserved or upset price;
(6) if the seller makes use of pretended bidding to raise the price, the sale is voidable at the option of the
buyer.
[s 64.1] Kinds of Auction sales.—
Auction sales are of following kinds:—

Page 2 of 4
(1) sale without reserve;
(2) sale with a reserve price;
(3) sale with a right reserved to bid by or on behalf of the seller;
(4) sale with a condition that the highest bidder shall be declared a purchaser.
Fixing a reserve price and reserving a right to the seller/owner to bid are two distinct matters.
[s 64.2] Auction sales.—
This section lays down the rules as to sales by auction.
Sub-section (1) lays down that when an auctioneer puts up each lot for sale, each lot would be prima facie the
subject matter of a separate contract of sale. A bidder who has purchased several lots does not convert his
purchases into one contract.7
Sub-section (2) lays down that so long as the auction is not complete, any bidder could go on making bids or
withdraw his bids, in other words, his bids are in the nature of proposals. The last of such proposals would be
accepted by announcing the completion of the auction either by the fall of the hammer or in other customary
manner. The acceptance of the last bid or proposal may be subject to the conditions of sale and if it is a sale
through Court, it would be subject to confirmation by the Court.
Sub-sections (3), (4) and (5) clearly lay down that a seller cannot make a bid at the auction sale unless his right
to bid is specifically reserved. The seller cannot put up his nominee or his agent to make a bid. If the seller does
so, the sale may be held to be either fraudulent or voidable. Unless the seller’s right is reserved, the auctioneer
also cannot permit the seller or his agent or nominee to make a bid.
Sub-section (5) lays down that the auction sale may be held subject to a minimum or reserved price. Unless the
bid reaches the minimum or reserved price, the auctioneer could cancel or postpone the auction sale or the bid
below the reserved price may be conditionally or provisionally accepted subject to confirmation by seller.
Page 3 of 4
Reserving the right to bid for a seller is quite a different thing from the reserve price (under sub-section 5). If a
sale is subject to a reserve or minimum price, it does not mean that the seller has a right to bid [as
contemplated in sub-section (3)].8
The Supreme Court9 has held that an auctioneer can set his own terms for holding an auction. If he does so,
those conditions would govern the rights of the parties. Where in an auction the Coffee Board prescribed that it
was not bound to accept the highest bid, it necessarily implied that the Coffee Board can accept any lower bid
and was not bound to accept the highest bid. However, where such condition is not specified in the auction
sale, the situation is different.
[s 64.3] Upset price.—
“Upset price” is the Scottish equivalent of “reserved price.” The words “or upset” in sub-section (5) seem to
have crept in at the last moment by some mistake. They ought to have been omitted.
[s 64.4] Reserve price (knock-out-agreement).—
A combination among intending bidders to stifle competition, i.e., not to bid against each other is called knock-
out agreement and is not unlawful.10 The seller can protect himself by a reserve bid.11
Where the sale is subject to a reserve price, every bid is a proposal conditional on the reserve price having
been reached; the fall of the hammer is likewise conditional.12
7 McManus v Fortescue, (1907) 2 KB 1 ; Champa Lal v Jai Gopal, AIR 1922 Mad. 486 [LNIND 1922 MAD 62] .
8 Gilliat v Gilliat, (1869) LR 9 Eq 60.
9 M Lochia Setty and Sons Ltd v The Coffee Board, Bangalore, AIR 1981 SC 162 [LNIND 1980 SC 420] : (1980) 4 SCC
636 [LNIND 1980 SC 420] .
Page 4 of 4
10 Jyoti v Jhowmull, (1909) 36 Cal 134 ; Hari v Naro, (1893) 18 Bom 342; Mahomed Meera v Savvasi Vijaya Gopalar,
(1899) 27 IA 17 ; Rawlings v Gen Trading Co, (1921) 1 KB 635 ; Cohen v Roche, (1927) 1 KB 169 .
11 Rawlings v General Trading, (1921) 1 KB 635 .
12 McManus v Fortescue, (1907) 2 KB 1 .
End of Document
[S. 64A. In contracts of sale, amount of increased or decreased taxes to be
added or deducted.-
MullaK Kannan
13[S. 64A. In contracts of sale, amount of increased or decreased taxes to be

added or deducted.-
(1) Unless a different intention appears from the terms of the contract, in the event of any tax of the nature
described in sub-section (2) being imposed, increased, decreased or remitted in respect of any goods
after the making of any contract for the sale or purchase of such goods without stipulation as to the
payment of tax where tax was not chargeable at the time of the making of the contract, or for the sale
or purchase of such goods tax-paid where tax chargeable at that time,—
(a) if such imposition or increase so takes effect that the tax or increased tax, as the case may be, or
any part of such tax is paid or is payable, the seller may add so much to the contract price as will
be equivalent to the amount paid or payable in respect of such tax or increase of tax, and he shall
be entitled to be paid and to sue for and recover such addition, and
(b) if such decrease or remission so takes effect that the decreased tax only, or no tax, as the case
may be, is paid or is payable, the buyer may deduct so much from the contract price as will be
equivalent to the decrease of tax or remitted tax, and he shall not be liable to pay, or be sued for,
or in respect of such deduction.
(2) The provisions of sub-section (1) apply to the following taxes, namely—
(a) any duty of customs or excise on goods,
(b) any tax on the sale or purchase of goods.]
[s 64A.1] Amendment.—
Page 2 of 4
[S. 64A. In contracts of sale, amount of increased or decreased taxes to be added or deducted.-
The new section has been substituted for the old by Act 33 of 1963 with effect from 22 September 1963.
Section 64A was first inserted by Act XLI of 1940 which referred only to customs and excise duty. On principle
there is no reason why there should not be a provision to deal with the case of the imposition or change in the
rate of a sale or purchase tax subsequent to the making of a contract for the sale of goods. However, the
section is subject to contract between the parties.
[s 64A.2] Intention of parties through contract, the governing consideration for liability.—
In Numaligarh Refinery Ltd v Daelim Industrial Co Ltd,14 the Supreme Court explained that the expression,
unless a different intention appears from the terms of the contract, implies that in case of the imposition or
increase in the tax after the making of a contract, the party shall be entitled to be paid such tax or such
increase. The primary consideration shall be to gather the intention of the parties, as per the terms of the
contract. In a contract by a government company inviting global tenders for establishing a co-generation captive
power plant for its petroleum refinery in Assam Deelim Industrial Company (DIC) obtained the competitive bid.
When the issue arose whether DIC could claim reimbursement, it contended that at the time when the
agreement was executed between the parties, countervailing duty was not there but introduced after the
purchaser had submitted its initial and final bids. The government company relied on a clause in the instruction
to the bidders that the entire customs duties or levies including the stamp duty and important licence fees levied
on the equipments of sale by the Government of India or any State Government would have to be borne by the
contract for bids that On facts, the court found that the perusal of the contract made it clear that DIC was under
obligation to pay the taxes, duties and levies. To a query whether by virtue of operation of section 69 of the
Contract Act, 1872 there would be any liability for reimbursing to DIC, the Court said that the said section would
not apply where there are clear terms of the agreement that the taxes, levies were to be paid by DIC.
In Bihar SEB v Usha Martin Industries,15 there was no evidence in the case that the parties intended that the
relief of excise duty if abolished or reduced would be passed on to the consumers. It was specifically stated in
clause 16.4, one of the clauses of tariff notification, that if the excise duty was enhanced, the tariff would be
raised. No provision was made for reduction of tariff under any circumstance. The specific provision for raising
tariff in case of enhancement of excise duty and absence of any such provision for reduction of tariff in case of
lowering or abolition of excise duty, the court reasoned, would go to show that there was no intention on the
part of the Board to reduce the tariff in case of lowering or abolition of the excise duty. The provision of section
64-A can only apply if intention to the contrary did not appear from the terms of the contract. The court further
observed, adverting to facts that the tariff was fixed by exercise of statutory power and not fixed as a result of
any bargaining by and between the Board and the consumers. It was a uniform tariff which every consumer
would have to pay for the electricity consumed by him.
Page 3 of 4
[s 64A.3] Buyer’s Right of deduction.—
Clause (b) of sub-section (1) entitles a buyer to deduct the amount of decreased or remitted tax from the
contract price payable by him to the seller: the said clause further emphasises that the buyer shall not be liable
to pay, nor be sued for, in respect of such deduction. What is emphasised is that the buyer is entitled to deduct
the amount of decreased or remitted tax from the amount of price payable by him to the seller. It may as well
happen that in the process of calculation and in exercising his right of deduction of the decreased tax from the
contract price, the buyer’s liability to pay the price may be wiped off.16 If the buyer has already paid the price,
he would be entitled to sue the seller for its recovery.17
On the contrary, it is the liability of the Petitioner to pay the extra price when the excise duty had been
enhanced prior to the delivery of the vehicle.18 Even increase in diesel price was reckoned to be added to the
price already stipulated to compensate the seller for the additional cost involved in transportation.19
13 Subs. by Act 33 of 1963, section 5, for section 64A (w.e.f. 22-9-1963). Section 64A was inserted by Act 41 of 1940.
14 Numaligarh Refinery Ltd v Daelim Industrial Co Ltd, (2007) 8 SCC 466 [LNIND 2007 SC 1040] : 2007 (3) Arb LR 378
(SC) : JT 2007 (11) SC 73 [LNIND 2007 SC 1040] .
15 Bihar SEB v Usha Martin Industries, AIR 1997 SC 2489 [LNIND 1997 SC 841] : (1997) 5 SCC 289 [LNIND 1997 SC
841] : JT (1997) 5 SC 431 [LNIND 1997 SC 841] .
16 Central Hindustan Italian Trading Co v Pitty Bros, AIR 1962 Bom 222 [LNIND 1960 BOM 109] : 63 Bom LR 966.
17 Chhotabhai Jethabai Patel & Co v UOI, AIR 1962 SC 1006 [LNIND 1961 SC 506] : [1962] Supp 2 SCR 1 : (1962) 2
SCA 522 .
18 Ravinder Raj v Competent Motors Co Pvt Ltd, AIR 2011 SC 1061 [LNINDORD 2011 SC 201] : JT 2011 (2) SC 149
[LNINDORD 2011 SC 201] .
Page 4 of 4
19 Lift and Shift India Pvt Ltd v Central Warehousing Corp, (2017) IV AD (Delhi) 109.
End of Document
S. 65. Repeal.-
MullaK Kannan
S. 65. Repeal.-
[Rep. by the Repealing Act 1938 (1 of 1938) section 2 and sch.]
End of Document
S. 66. Savings.-
MullaK Kannan
S. 66. Savings.-
(1) Nothing in this Act or in any repeal effected thereby shall affect or be deemed to affect—
(a) any right, title, interest, obligation or liability already acquired, accrued or incurred before the
commencement of this Act, or
(b) any legal proceedings or remedy in respect of any such right, title, interest, obligation or liability, or
(c) anything done or suffered before the commencement of this Act, or
(d) any enactment relating to the sale of goods which is not expressly repealed by this Act, or
(e) any rule of law not inconsistent with this Act.
(2) The rules of insolvency relating to contracts for the sale of goods shall continue to apply thereto,
notwithstanding anything contained in this Act.
(3) 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.
This last section is called the “Savings” section. The object of this section is to clarify the position of this statute
with respect to the previous law, previous proceedings, previous liabilities and rights and with respect to the
other existing laws. Clauses (a), (b) and (c) state that the rights, liabilities, proceedings etc. prior to the
commencement of this Act are not affected by this Act, in other words, they would be governed by the previous
law. Clauses (d) and (c) declare that the other law not inconsistent with this Act or which is not expressly
repealed by this Act will continue to apply and they will not be affected. Sub-sections (2) and (3) refer to the
Page 2 of 5
S. 66. Savings.-
other existing laws which will not be affected by this Act, such as Presidency Towns Insolvency Act, Provincial
Insolvency Act, the Companies Act and the provisions of the Transfer of Property Act and of the Contract Act,
1872 relating to mortgage, pledge, charge or other security.
Special Terms in Respect of Sale of Goods Explained[s 66.1] C.I.F. (cost, insurance and freight) contract.—
A C.I.F. (cost, insurance and freight) contract is a contract for sale of goods by delivery of the documents i.e. bill
of lading, insurance policy, invoice of the goods to the buyer. Seller’s duties are:
(i) to ship the goods of the description contained in the contract from the port of shipment,
(ii) to ship the goods in time,
(iii) to ship in the steamer stipulated, if possible,
(iv) to insure the goods for the voyage for the benefit of the buyer,
(v) to make out an invoice of the goods contracted. Price is inclusive of freight and insurance,
(vi) the bill of lading should contain correct date of shipment, name of steamer, description of goods, value
of goods etc,
(vii) to tender to the buyer the bill of lading, insurance policy and invoice of the goods,
(viii) to bear the freight.
Buyer’s duties and rights are:—
(i) In C.I.F. contract the seller charges an inclusive price covering the cost of the goods, freight and
insurance. If under the contract of carriage the freight is payable at the destination; it may in fact be
paid by the buyer; but in that case it is simply deducted by the buyer from the price.20
(ii) Not to defer payment until delivery of goods or inspection thereof.
(iii) To pay cost of unloading, lighterage, landing at the port of destination.
(iv) To pay import duties, wharfage charges, if any.

Page 3 of 5
S. 66. Savings.-
The buyer can reject the documents if they are not in order. The buyer can reject the goods after inspecting
them if they are not according to the contract quality, description etc. The goods are at the risk of the buyer
during the voyage. The property in the goods passes to the buyer when he accepts the documents. If the buyer
rejects the goods, the property revests in the seller. If the goods are lost, the buyer can recover from the ship
owner (for misconduct on the part of master or mariners not covered by the policy) and insurance company.21
[s 66.2] F.O.B. (Free on Board) Contract.—
The duties of the seller are:—
(i) to put the goods on board a ship for the purpose of transmission to the buyer,
(ii) to put the goods on board in time and in the steamer named (as far as possible),
(iii) to bear the cost of putting the goods on board the ship,
(iv) to procure bill of lading in the name of buyer,
(v) to procure insurance policy in the name of the buyer if required,
(vi) to obtain export licence if required,
(vii) to give notice to buyer of the shipment. Delivery is complete as soon as the goods of the contract
quality and description are placed on board of the steamer. Thereafter, the goods remain at the risk of
the buyer. Property in the goods passes to the buyer after the goods are duly shipped and the buyer is
intimated about the shipment.
The buyer’s duties and rights are:—
(i) to insure the goods as soon as he receives intimation of shipment;

Page 4 of 5
S. 66. Savings.-
(ii) to pay the price against tender of documents i.e. bill of lading or delivery order and invoice and
insurance policy if seller is asked to insure;
(iii) to pay the freight and unloading charges, wharfage charges, import duty etc, at the port of destination;
(iv) get the import licence if necessary.
The buyer can inspect the goods after they are taken delivery of. The buyer can reject the goods if not in
accordance with the contract quality, description, fitness etc.
[s 66.3] Ex-ship contract.—
The seller undertakes to ship the goods and to deliver the goods to the buyer direct at the port of destination.
The buyer is not concerned with the bill of lading or freight or cost of insurance. As soon as the steamer arrives
at the port of destination, the seller intimates to the buyer to take delivery. The buyer is given a delivery order
on the shipper or his agent. The seller is liable for freight and to release the ship owner’s lien. The goods are at
the risk of the seller till goods are delivered to the buyer. Buyer can inspect the goods at the time of taking
delivery. The property in the goods passes to the buyer after he accepts the goods. Delivery order or direction
to the shipper to deliver does not pass possession or property to the buyer.
[s 66.4] F.O.R. (free on rail) and F.O.T. (free on truck) contract.—
The seller has to place the goods on the railway or on the truck and obtain railway receipt or transport receipt
as the case may be. The place of despatch is agreed upon. The place of delivery or destination is to be named
by the buyer. The seller has to bear the cost of loading the goods on the railway or the truck. The goods are at
the risk of the buyer as soon as the seller has obtained the railway receipt or transport receipt. The buyer has to
pay the cost of freight, unloading charges, excise duties etc. The buyer can inspect the goods at the place of
delivery, if not inspected earlier.
[s 66.5] Ex-factory, warehouse, works contracts.—
The seller must place the goods at the disposal of the buyer at the named factory, warehouse or works. It is for
the buyer to pay the price and arrange to take delivery, arrange for transport and bear all cost. The property
and risk in the goods passes to buyer after he takes delivery.
[s 66.6] E.S.A. (Exclusive Sales Agreement).—
Whereby a seller grants to an overseas buyer the sole trading rights in goods of a specific kind within a defined
area. The buyer undertakes to purchase the said goods from that seller only and the seller undertakes not to
sell directly to any other customers in the defined area and to direct all enquiries from the said area to the
Page 5 of 5
S. 66. Savings.-
buyer. Buyer agrees to respect the seller’s patents and trademarks and advertise seller’s goods. There are
other terms.
[s 66.7] E.LA. (Exclusive Licence Agreement).—
Whereby the know-how and right to manufacture specified goods is sold to a buyer on certain terms.
20 Benjamin’s Sale of Goods, 1974, para 1497. See also Smyth (Ross T) & Co Ltd v Bailey Son & Co, (1940) 3 All ER 60
at 68.
21 Ireland v Livingston, (1861–73) All ER Rep 585 at 590; see also Hansson v Hamel & Horley Ltd, (1922) 2 AC 36 .
End of Document
The Indian Partnership Act (Act IX of 1932)
MullaK Kannan
The Indian Partnership Act, 11th ed > The Indian Partnership Act (Act IX of 1932)
The Indian Partnership Act
(Act IX of 1932)
(Received the assent of the Governor-General on the 8 April 1932)
An Act to define and amend the law relating to Partnership
WHEREAS it is expedient to define and amend the law relating to partnership; it is hereby enacted as follows:
End of Document
S. 1. Short title, extent and commencement.-
MullaK Kannan
The Indian Partnership Act, 11th ed > The Indian Partnership Act (Act IX of 1932) > Chapter I
Preliminary
(1) This Act may be called the Indian Partnership Act, 1932.
1[(2) It extends to the whole of India 2[except the State of Jammu and Kashmir].]
(3) It shall come into force on the 1st day of October 1932, except Section 69, which shall come into force
on the 1st day of October, 1933.
[s 1.1] STATE AMENDMENTS
[Dadra and Nagar Haveli].—In section 1, for sub-section (3), the following sub-section (3) shall be substituted,
namely:—
“(3) It shall come into force at once except section 69, which shall come into force on the 1st day of July,
1966.”—Regulation VI of 1963, as amended by Regulation II of 1965.
[Goa, Daman and Diu].—In section 1, for sub-section (3), the following sub-section (3) shall be substituted,
namely:—
“(3) It shall come into force at once except section 69, which shall come into force on the 1st day of January,
1965.”—Regulation XI of 1963.
Page 2 of 3
[Laccadive, Minicoy and Amindivi Islands].—In section 1, for sub-section (3), the following sub-section (3) shall
be substituted, namely:—
“(3) It shall come into force at once except section 69, which shall come into force on the expiry of a period of
one year from the date of commencement of the rest of this Act.”— Regulation VIII of 1965.
3[Pondicherry].—In section 1, for sub-section (3), the following sub-section (3) shall be substituted, namely.—
“(3) It shall come into force at once except section 69, which shall come into force on the 1st day of July,
1964.”—Regulation VII of 1963.
[s 1.2] Law of Partnership.—
Before the Indian Partnership Act, 1932, the law of partnership was dealt with in Chapter XI of the Indian
Contract Act, 1872. The present Act makes considerable changes in definition and arrangement, gives effect
(but short of making the firm a legal person) to the mercantile view of a firm’s continuity, and adds provisions for
voluntary registration of firms. The law relating to the insolvency of partners and its effect upon partnership has
been altered.
[s 1.3] Act not exhaustive.—
The Act purports merely to define and amend the law relating to partnership, and expressly states that “nothing
in this Act or any repeal effected thereby shall affect or be deemed to affect any rule of law not inconsistent with
this Act.”4 The provisions of section 3 also confirm this view.
[s 1.4] Act not retrospective.—
The Act is not retrospective and applies only to anything done or suffered after the commencement of the Act.5
[s 1.5] Insolvency.—
In spite of the fact that the Act has dealt with the effect of insolvency upon dissolution of partnership, it does not
affect any rule of insolvency relating to partnership.6
Page 3 of 3
1 Subs. by A.O. 1950, for sub-section (2).
2 Subs. by Act 3 of 1951, section 3 and sch., for “except Part B states”.
3 The Union Territory of Pondicherry shall be known as the Union Territory of Puducherry vide The Pondicherry
(Alteration of Name) Act, 2006, Act No. 44 of 2006 dated 13.09.2006 (w.e.f. 1-10-2006).
4 The Indian Partnership Act, 1932, section 74(f).
5 The Indian Partnership Act, 1932, section 74(a) to (c).
6 The Indian Partnership Act, 1932, section 74(e).
End of Document
S. 2. Definitions.-
MullaK Kannan
Preliminary
S. 2. Definitions.-
In this Act, unless there is anything repugnant in the subject or context,—
(a) an “act of a firm” means any act or omission by all the partners, or by any partner or agent of the firm
which gives rise to a right enforceable by or against the firm;
(b) “business” includes every trade, occupation and profession;
(c) “prescribed” means prescribed by rules made under this Act;
(d) “third party” used in relation to a firm or to a partner therein means any person who is not a partner in
the firm; and
(e) expressions used but not defined in this Act, and defined in the Indian Contract Act, 1872 (9 of 1872),
shall have the meanings assigned to them in that Act.
[s 2.1] STATE AMENDMENT
Maharashtra.—In its application to the State of Maharashtra, in section 2, after clause (c), the following clause
shall be inserted, namely:—
“(c-1) “Registrar” means the Registrar of Firms appointed under sub-section (1) of section 57 and includes the
Deputy Registrar of Firms and Assistant Registrar of Firms appointed under sub-section (2) of that section.”—
Maharashtra Act 29 of 1984, section 2 (w.e.f. 1 January 1985).
[s 2.2] Sub-section (a): “Act of a firm.”—
Page 2 of 6
S. 2. Definitions.-
The relations of partners to third parties are generally dealt with in Chapter IV of the Act. An “act of a firm” may
be illustrated by examples. A, B and C are partners. A on behalf of the firm enters into a contract with a third
party. If the third party commits a breach of the contract, the firm may sue to enforce the contract. On the other
hand, if the firm commits a breach of the contract, the third party would be entitled to hold the firm liable for the
consequences. The contract between A on behalf of the firm and the third party would be an act of the firm.7 An
admission falling under section 23; a wrongful act under section 26; a misappropriation under section 27; or the
case of wilful default in the ordinary course of business, falls within the definition of an “act of a firm.”
The definition is based upon the principle that “every partner is in contemplation of law the general and
accredited agent of the partnership.” However in respect of an act of insolvency, it cannot be said that an act of
insolvency on the part of a partner is an act of the partnership. The provisions of sections 42(d) and 69(3)(b)
contemplate that an act of insolvency on the past of a partner may affect such a partner alone. While construing
“act of a firm” in the context of Provincial Insolvency Act, 1920, the Supreme Court held that a firm can be
adjudged insolvent if there was an act of insolvency by each of the partners. A firm can also be declared
insolvent if there was an act of insolvency by agent of the firm which was such as must be imputed to a firm.
The question whether an act of insolvency of one or more partners can be regarded as act of all the partners is
a question of fact in each case. Here a partner gifted away to his son a property which was not a partnership
property. Moreover, there was no collective act of insolvency alleged on behalf of all the partners of the firm. In
view of this, a firm cannot be adjudged insolvent for the said act of his partner.8
Mere fact of closing the business of the firm and thus committing an act of insolvency by one partner without
authorisation, express or implied, from the other partners is not enough to impute the said act as an act of firm
and so a creditor of a firm cannot get the firm adjudged insolvent.9 Re Mahomed Hashan & Co,10 one of the
partners in a firm of two partners departed from the usual place of business with intent to delay and defeat the
claims of the creditors of a firm. It was held that a firm cannot be adjudged insolvent unless other partner had
also departed with like intent. Failure to pay rent where the premises were taken on lease on behalf of a firm
was an “act of a firm” under section 2(a) of the Act but a suit for recovery of such arrears is maintainable
against the contracting partner alone in view of section 25 of the Indian Partnership Act, 1932.11
[s 2.3] Sub-section (b): Business.—
The definition of “business” in the Indian Partnership Act, 1932 is of importance as this element of business is
the motive force which leads to the formation of partnership as is seen in the definition of “Partnership” given in
section 4 of the Act. The element of “business” is one of the three elements in the definition of “partnership”
given in section 4 of the Indian Partnership Act, 1932. The definition of “business” given under section 2(b) of
the Act is based on section 2(1) of the English Partnership Act of 1890. The definition of business is of wide
Page 3 of 6
S. 2. Definitions.-
sweep and has extensive meaning because the definition starts with the word “includes” and not “means”. The
expression “includes” is used in the Act when it is intended that the term defined should retain its ordinary
meaning and its scope should be widened by specific enumeration of certain matters which its ordinary
meaning may or may not compromise. This makes the definition enumerative but not exhaustive. On the other
hand if the legislature uses the expression “means” it wants to exhaust the significance of the term defined.12
“Business” has a more extensive meaning than “trade.”13 In Smith v Anderson,14 Jessel, MR, said:
There are many things which in common colloquial English would not be called a business, when carried on by a single
person, which would be so called when carried on by a number of persons. For instance, a man who is the owner of a
house divided into several floors and used for commercial purposes, e.g., offices, would not be said to carry on a
business he let the offices as such. But suppose a Company was formed for the purpose of buying a building, or
leasing a house, to be divided into offices and to be let out, should not we say, if that was the object of the Company
that the Company was carrying on business for the purpose of letting offices? The same observation may be made as
regards a single individual buying or selling land, with this addition, that he may make it a business, and then it is a
question of continuity. When you come to an Association or a Company, formed for a purpose, you would say at once
that it is a business, because there you have that from which you would infer continuity. So in the ordinary case of
investments, a man who has money to invest, the object being to obtain his income, invests his money, and he may
occasionally sell the investments and buy others, but he is not carrying on a business.
New Mofussil Co Ltd v Rustomji,15 also suggested that the test of business is continuity and repetition of acts.
But this is one of the tests and it is not a conclusive test.16 In Seth Suganmal v Mt Umraobi,17 the Nagpur High
Court observed that though money lending is a trade or occupation, an isolated act of money lending on a joint
security did not make the lenders as partners because the said isolated act was not a business. This decision
was better explained in a subsequent case by the same High Court in Birdichand v Harakchand.18 Accordingly,
where money is jointly lent, the lenders’ agreement may be silent and may not provide as to how the principal
and interest when repaid (i.e. the income) should be held on a joint account for a fresh endeavour. Without
such a provision in the agreement the ordinary rule applied and gave each (lender) an undivided interest in the
whole of the income. However, if their agreement had provided that not only was the lending to be on a joint
account but also the money repaid (i.e. income) so that it could be used again for a joint endeavour,19 there
would have been business and the lenders would become the partners as well. If partnership exists, the lenders
being partners could not then have claimed the right to use one’s share in the income (i.e. money repaid with
interest) for his own purpose unilaterally. On the other hand, where partnership on a joint endeavour does not
Page 4 of 6
S. 2. Definitions.-
exist and money is simply lent on a joint account, each lender has an undivided interest in the whole of the
income (i.e. money repaid with interest) and he could deal as he pleased independent of the consent of the
other. In the very case, it was held that an isolated act of purchase and sale of cotton by two persons who have
agreed to share profit and loss equally was a business. In K Jaggaiah v Kokumann Venkatasatyanareyan,20 it
was not insisted upon that there must be more than one transaction or venture before it can be described as
business. The test was whether there is any activity capable of it being described as business. The road
building activity in pursuance of a single contract with the government was held business. The court found that
it was spread over for a particular period of time; it required employment of workers, supervisors, preparation of
bills as well as getting payment after approval of the government. There was no inherent improbability of the
road building transaction not being capable of subject matter of venture under the partnership as the court
observed. While discussing Birdichand case earlier we had stated that to become a business transaction, the
agreement of the parties should not only provide for outgoing (money lent) but also for income (principal sum
repaid with interest) on a joint account. This thing should be kept in mind while understanding illustrations (a)
and (b) to section 239 of the Indian Contract Act, 1872 which is analogous to section 4 of the present Act.
Illustration (a) provided “A and B buy 100 bales of cotton which they agree to sell for their joint account. A and B
are partners in respect of such cotton.” Illustration (b) provided “A and B buy 100 bales of cotton, agreeing to
share it between them. A and B are not partners.” Co-ownership does not imply a business or partnership.21
Joint owners of the property are not as such partners although they develop the property and either let or use
the joint property for their mutual benefit. But if they go further and carry on a business with respect to it, they
are partners with respect to that business. Accordingly, section 2(1) of the English Partnership Act, 1890 enacts
that “joint tenancy, tenancy in common,22 joint property, common property or part ownership does not of itself
create a partnership as to anything so held or owned …”. As seen earlier mere community or property or profits
thereof is not business “unless it be community in the carrying on of a business”.23 So, where a group of co-
owners was collecting rents from properties gifted to them, it was held that collecting rent was not a
business.24
The word business does not necessarily mean some undertaking of an industrial or commercial nature. Where
two doctors form partnership to treat patients and not to do anything of a commercial nature such as selling
medicine, it was incidentally observed, without actually deciding, that it was business.25
[s 2.4] Sub-section (c): Prescribed.—
Under section 71 the Governor-General in Council and the Local Governments are empowered to make rules
for the purposes mentioned in that section.
[s 2.5] Sub-section (d): Third Party.—
Anyone who is not a partner is, in relation to a firm, a third party, e.g., a creditor; a debtor; a transferee of a
partner’s share;26 or a minor who has been admitted to the benefits of partnership.27
Page 5 of 6
S. 2. Definitions.-
7 See The Indian Partnership Act, section 22.
8 Firm Mukundlal Veerkumar v Purushottam Singh, AIR 1968 ASC 1182 : (1968) 2 SCJ 863 [LNIND 1968 SC 15] :
(1968) 2 SCWR 293 .
9 Gopal Naidu v Mohanlal, AIR 1926 Mad. 206 [LNIND 1925 MAD 258] : (1926) ILR 49 Mad 189 : (1925) 49 Mad LJ
709.
10 Re Mahomed Hashan & Co., AIR 1923 Bom 107 : 24 Bom LR 861.
11 Jatindrakumar Dass v Dhirajlal, AIR 1975 Cal 123 [LNIND 1974 CAL 216] .
12 Calico Mills Ltd v State of MP, AIR 1961 MP 257 at 259; Prov of Bengal v Hingul Kumari, AIR 1946 Cal 217 at 224.
13 Harris v Amery, (1886) 35 LJ CP at p 92; Rolls v Miller, 27 Ch D 71.
14 Smith v Anderson, (1880) 15 Ch D 247 , 260–261.
15 New Mofussil Co Ltd v Rustomji, 60 Bom 800 at 828 : (1936) 38 Bom LR 408 at 46.
16 Birdichand v Harakchand, AIR 1940 Ngp 211 at 212 : 190 IC 613.
17 Seth Suganmal v Mt Umraobi, AIR 1938 Ngp 550 .
18 Birdichand v Harakchand, AIR 1940 Ngp 211 .

Page 6 of 6
S. 2. Definitions.-
19 Birdichand v Harakchand, AIR 1940 Ngp 211 , pp 212–215.
20 K Jaggaiah v Kokumanu Venkatasatyanarayana, AIR 1984 AP 149 [LNIND 1983 AP 203] . See also Senaji v Panaji,
AIR 1930 PC at 300.
21 Under Hill’s Principles of the Law of Partnership, 10th Edn, 1975, p 4.
22 In Joint tenancy property is acquired by two or more persons with the right of survivorship which means that on the
death of one of the parties, his share accrues to the other by survivorship while in tenancy common Survivor does not
acquire the share of the deceased owner which accrues to the heirs of the deceased person and not the survivor or
survivors.
23 Under Hill’s Partnership p 5.
24 Ibrahim Shah Mohd v Noor Ahmed, AIR 1984 Guj 127 : (1983) 2 GLR 961 . See also Anantha v J Bapanna Rao, AIR
1959 AP 448 [LNIND 1958 AP 91] .
25 Edulji Meharbanji Boyce v Shyam Sunder, AIR 1943 All 192 at 193.
26 The Indian Partnership Act, section 29.
27 The Indian Partnership Act, section 30.
End of Document
MullaK Kannan
Preliminary
The unrepealed provisions of the Indian Contract Act, 1872, save in so far as they are inconsistent with the
express provisions of this Act, shall continue to apply to firms.
End of Document
S. 4. Definition of “partnership,” “partner,” “firm,” and “firm name”.-
MullaK Kannan
The Indian Partnership Act, 11th ed > The Indian Partnership Act (Act IX of 1932) > Chapter II The
Nature of Partnership
Chapter II The Nature of Partnership
Partnership is the relation between persons who have agreed to share the profits of a business carried on by all
or any of them acting for all.
Persons who have entered into partnership with one another are called individually partners and collectively a
firm, and the name under which their business is carried on is called the firm name.
[s 4.1] Definition of Partnership.—
Section 239 of the Indian Contract Act defined partnership as follows:
“Partnership” is the relation which subsists between persons who have agreed to combine their property, labour or skill
in some business, and to share the profits thereof between them.
The amendments made are little more than verbal and make no change in what is essential to the constitution
of a partnership, though it has been observed that, if anything, this section has the effect of widening the
definition of partnership, as originally under section 239 of the Indian Contract Act, it was inter alia necessary to
agree to combine property, labour and skill.1 The definition in section 4 contains three elements—
Page 2 of 16
(1) there must be an agreement entered into by all the persons concerned;
(2) the agreement must be to share the profits of a business; and
(3) the business must be carried on by all or any of the persons concerned acting for all.
CIT v G Parthasarthy Naidu2 was a case that dealt with the question of whether two firms having the same
partners can be treated as single firm for the purpose of assessment of tax. The Court held that the
components of the definition of “partnership”, and, therefore, of “a firm” consist of (a) persons, (b) a business
carried on by all of them or any of them acting for all, and (c) an agreement between those persons to carry on
such business and to share its profits. It is the relationship between those persons which constitutes the
partnership. The relationship is founded in the agreement between them.
[s 4.2] There must be an agreement.—
This element relates to the voluntary contractual nature of partnership, as distinguished from non-contractual
partnership relations, such as a Hindu joint family. The question whether there is or there is not an agreement is
to be answered in reference to the provisions of the Indian Contract Act, 1872.3 A person who has signed an
agreement of partnership cannot plead that he signed benami for someone else and escape liability.4 If,
however, the parties to an agreement have not agreed to the date of the commencement of the partnership, it
cannot be said that they have become partners.5 Where a society was registered under the Societies
Registration Act, but such registration is invalid, the invalidity of the registration does not make the members
partners.6 A Hindu joint family carrying on a family business is not governed by the provisions of this Act. The
rights and liabilities of the coparceners must be considered with regard to the general rules of Hindu Law.7 The
rights of members of the Hindu joint family arise from status (i.e. by birth in the family) and not by agreement. In
the case, however, of a partnership composed of certain individual members of a Hindu joint family and others
who are strangers to the family, the relations of the parties are governed by the provisions of this Act, and not
by any rules of Hindu joint family.8 The fact that the manager of a Hindu joint family has entered into a contract
of partnership does not make other members of the family the members of the partnership.9
A partnership agreement is the source of a partnership; it also gives expression to the other ingredients defining
the partnership, specifying the business agreed to be carried on, the persons who will actually carry on the
business, the shares in which the profits will be divided, and several other considerations which constitute such
an organic relationship. It is permissible to say that a partnership agreement creates and defines the relation of
Page 3 of 16
partnership and, therefore, identifies the firm. If that conclusion is to be right, it is only a further step to hold that
each partnership agreement may constitute a distinct and separate partnership and, therefore, distinct and
separate firms. An agreement between the partners to carry on a business and share its profits may be
followed by a separate agreement between the same partners to carry on another business and share the
profits therein. The intention may be to constitute two separate partnerships and, therefore, two distinct firms.
Or to extend merely a partnership originally constituted to carry on one business, to the carrying on of another
business. It will all depend on the intention of the partners. The intention of the partners will have to be decided
with reference to the terms of the agreement and all the surrounding circumstances, including evidence as to
the interlacing or interlocking of management, finance and other incidents of the respective business. The
Supreme Court in Gannmani Anasuya v Parvatini Amerendra Chowdhary,10 drew out some parameters for
determining the interests inter se between the partners in business:
If the said immovable property formed assets of the joint venture, the same would be an index to determine the shares
held by the parties thereto. Ordinarily, the extent of an involvement made shall be the criteria for determining the share
of the co-entrepreneurs. In absence of terms and conditions of the joint venture having not been reduced to writing,
conduct of the parties how they dealt with affairs of the business would be relevant.
[s 4.3] Persons.—
Obviously there must be an agreement between two or more persons before there can be a partnership. A
person cannot be a partner in his individual capacity as also in a representative capacity as how it could be
argued that a man can be at one and the same time a Partner in his individual capacity and partner in a
representative capacity.11 A person cannot be a partner with a wakf, as a wakf, is not a persona.12 Where a
partner has died and one of the legal representatives has taken his place as a partner, the other legal
representatives are not partners and cannot sue for dissolution or accounts.13
[s 4.4] Neither firm nor HUF included within the meaning of “persons”.—
The view of the Supreme Court expressed in Rashiklal & Co v CIT, Orissa14 was that when section 4 of the
Indian Partnership Act, 1932 spoke of “persons” who had entered into partnership with one another it could only
be individuals and not a body of persons. A body of persons like a firm could not enter into partnership with
other individuals. The reasons that are applicable to hold that a firm cannot join a partnership with another
“individual” will apply with equal force to an HUF. In law, an HUF can never be a partner of a partnership firm.
Even if a person nominated by the HUF joins a partnership, the partnership will be between the nominated
person and the other partners of the firm. Having regard to the definition of “partnership” and “partners”. If a
Karta or any other member of the HUF joins a partnership, he can do so only as an individual. His rights and
obligations vis-a-vis other partners are determined by the Indian Partnership Act, 1932 and not by Hindu law.
Page 4 of 16
Whatever may be the relationship between an HUF and its nominee partner, in a partnership neither the HUF
nor any member of the HUF can claim to be a partner or connected with the partnership through a nominee. If
any payment by the firm to a partner is prohibited by law, the Karta cannot be heard to say that the payment
was received by him not as a partner but in some other capacity. Within the partnership, the Karta is a partner
like any other partner with whom he has entered into a partnership agreement individually. It is essential to
have an agreement between the partners to form a partnership. A HUF not being a “person” cannot enter into
an agreement of partnership.
[s 4.5] Minors.—
See notes to section 30.

[s 4.6] Sharing of profits of business.—
“Profits” is not defined in the Act, but it means the excess of returns over outlay, that is net profits. “Business”
includes every trade, occupation and profession.15 Co-ownership of land does not constitute a partnership
between the co-owners, but the co-owners may work the land in partnership.16 As common interest will not
make a partnership without division of profits, so sharing profits will not arise unless there is a common
business. The business of course must be lawful. Where 20 or more persons purport to form a partnership,
such a partnership is illegal as contrary to section 11(2) of the Companies Act, 1956.17 An occupation
discouraged by law, though not punishable, may be unlawful, e.g., a firm of book-makers.18 But this view of
Darling J which was based on the dictum of Fletcher Moulton LJ in Hyams v Stuart King19 has not been
accepted as the correct law of England by McCardic J in Jeffrey & Co v Bamford20 holding that Partnership for
the purpose of betting and bookmakers is not per se illegal or impossible in law. The Supreme Court in Gherulal
Parekh v Mahdeodas21 has observed that partnership of two persons providing that one of them to enter into a
wagering transaction on behalf of the firm with outsider is not one prohibited by law under the first clause of
section 23 of the Indian Contract Act and so such partnership is not unlawful or illegal. It is submitted that the
above view of the Supreme Court was expressed on section 30 of the Indian Contract Act, 1872 with reference
to its application in India outside the Maharashtra State. In the Maharashtra State (and probably in the Gujarat
State22) where wagering transactions are not only void but also illegal and so partnership for the purpose of
doing wagering transaction may be declared as illegal or unlawful in view of the special provisions of Bombay
Act III, of 1865 [The Act for Avoiding Wagering (Amendment) Act]. The agreement to share profits is essential,
but it should be noted that an agreement to share the losses is not essential. There is nothing to prevent one or
more partners from agreeing to indemnify the others against loss or to prevent full effect from being given to a
contract of partnership containing such clause of indemnity.23 Where nothing is said as to the sharing of
losses, by virtue of section 13(b) of the Indian Partnership Act, 1932 the partners shall contribute equally to the
loss sustained by the firm. It may, however, be agreed that as between the partners any one or more of them
shall not be liable for losses.24 They may agree to share profits in certain proportions or to receive or pay a
fixed annual or monthly sum in lieu of an amount of profits which may vary every year.25 A Commission of
certain percentage on the net profits given to a person in charge of the firm devoting his whole time to the
Page 5 of 16
business was held to be “sharing of profits” and made him a partner even if he was not to get any share in the
profits of the firm.26 The essential motive in making a partnership agreement is the making of profit and this
has been clearly brought out in definition. So, where persons agree to share the profits of a money-lending
business, they become partners,27 but where one of the so called partners is not to receive profits, he is not a
partner.28 In this case though the partnership deed described B as one of the partners of the firm with 10
annas share29 but a clause of the partnership deed provided that Partner B’s share was not to stand in his
name but shall stand in the name of Firm, while the capital contributed by the other partners was to stand in
their own name. Similarly, profit and loss incurred had to be credited or debited in the name of the firm and not
towards the name of partner B. Applying the test of Partnership laid down by section 4 of the Act, the court
construing the terms held that B cannot be a partner in the firm as B did not provide capital for partnership and
B was not allotted profit for his share and did not incur liability for his share of the partnership.
Though sharing of profits and contributing to the loss of a business are indications of the existence of
partnership, anyone who shares profit may not be a partner in a given case. Reference may be made to
Explanation 2 to section 6 of the Act. In fact one can be regarded as a partner when the business can be said
to have been conducted on his behalf.30
Illustrations
(1) A agrees with B to carry passengers by car from Bombay to Poona on the following terms: B is to pay to A
Rs. 15 per mile per annum, and A and B are to share the expenses of repairing and replacing the cars, and to
divide equally the money received for conveying passengers A and B are partners.31
(2) A and B are co-owners of a house let to a paying tenant. A and B divide the net rents between themselves.
A and B are not partners, because letting a house is not a business.32 There is no partnership without
combination to carry on a business and therefore the mere fact that persons own in common something which
produces returns, and divide those returns according to their respective interests, does not make them
partners. Now, if A and B used the house as an hotel managed by themselves or their agent for their common
profit, they would be partners in the business of hotel keeping.
(3) A and B buy 100 bales of cotton, which they agree to sell for their joint account. A and B are partners in
respect of such cotton.33
Page 6 of 16
(4) A and B buy 100 bales of cotton, agreeing to share it between them. A and B are not partners.34
(5) A agrees with B, a goldsmith, to buy and furnish gold to B, to be worked up by him and sold, and that they
shall share in the resulting profit or loss. A and B are partners.35
(6) A and B agree to work together as carpenters, but that A shall receive all profits and shall pay wages to B. A
and B are not partners.36
(7) A and B are joint owners of a ship. This circumstance does not make them partners.37
[s 4.7] Carried on by all or any of the persons concerned, acting for all.—
The fundamental principal of a partnership is that partners when carrying on the business of the firm are agents
as well as principals.
Illustrations
A, B and C carry on business as partners. An outsider, D deals with the firm through C. A is between C and D,
C is a principal and also the agent of A and B. Therefore A, B and C can all sue, and be sued by D. Further,
because C is in this transaction an agent of A and B, he is accountable to them.
The law as to partnership is undoubtedly a branch of law of principal and agent; and it would tend to simplify and make
more easy of solution the questions which arise on this subject, if this true principle were more constantly kept in
view.38
The question whether a person is a partner or not depends in nearly all cases upon whether he has the
authority to act for those who are admittedly partners, and whether those admittedly partners have the authority
to act for him. In Cox v Hickman,39 the creditors of a trader entered into an arrangement with him by which the
trade was to be conducted under their superintendence, and they were gradually to be paid off out of the
Page 7 of 16
profits. These creditors may have agreed to take a share of the profits, and may even have supervised the
business, but they did not become partners, because the business was not carried on their behalf:—
the real ground of the liability is that the trade has been carried on by persons acting on his behalf.40
The test of liability, therefore, is not merely whether there is participation or sharing of profits, but whether there
is such sharing of profits as to constitute the relation of principal and agent between the person taking the
profits and those actually carrying on the business.41 Here, two plaintiffs both were registered firms and were
individually carrying on their own business. They financed the large quantities of corrugated iron sheets
purchased by two defendants. Their financial agreement with the defendants provided that pledgees (plaintiffs)
would lend the pledgors (defendants) a certain amount against the pledge of corrugated iron sheets. If there
was default by the pledgors, the pledgees were entitled to sell the pledged goods. The plaintiffs’ share was
equal in the profits (i.e. receipts from defendants by interest on money advanced and commission to be paid by
pledgors). If there was any loss (which would be from failure by debtors to pay the amount due), it was to be
shared equally by two plaintiffs. On a suit to recover the amount due, the defendants raised a defence that as
the two plaintiffs were partners in respect of lending transactions and as their partnership was unregistered, the
suit was not maintainable. It was held that one partner can always bind another partner in any matter which falls
within the scope of partnership business subject to the provisions of section 20 of the Act. Here the defendants
failed to prove that two plaintiff firms were in any respect agents one for the other.
There is nothing to show that one pledgee could act on behalf of other.…I see no reason to suppose that one of these
two pledgees could have sold the pledged goods without consulting the other pledgees.42
Further the court pointed out that part of the advances to the defendants were out of the borrowing by the
lenders from the bank and whenever cheque was drawn to make advance to the defendants, the cheques were
signed by one partner in both the plaintiff firms. This showed co-lending by two plaintiffs and it did not show that
the two plaintiffs were partners in relation to financial arrangement with the defendant. There was nothing to
show that one of the plaintiff firms had any authority to act for the other and so there was no partnership.
Page 8 of 16
Finally the Bombay High Court observed that it may be very common for two or more banks or financial houses
to undertake jointly to finance some undertaking which requires more extensive help than one lender is
prepared to lend and it is very unlikely that people acting together to finance an undertaking consider that they
are becoming partners.
Acting for all.—The other partners are bound by the act of one only when the act is in the course of business.
Whether an act is or is not done for carrying on in the usual way business of the kind carried on by the firm,
depends upon the nature of the business and the practice of persons engaged in it.43
The said expression is intended to emphasize the principle that partners when they carry on business of the
firm act as agents as well as principals. Relationship of mutual agency between the partners is the real test of
partnership. If a partner does not take part in the management of the business, it does not have the result that
he is not carrying on business as a partner because the essence of partnership is that each of the partners is
the agent of the others for the purpose of carrying on the partnership business.44
[s 4.8] Partners.—
Persons who have entered into partnership with one another are called individually “partners.”
[s 4.9] Firm.—
Persons who have entered into partnership with one another are called collectively “a firm.” By the current
usage of affairs, a firm is distinct from its members. They may have claims on the firm’s property, but it is not
theirs. It has separate accounts, and is their debtor and creditor. Although in the commercial sense “a firm” has
a distinct meaning, yet both according to English and according to Indian Law, a firm is not a legal entity. A firm
is merely a collective name for the individuals, who have entered into partnership. It is not a separate entity
from the partners who compose it. Each individual partner has a responsibility for the transactions effected and
the liability incurred by any one partner on behalf of the firm. A private property of each partner is available to
the firm’s creditors for unsatisfied firm’s debts. As a firm is not a legal entity, there cannot be a partnership of
firms, but when two firms combine, the legal effect is that the individuals in the two firms become partners.45
Illustration
A, B and C are partners in X & Co., and D, E and F are partners in Y & Co. Both X & Co. and Y & Co., combine
Page 9 of 16
and form Z & Co. The partners in Z & Co. will be A, B, C, D, E and F. The result is that unless there is a
contract to the contrary, the firm of Z & Co., would be dissolved by the death of any one of the partners, e.g. D.
Proceedings by or against firms,—
Under the Code of Civil Procedure, 1908, Order 30, suits may be brought by and against partners in the name
of the firm, but this is only a matter of procedure. In the above illustration A, B and C may give notice for
dissolution of the firm of Z & Co. and the suit for dissolution and accounts may be filed by X & Co., and after a
declaration has been made under Order 30, the suit will proceed as one by A, B and Co.46
Distinguished from other associations:—
A partnership is to be distinguished from other kinds of association e.g. a club, a society or a company.
In the case of a club or a society, the two essential ingredients i.e. intention to share profits47 and an intention
to constitute one member as agent for another member48 are lacking.
In case of a company, the later is a juristic entity distinct from its shareholders while a firm is a compendious
name for all the partners.49 A shareholder has no interest in the property of the company while a partner has
an interest in the property of the firm.49
Distinction between a partnership and a registered company:—
Partnership Registered company
(1) Formed by an agreement, express or implied. (1) Formed by registration under Indian Companies Act.
(2) Not a legal entity or personality from the partners who (2) Separate legal entity or personality distinct from its
compose it. members (or share holders).
Page 10 of 16
Partnership Registered company
(3) A partner has an interest in the assets of the partnership. (3) A member has no interest in the assets of the company.
(4) It cannot have more than 20 partners. (4) Its members may be more than 20.
(5) Liability of partners is unlimited. (5) Liability of its members is limited.
(6) A creditor can sue in the name of the firm or in the names (6) A creditor can sue the company alone and cannot sue its
of its partners. members except in case of certain offences.
(7) Partnership deed is not open to public inspection and the (7) Its memorandum and Articles of Association are open to
outsiders are not presumed to have any knowledge of its public inspection.
contents.
(8) Every partner has an implied authority to act as agent of (8) No member has any implied authority to act for the
the firm and other partners. company or any other members.
(9) A partner can transfer his share but the transferee does not (9) Share of a member can be transferred. Transferee has full
become a partner and has a right to receive a share of profits rights of the Transferor member.
but has no other rights.
(10) Partnership Deed can be altered at any time by (10) Its Articles of Association and Memorandum can be
agreement. altered according to the statutory provisions of the Indian
Companies Act.
(11) Upon the insolvency of partner, the firm stands dissolved (11) Upon the insolvency of a member—shareholder—the
unless there is a contract to the contrary. company is not affected at all.
Co-ownerships simpliciter between joint purchasers, co-tenants, co-heirs are distinguishable from partnerships.
Co-owners may share profits but not by virtue of agreement but may do so by virtue of their status; one co-
owner is not the agent of the other co-owner; a co-owner may transfer his share to a stranger but a partner
cannot do so.50
For partnership distinguished from joint Hindu family see section 5.
Firm name.—The name under which the business of the partners is carried on is called the “firm name.” A firm
name shall not contain any of the following words, namely, “Crown”, “Emperor,” “Empress”, “Empire”, “Imperial”,
“King”, “Queen”, “Royal” or words expressing or implying the sanction, approval or patronage of Government,
except when the State Government signifies its consent to the use of such words as part of the firm name by
Page 11 of 16
order in writing.51 Otherwise, there are not prescribed forms for the style of a firm, and the liberty of partners to
assume any firm name they please is bounded only by the general rules as to goodwill and trade-names. A firm
name may be personal or impersonal, singular or plural, and need not contain the name of any existing partner.
“X & Co.,” “X, Y & Z”, “the X, Co.,” “X & Son,” “X & Sons,” “X Brothers” and other varieties, are alike, usual and
allowed.
Individuals may carry on business under any name and style they may choose to adopt,52
provided they do not adopt a name tending to mislead the public into confusing them with others already trading
under the same or like names. The Court will not interfere merely because the similarity may be an occasion for
careless people to make mistakes. Lord Justice Knight Bruce said in a celebrated judgment observed:
All the Queen’s subjects have a right, if they will, to manufacture and sell pickles and sauces, and not the less that their
fathers have done so before them. All the Queen’s subjects have a right to sell these articles in their own names, and
not the less so that they bear the same name as their fathers.53
Where fraudulent intention is shown, it is not a sufficient answer for the defendant to say that the name he is
using in business is the name he has adopted for all purposes; freedom of choice does not extend to choosing
just that name which will enable one to appropriate the reputation of another man’s goods.54
[s 4.10] Partnership is not heritable status but one founded on contract.—
It is clear that when there are only two partners constituting the partnership firm, on the death of one of them,
the firm is deemed to be dissolved despite the existence of a clause which says otherwise. A partnership is a
contract between the partners. There cannot be any contract unilaterally without the acceptance by the other
partner. Persons who are the legal representatives of a deceased partner cannot be asked to continue the
partnership. There is no legal obligation upon them to do so as partnership is not a matter of heritable status
but purely one of contract, which is also clear from the definition of partnership under section 4.55
Page 12 of 16
1 Birdichand v Harakchand, (1940) 190 IC 613 : (1940) AN 211.
2 CIT v G Parthasarthy Naidu, (1999) 236 ITR 350 (SC) : (1998) 8 SCC 487 .
3 See the Indian Partnership Act, 1972, section 3. As to who are competent to contract, see section 11 of the Indian
Contract Act, 1872.
4 Shankar v Shankar, AIR 1956 Bom 165 [LNIND 1955 BOM 101] .
5 Shardaprasad Gokul Prashad v Nomanbhai Shamsuddin, AIR 1937 Nag 68 : (1937) 169 IC 95 .
6 Re State of Madras, AIR 1958 Mad 394 [LNIND 1957 MAD 259] : (1958) 1 Mad LJ 206.
7 Chhedi Lal v CIT, AIR 1942 Oudh 108 : (1942) 17 Luck 426 : 197 IC 478.
8 Pichappa Chettiar v Chockalingam Chettiar, AIR 1934 PC 192 : (1934) 67 Mad LJ 366 : 36 Bom LR 976 : 150 IC 802;
Kanhaya Lal v Devi Dayal, AIR 1936 Lah 514 .
9 Gangayya v Venkatramiah, (1918) 41 Mad 454; Kharidkar Kapra Co, Ltd v Daya Kishan, (1921) 43 All 116 .
10 Gannmani Anasuya v Parvatini Amerendra Chowdhary, AIR 2007 SC 2380 [LNIND 2007 SC 708] : (2007) 10 SCC 296
[LNIND 2007 SC 708] : [2007] 7 SCR 201 [LNIND 2007 SC 708] .
11 Hosain Kasim Dada v Com IT Bengal, (1937) 2 Cal 160 . See also S Magnus v CIT, Bombay, AIR 1958 Bom 467
[LNIND 1957 BOM 164] : (1958) 60 Bom LR 41 : ILR (1958) Bom 428 [LNIND 1957 BOM 164] .
12 Hossen Kasam v CIT, (1941) Cal WN 629 : (1937) 2 Cal 160 .

Page 13 of 16
13 Peeran Sahib v Jamaluddin, AIR 1958 AP 48 .
14 Rashiklal & Co v CIT, Orissa, AIR 1997 SC 4389 : (1998) 2 SCC 49 .
15 The Indian Partnership Act, 1932, section 2(b). See notes to section 2(b).
16 Chettyar Firm v Chettiyar Firm, AIR 1933 Rang 120 : 144 IC 1007.
17 Badri Prasad v Nagarmal, AIR 1959 SC 559 [LNIND 1958 SC 198] : [1959] SCR Supp (1) 709.
18 O’Connor v Ralston, (1920) 3 KB 451 .
19 Hyams v Stuart King, (1908) 2 KB 696 .
20 Jeffrey & Co v Bamford, (1921) 2 KB 351 .
21 Gherulal Parekh v Mahdeodas, AIR 1959 SC 781 [LNIND 1959 SC 38] : [1959] SCR Supp (2) 406.
22 See section 87 of the Bombay Reorganisation Act (XI of 1960).
23 Lindley on Partnership (13th Edn 1971) p 83; See Abdul Latiff v Gopeswar, AIR 1933 Cal 204 ; Raghunandan v
Hormasji, AIR 1927 Bom 187 : (1927) 29 Bom LR 207 .
24 Ragkunandan v Hormasji, AIR 1927 AB 187 : (1927) 51 Bom 342, 29 Bom LR 207, 100 IC 1025; British Cotton
Growers’ Association (Punjab) Ltd v CIT, AIR 1937 Lah 338 : (1937) Lah 306, 168 IC 549.
25 Ragkunandan v Hormasji, AIR 1927 AB 187 : (1927) 51 Bom 342 : 29 Bom LR 207 : 100 IC 1025; British Cotton
Growers’ Association (Punjab) Ltd v CIT, AIR 1937 Lah 338 : (1937) Lah 306 : 168 IC 549.
26 Raghumal v Official Assignee of Calcutta, AIR 1924 Cal 424 : (1923) 28 Cal WN 34.
Page 14 of 16
27 Gokuldas v Kesherao, (1937) Nag 358, 169 IC 855, (1937) AN 134.
28 CIT v B Kejriwal & Co, AIR 1958 Pat 165 : (1958) 34 ITR 777 (Pat).
29 “If 16 annas make a rupee, a 10 annas share would mean 10/16th share”.
30 See Chimanram v Jayantilal, AIR 1939 Bom 410 : (1939) Bom 616 : 41 Bom LR 899.
31 Green v Beesley, (1835) 2 Bing NC 108.
32 But letting furnished lodging is business. See Pollock’s Digest of the Law of Partnership, 12th Edn, p 3 fn (d).
33 Illustration (a) to section 239 of Indian Contract Act; Birdichand v Harakchand, (1940) 190 IC 613 : (1940) AN 211.
34 Illustration (b) to section 239 of Indian Contract Act.
35 Illustration (c) to section 239 of Indian Contract Act.
36 Illustration (d) to section 239 of Indian Contract Act.
37 Illustration (e) to section 239 of Indian Contract Act.
38 Per Lord Wensleydale in Cox v Hickman, (1860) 8 HLC 268, 312. This is expressly recognized in section 18.
39 Cox v Hickman, (1860) 8 HLC 268.
40 Cox v Hickman, (1860) 8 HLC 268, 306.

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41 Chimanram v Jayantilal, (1939) Bom 616 : 41 Bom LR 899 : 184 IC 397 : (1939) AB 410; Meenakshi Sundaram v
Subbiah Cheltiar, AIR 1957 Mad 297 [LNIND 1956 MAD 132] : (1956) 69 LW 1006 ; Hirabai v Bhagirath & Co, AIR
1946 Bom 174 : 47 Bom LR 808 : 46 Bom 173.
42 Chimanram v Jayantilal, (1939) Bom 616 : 41 Bom LR 899 : 184 IC 397 : (1939) AB 410, 412.
43 Mara v Browne, (1896) 1 Ch 199 ; Baird’s case (1870) 5 Ch 725 , 733. See Haji Isa v Saru Bai, AIR 1938 Nag 324 :
(1938) 177 IC 831 .
44 Wallace Bros v CIT, AIR 1948 PC 118 at 121 para 23 : (1948) 50 Bom LR 482 (PC).
45 Seodayal v Joharmal, (1923) 50 Cal 549 ; Muhammad Abdul v Sheikh Ismail, AIR 1934 Mad 9 [LNIND 1933 MAD 102]
: 148 IC 1137.
46 Ram Singh v Ram Chand Tirath Ram, AIR 1936 Lah 78 : 157 IC 1113.
47 Re State of Madras, AIR 1958 Mad 394 [LNIND 1957 MAD 259] : (1958) 1 Mad LJ 206.
48 Samuel Bros Ltd v Whetherly, (1908) 1 KB 184 .
49 Bacha Gazdar v CIT, Bombay, AIR 1955 SC 74 [LNIND 1954 SC 145] : [1955] 1 SCR 876 [LNIND 1954 SC 145] .
49 Bacha Gazdar v CIT, Bombay, AIR 1955 SC 74 [LNIND 1954 SC 145] : [1955] 1 SCR 876 [LNIND 1954 SC 145] .
50 Champaran Cane Concern (dissolved) v State of Bihar, AIR 1963 SC 1737 [LNIND 1964 SC 424] : (1964) 2 SCR 921 .
51 The Indian Partnership Act, 1932, section 58(3).
52 Erle, CJ, Maugham v Sharpe, (1864) 17 CBNS 443 (462) : 142 RR 439.
53 Burgess v Burgess, (1853) 3 De GM & G 896, 904 : 193 ER 351.
54 Pinet et Cie v Maison Louis P’inet, (1898) 1 Ch 179 : 67 LJ (CH) 41 : 17 LT 613 : 14 TLR 87.
Page 16 of 16
55 Mohd Laiquiddin v Kamala Devi Misra (Dead) by LRs, (2010) 2 SCC 407 [LNIND 2010 SC 15] : [2010] 1 SCR 873
[LNIND 2010 SC 15] : (2010) 2 Mad LJ 820 (SC).
End of Document
S. 5. Partnership not created by status.-
MullaK Kannan
The relation of partnership arises from contract and not from status; and, in particular, the members of a Hindu
undivided family carrying on a family business as such, or a Burmese Buddhist husband and wife carrying on
business as such, are not partners in such business.
Goa, Daman and Diu.—In its application to U.T. of Goa, Daman and Diu for the words “Burmese Buddhist
husband and wife carrying on business as such”, substitute the words “a husband and wife under the regime of
communion of property carrying on business as such”.—Goa Daman and Diu Act 6 of 1966, Section 2 (22
August 1966).
[s 5.2] Contract and status.—
When a person agrees with another to share the profits of a business, to be carried on by them together, the
partnership arising from such agreement is said to be the outcome of contract. If, however, as in a joint Hindu
family a person becomes entitled to a share in the family business by the mere fact that he is either born or
adopted in the family, he is not a partner within the meaning of the Indian Partnership Act, 1932, but a joint
owner of the business. The joint ownership so created is not a partnership arising out of a contract, but merely
a family quasi-partnership created by the operation of law. Two Hindu joint families cannot unite to constitute a
partnership but their managing members may become partners, each having rights and duties with reference to
their respective families.56Since the relationship is created by contract, every liability arising even in individual
capacity could affect the qualification of partners to be awarded a contract. Consequently, a liability of a person
as dues to the government in a liquor vending contract could constitute a disqualification for award of contract
to a partnership in which the said person was a partner.57
Page 2 of 2
[s 5.3] Difference between partnership and joint Hindu family.—
In case of a joint Hindu family business (i) one coparcener is not the agent of the others, (ii) all powers are
vested in the karta,58 (iii) a coparcener is liable to the extent of his share in the family estate but in case of a
partnership debt, a partner’s own separate estate is also liable,59 (iv) death of a partner dissolves partnership
but in case of the death of a coparcener the family business is not dissolved, and (v) a coparcener cannot ask,
unlike a partner, for an account of past profits and losses.60
See section 4 under the heading “There must be an agreement.”

[s 5.4] Contract.—
Contract of partnership may be proved by an express or an implied contract.61 Section 11 clearly specifies this.
[s 5.5] Commencement of partnership.—
Ordinarily partnership deed provides for its commencement. If it does not provide for its commencement, the
partnership comes into existence from the date of its execution.62 The provisions of section 31(2) also provide
that an incoming partner is not liable for the acts of the firm prior to the date of his introduction.
56 Udai Chand v Than Singh, (1935) 62 Cal 586 : 157 IC 937 : AIR 1935 Cal 537 .
57 Modern Hotel v CCE, (2016) 15 SCC 620 [LNIND 2015 SC 469] : 2015 (9) Scale 50 [LNIND 2015 SC 469] .
58 Sakrabhai v Maganlal, (1902) 26 Bom 206 : 3 Bom LR 738.
59 Sakrabhai v Maganlal, (1902) 26 Bom 206 : 3 Bom LR 738.
60 Samalbhai v Someshwar, ILR (1880) 5 Bom 38 .
61 Dwarkadas v Bansilal, AIR 1956 Ajm 8 .
62 Shiamlal v Shiamlal, AIR 1935 All 1008 : 159 Ind Cas 433.
End of Document
S. 6. Mode of determining existence of partnership.-
MullaK Kannan
In determining whether a group of persons is or is not a firm, or whether a person is or is not a partner in a firm,
regard shall be had to the real relation between the parties, as shown by all relevant facts taken together.
Explanation 1.—The sharing of profits or of gross returns arising from property by persons holding a joint or
common interest in that property does not of itself make such persons partners.
Explanation 2.—The receipt by a person of a share of the profits of a business, or of a payment contingent
upon the earning of profits or varying with the profits earned by a business, does not of itself make him a
partner with the persons carrying on the business;
and, in particular, the receipt of such share or payment—
(a) by a lender of money to persons engaged or about to engage in any business.
(b) by a servant or agent as remuneration,
(c) by the widow or child of a deceased partner, as annuity, or
(d) by a previous owner or part owner of the business, as consideration for the sale of the goodwill or
share thereof,
does not of itself make the receiver a partner with the persons carrying on the business.
[s 6.1] Determining existence of partnership.—

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In Ross v Parkyns63 Jessel, MR, stated the law as follows:
It is said (and about that there is no doubt) that the mere participation in profits inter se affords cogent evidence of
partnership. But it is now settled by the cases of Cox v. Hickman,64 Buller v. Sharp,65 and Mollwo, March & Co. v.
Court of Wards,66 that although a right to participate in profits is a strong test of partnership, and there may be cases
where upon a simple participation in profits there is a presumption, not of law, but of fact, that there is a partnership,
yet whether the relation of partnership does or does not exist must depend upon the whole contract between the
parties, and that circumstance is not conclusive.” The law as stated above has been restated in this section. The
section also indicates the manner in which the general principle is to be applied to particular circumstances. The
question whether the relation of partnership does or does not exist, “must depend on the real intention and contract of
the parties.67
[s 6.2] Explanation 1.—
The mere fact that a person is entitled to a share in the profits does not make him a partner, because the real
relationship may be one of debtor and creditor.
Illustrations
(1) A Rajah entered into a contract with a partnership firm as follows. The Rajah was to receive in consideration
of advances a commission on the net profits of the partnership business. Large powers of control over the
business were given to him for his protection, but no power to direct transactions. It was held that the contract
was not of partnership but of loan and security between a debtor and a creditor.68
(2) A does in his own name the business of loading and unloading wagons for a limited company. A appoints B
to manage the business. It is agreed between them that B shall get a 12 annas share out of the net profits as
remuneration, and that A shall get a 4 annas share but shall not be liable for any loss.69 A was to take contract
of loading and unloading in his own name and was to have a voice in determining what work was to be
undertaken or when the work was to be stopped or whether the Contract with the company was to be renewed
or not on the expiry of its period. On this the Court held that the relationship is not of partnership but is of
principal and agent as A was entitled in his own name to deal with the company.70
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The legal existence of a partnership has to be determined from all the facts. A statement in a document that
nothing therein contained is to constitute the relationship of partners will not necessarily prevent the parties
from being partners in the eyes of the law. So too, a mere statement that the parties are to be partners will not
necessarily constitute them partners in law.71 Further, although a person may hold himself out to be a partner
and be liable to third parties accordingly, yet it does not necessarily follow that he is partner in law.72 In Mollwo,
March & Co v Court of Wards their Lordships said:
If cases should occur where any persons, under the guise of such an arrangement (i.e. apparently a debtor and
creditor arrangement), are really trading as principals, and putting forward as ostensible traders, others who are really
their agents, they must not hope by such devices to escape liability; for the law, in cases of this kind, will look at the
body and substance of the arrangements, and fasten responsibility on the parties according to their true and real
character.73
Illustrations
(1) A and B enter into a partnership for a fixed term. It is agreed that if either of them dies before the end of the
term his representatives shall during the rest of the term receive the share of the profits he would have been
entitled to if living. A dies, and his share of the profits is paid to his executors as provided by the agreement.
The executors are not partners.74
(2) A, B and C enter into an agreement in writing reciting that A and B have agreed to be partners, and have
requested C to lend Rs 1,00,000 to be invested in their firm. The agreement declares that the money is
advanced by C to A and B by way of loan and such advance shall not be considered to make C a partner. By
other clauses of the agreement C is entitled to inspect the books, to receive a copy of the annual account, to
share profits in a fixed proportion, and has the option to dissolve the partnership and conduct the liquidation of
the business in certain events. C’s capital is not to be withdrawn till the termination of the partnership. Under
such an agreement C is a partner with A and B.75
(3) A purports to enter into a partnership agreement with B and agrees to make advances for use in business.
According to the terms of the agreement, A is to receive 12% interest on his advances as the share of his
Page 4 of 6
profits. By other clauses of the agreement, A was authorised to receive payments of bills due to B on account of
the contracts executed by him and to give receipts in his own name as the agent of B. It was held that A and B
are not partners, for A was to receive interest whether there was a profit or not.76
(4) A and B, both of them attorneys-at-law, came to the following agreement, B “agreed to admit A as a partner”
in his (B’s) firm. It was agreed that the partnership was to be for one year; that in lieu of his share of profits A
was to receive Rs 500 per month and was not to be responsible for any losses or liabilities of the firm: and on
its termination he was to cease to have any interest in the firm and its property. The clients of the firm were
informed by a general notice that A was “admitted into partnership.” A and B are partners although A is entitled
only to a fixed salary.77
Referring to the facts of the above case and the argument that the above agreement did not constitute a
partnership in law, because they did not agree to share the profits between them, Marten, CJ, said as follows:
Partners can agree to share those profits in any way they like. They may agree to share them equally. They
may also agree, in my opinion, that one partner is to receive a fixed annual or monthly sum in lieu of a sum
varying in accordance with the profits actually earned. In other words the defendant (i.e., A) thus became a
salaried partner which is an expression we are quite familiar with not only in England but also in Bombay.”78 In
Girdharbhai v. Saiyed Mohd. Kadri79 the Supreme Court observed that Section 6 reiterates that in determining
partnership regard shall be had to real relation between parties as shown by all the relevant facts taken
together. So where a partner brought in as his asset tenancy in the premises in which partnership business was
to be carried on, the fact that he was to share profits only and was to get a fixed percentage of the profits and
that he was not to operate bank account. On this the Supreme Court concluded that it could not be said that no
genuine partnership had come into existence.
[s 6.3] Explanation 2.—
This explanation deals with certain instances which commonly occur.
63 Ross v Parkyns, (1875) LR 20 Eq 331, 335.
64 Cox v Hickman, (1860) 8 HLC 268.

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65 Buller v Sharp, (1865) LR 1 CP 86, Ex Ch.
66 Mollwo, March & Co v Court of Wards, (1872) LR 4 PC 419 : (1872) Sup Vol IA 86.
67 Mollwo March & Co, v Court of Wards, (1872) Sup Vol IA 86 : (1872) LR 4 PC 419; Hari Sao v Gulab Chand, AIR 1940
Pat 116 ; Thota K Somayya v Commissioner, Excess Profits Tax, AIR 1956 Hyd 87 ; Ram Avatar v Ramjivan, AIR 1956
Hyd 131 ; MP Davis v Commissioner of Agricultural Income Tax, AIR 1959 SC 719 : (1959) 35 ITR 803 (SC).
68 Mollwo, March & Co v Court of Wards, (1872) Sup Vol IA 86 : (1872) 4 PC 419.
69 If 16 annas make a rupee, a 4 annas share and 12 annas share would mean 25% and 75%, respectively.
70 Abdul Latiff v Gopeswar Chattoraj, AIR 1933 Cal 204 : (1932) 56 Cal LJ 172 .
71 Mamooji v Tayebali, (1933) AS 210 : 146 IC 730: Kamidan Sarda v Sailaja Kanta, AIR 1940 Pat 683 [LNIND 1955 HP
27] : (1940) 19 Pat 715 : 192 IC 187. MP Davis v Commissioner of Agricultural Income-Tax, AIR 1959 SC 719 : (1959)
35 ITR 803 (SC).
72 Raghunandan Nanu v. Hormasjee, AIR 1927 Bom 187 : (1927) 51 Bom 342, 346–347 : 29 Bom LR 207 : 100 IC 1025.
73 Mollwo, March & Co v The Court of Wards, (1872) Sup Vol IA 86, 106 : (1872) 4 PC 419; Steel Bros & Co Ltd v CIT,
AIR 1958 SC 315 : (1958) 33 ITR 1 .
74 Holme v Hammond, (1872) LR 7 Ex 218.
75 Ex parte Delhasse, (1877) 7 ChD 511 .
76 Karnidan Sarda v Sailaja Kanta, AIR 1940 Pat 683 [LNIND 1955 HP 27] : (1940) 19 Pat 715.
77 Raghunandan Nanu v Hormasjee Benzoojee, AIR 1927 Bom 187 : (1927) 51 Bom 342 : 29 Bom LR 207 : 100 IC 1025.
78 Raghunandan v Hormasjee, (1927) 51 Bom 342, at pp 248–349 : 29 Bom LR 207 : 100 IC 1025: 1927 Bom 187.
79 Girdharbhai v Saiyed Mohd Kadri, AIR 1987 SC 1782 [LNIND 1987 SC 460] : (1987) 3 SCC 538 [LNIND 1987 SC 460]
.
Page 6 of 6
End of Document
S. 7. Partnership at will.-
MullaK Kannan
Where no provision is made by contract between the partners for the duration of their partnership, or for the
determination of their partnership, the partnership is “partnership at will”.
Two conditions are to be complied with before partnership can be regarded as a Partnership at will. Firstly,
there should be no provision in the contract between the partners for the duration of their partnership. Secondly,
there should be no provision in their contract for the determination (i.e. ending) of their partnership. If either of
these provisions exists, it is not a partnership at will. However, though there may be no express provision in the
deed of partnership as to its duration or determination, there may be an implied agreement to continue
partnership for the definite period or from the nature of partnership as well as from the relevant circumstances
as implied term as to when the partnership will determine may be gathered. In such cases also there can be no
partnership at will. Thus we may say that there is no partnership at will where there is in the contract of
partnership an express or implied provision as to its duration or its determination.80 The essence of partnership
at will is that it is open to either partner to dissolve the partnership by giving notice.81
In the leading case of K Thiagarajah v Muthappa, earlier referred to, there were two partners doing business
jointly by securing managing agency of the mills. The agreement of partnership between them regarding
managing agency of the mills recited for carrying on the management of the mill in rotation for first four years to
appellant and thereafter respondent to manage the mill for the next four years and in the same way thereafter.
Even the heirs of the partners would also carry on the management in rotation. The Supreme Court considered
the above provision as well as the nature of business of partnership and came to the conclusion that it could not
be contemplated by the parties that partnership could be brought to an end by notice by either party and so it
Page 2 of 4
was not a partnership at will. The intention obviously was to have partnership of some duration though the
duration was not expressly fixed in the agreement. The Supreme Court also found that the partnership was
formed for the sole business of carrying on managing agency business by rotation and therefore followed that
the partnership would determine (i.e. comes to an end) when managing agency terminates. The terms of the
contract here clearly imply a duration of partnership which corresponds with the time when the managing
agency terminates.
A provision in the agreement of partnership for the retirement of a partner disrupts the partnership, only as
between the retiring partner and the continuing partners but not as between all the partners. So a provision for
retirement of a partner is not a provision “for the determination of their partnership within the meaning of section
7 of the Act. The pronoun “their” in section 7 of the Act stands for partnership between all the partners and not
partnership of only one partner with the rest, as the Gujarat High Court in the well reasoned judgment
observed.82 When a partner retires from a firm, there is no dissolution of partnership between all the partners.
It does not involve severance of jural relation of partnership inter se between all the partners. The partnership
continues as between the continuing partners whose jural relation remains unaffected. As dissolution of
partnership between all the partners is contemplated in the definition of partnership at will, it follows that a
provision for retirement of a partner has no bearing on dissolution of partnership. The law of partnership draws
a clear distinction between retirement of a partner under section 32 (Chapter V) and dissolution of firm under
section 39 (Chapter VI) of the Act. When a partner retires from a firm, there is no dissolution of a firm. In view of
this, the High Court rejected the contention which sought to equate the retirement of partner with the dissolution
of firm. So a provision for the retirement of a partner is not a provision for the determination of partnership as
contemplated in section 7 of the Act.
In Suresh Kumar Sanghi v Amrit Kumar Sanghi,83 agreement of partnership provided that partnership was not
to be dissolved on death or retirement of a partner but was to be continued with the other partners and legal
heirs of deceased or retiring partner whose legal heirs can simply claim admission to firm with the same rights
of deceased or retiring partner. Further, there was a term that no revaluation of assets of partnership was to be
made on death or retirement of a partner. On this type of partnership the Delhi High Court held that parties
never intended that partnership be dissolved at sweet will of any of the partners rather their intention was that
business of partnership to continue as long as possible notwithstanding the death or retirement of any partner.
The term against revaluation of asset pointed out that the outgoing partner was simply entitled to the capital
standing to his account on the date of his retirement or death. This provision could not exist if there had been
partnership at will, according to the Delhi High Court.
In Talakchand v KD Shetti84 clause 5 of Partnership deed provided that a partner desiring to retire to give 6
months’ notice of his intention to do so to the other partners to enable account of business to be taken for
ascertaining assets and liability and it was optional for the other partner to continue business in the firm name
on paying unto him the value of the dues on his share. On this, it was contended that the clause provided for
determination of partnership and therefore it was not a partnership at will. Rejecting this contention the Calcutta
Page 3 of 4
High Court observed that clause 5 was not a provision for dissolution of partnership but for retirement of a
partner under certain express term. Section 32(1)(C) shows that even in case of partnership at will a partner
may retire by giving notice in writing to all partners of his intention to retire. Thus Partnership Law makes it clear
that a provision for retirement is not in-consistent with a partnership at will though firm consists of two partners
only.
In Moss v Elphick85 a question arose whether a partnership of two persons providing that it would be
terminated only by mutual agreement of the parties was a partnership at will or not when one partner only gave
notice to the other. The other partner contended that the said notice was inoperative. Accepting this argument
the court held that it was not a partnership at will as partnership at will is determinable at the will of either party,
while in this case, it provided that partnership shall be for the joint lives of parties unless terminated by mutual
agreement. This is thus a special provision as to duration of partnership and so was not a partnership at will.
[s 7.1] Partnership at will.—
This definition is inserted, as the phrase “partnership at will” is used in other sections, in particular section 43.
The expression “partnership at will” has always been used in the law of partnership and has always had the
same meaning that stated in this section.
Where a partnership deed provided that upon the death of a partner one of his nephews shall act in his stead, it
was held that this was a partnership at will.86 The High Court did not agree that the said clause meant that
parties must be considered to have agreed to carry on partnership during the life time of the plaintiff. On the
contrary the court construed the clause to be not for a fixed period and such a provision was not in-consistent
with a partnership at will.
In a partnership at will it is open to a partner, even if there is no dispute between the parties, to dissolve the firm
by virtue of section 43 of the Act. His right to dissolve partnership cannot be taken away by arbitration clause in
a partnership deed. It is difficult to understand, the court observed, how a partner who desires to dissolve the
firm can be forced to resort to arbitration. It follows, therefore, that the clause about arbitration in the partnership
deed has application only during subsistence of partnership and it cannot take away right conferred on a
partner by section 43 of Act to have partnership dissolved.87
See notes to section 17(b).

[s 7.2] Presumption as to duration.—
The court declined to infer that the partnership was for a particular period from the fact of the purchase of
leasehold interest for particular period88 or from the fact that the partnership had charged its assets for the
payment of its debts.89
Page 4 of 4
80 See K Thiagarajah v Muthappa, AIR 1961 SC 1225 [LNIND 1961 SC 80] at 1229 para 6; Keshavlal v Bhailal, AIR
1968 Guj 157 [LNIND 1966 GUJ 45] at para 2.
81 Suresh Kumar Sanghi v Amrit Kumar Sanghi, AIR 1982 Del 131 [LNIND 1981 DEL 17] at 137 para 5 : (1983) 4 DRJ
186 [LNIND 1982 DEL 340] .
82 Keshavlal v Bhailal, AIR 1968 Guj 157 [LNIND 1966 GUJ 45] at 161 para 4.
83 Suresh Kumar Sanghi v Amrit Kumar Sanghi, AIR 1982 Del 131 [LNIND 1981 DEL 17] .
84 Talakchand v KD Shetti, AIR 1973 Cal 279 [LNIND 1972 CAL 217] .
85 Moss v Elphick, (1910) 1 KB 846 .
86 Sami Aiyangar v Srinivasa, (1909) 19 Mad LJ 77.
87 Manibhai S Patel v Swashray Construction Co, (1982) 1 GLR 312 .
88 Crawshay v Maule, (1818) 36 ER 479 : 18 RR 126.
89 King v Accumulative Assurance Co, (1857) 3 CBNS 151 : 27 LJCP 57.
End of Document
S. 8. Particular partnership.-
MullaK Kannan
A person may become a partner with another person in particular adventures or undertakings.
[s 8.1] Particular partnership.—
This section was inserted to meet cases which are probably much more frequent in India than in England.
Where persons enter into an agreement constituting a partnership limited to a joint trading adventure, and
goods are purchased, ostensibly by an individual adventurer but truly and substantially for the purpose of the
joint adventure, the adventurers are liable as partners; but there is no such responsibility for goods purchased
before the partnership agreement upon the credit of an individual adventurer, though they are afterwards
brought into stock as his contribution to the joint adventure.90 It need hardly be stated that all the requisites of a
partnership must be present before a transaction between two persons limited to a single adventure is held to
be a partnership.91 This section is intended to show that even a single adventure may constitute a “business,”
as defined under section 2(b), for the purposes of a partnership business.
[s 8.2] Where an adventure becomes illegal.—
See notes to section 41(b) proviso. Where such partnership is dissolved. See section 42(b).
[s 8.3] Partnership deed.—
As explained in foregoing comments an agreement of partnership need not be in express but can be inferred
from the course of conduct of the parties and that the relationship arises from a contract. Since a partnership is
required to pay income-tax, the partnership is required to be registered under section 26A of the Income-Tax
Page 2 of 3
Act. It is therefore usual and in practice, a contract of this kind is executed and it is called a partnership deed.
Such a deed usually contains provisions relating to points as follows:—
(i) Name of the firm.
(ii) Duration of partnership.
(iii) Nature of business.
(iv) Place where business is to be carried on.
(v) Capital brought in by each individual partner.
(vi) Property of the firm.
(vii) Proportions of profits and losses of each partner.
(viii) Rights and duties of partners.
(ix) Provisions for accounts, audit, keeping of account books.
(x) Making up annual accounts and preparing annual balance sheet and division of profits and losses and
rectifying mistakes.
(xi) Further capital to be brought in.
(xii) Rate of interest on capital.
(xiii) Drawings by partners and specially by a working partner.
(xiv) Property of any partner given for use to the firm.
(xv) Dissolution of the firm.
(xvi) Retirement of a partner.
(xvii) Settlement of accounts, division of assets, profits etc., upon dissolution.
(xviii) Arbitration clause in case of dispute.

Page 3 of 3
90 Kannali v Vora Karimji, (1915) 42 I.A. 48 : 39 Bom 261 : 17 Bom LR 103.
91 Suganmal v Mt Umraobai, AIR 1938 Ngp 550 : (1938) Nag LJ 403 .
End of Document
S. 9. General duties of partners.-
MullaK Kannan
The Indian Partnership Act, 11th ed > The Indian Partnership Act (Act IX of 1932) > Chapter III
Relations of Partners to One Another
Chapter III Relations of Partners to One Another
Partners are bound to carry on the business of the firm to the greatest common advantage, to be just and
faithful to each other, and to render true accounts and full information of all things affecting the firm to any
partner of his legal representative.
Maharashtra.—In section 9 for the words “or his legal representative” the words “his heir or legal
representative” shall be substituted.—Maharashtra Act 29 of 1984, section 3 (w.e.f. 1-1-1985).
The duties in general are:—
(1) To act to the greatest common advantage;
This duty be read along with the provisions of section 16. If a partner makes a personal profit, he has to
account for it to the firm, as making a personal profit would be acting not to the greatest common advantage.
(2) To be just and faithful to each other;
Any fraudulent act or wilful default on the part of a partner would be inconsistent with his duty stated above.
Sections 10 and 13(f) elaborate this duty. This duty demands uberrimae fidei amongst the partners.
Page 2 of 2
(3) To render true accounts;
The provisions of sections 15 and 16 elaborate the duty enunciated herein. In order to render true accounts, a
partner has to keep accounts and vouchers relating to the partnership dealings and moneys. If he fails to do so
and mixes up with his private affairs or moneys, he has to account for the same.1 A partner making secret
profits has to account for the same to the firm.
(4) Render full information;
This duty is part and parcel of the duty of being just and faithful to each other. The underlying principle is that a
partner should make a full disclosure and should not conceal. If a partner sells a partnership property to a third
party and then repurchases it for himself, concealing material facts from his partners, he has violated his duty
under this section and has to account for the profit under section 16.2 Similarly if he sells his own goods to the
firm at a higher price without disclosure of his prior purchase, he will have to account for the profits.3 In a
transaction between partners for the sale and purchase of a share in the business, if one of them is better
acquainted with the accounts than the other, it is his duty to disclose all material facts; but the party entitled to
such disclosure may elect at any stage to waive his right to further information, even if he knows that there has
been some concealment of facts which he has since discovered, and believes that other facts are still
concealed.4
1 Maung Tha Huyin v Mah Thein Myah, (1901) 28 Cal 53 (PC) : 27 IA 189.
2 Gordon v Holland, (1913) 108 LT Rep 385 (PC) : (1913) 82 LJPC 81 .
3 Kuhlirz v Lambert Bros Ltd, (1913) 108 LT Rep 565.
4 Law v Law, (1905) 1 ChD 140 .
End of Document
S. 10. Duty to indemnify for loss caused by fraud.-
MullaK Kannan
S. 10. Duty to indemnify for loss caused by fraud.-
Every partner shall indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the
firm.
[s 10.1] Fraud.—
This section is mandatory and not subject to a contract to the contrary, so that there is no doubt that a partner
cannot contract himself out of liability for fraud, as he may do in the case of wilful default.5 The innocent
partners of a firm are liable to third parties for the fraud of one of them, but under this section they are entitled
to proceed against the partner who has committed the fraud.6 For definition of “Fraud” see section 17 of the
Indian Contract Act, 1872.
5 See The Indian Partnership Act, section 13(f).
6 Thomas v Artherton, (1878) 10 ChD 185 .
End of Document
S. 11. Determination of rights and duties of partners by contract between the
partners.-
MullaK Kannan
S. 11. Determination of rights and duties of partners by contract between the

partners.-
(1) Subject to the provisions of this Act, the mutual rights and duties of the partners of a firm may be
determined by contract between the partners, and such contract may be express or may be implied by
a course of dealing.
Such contract may be varied by consent of all the partners, and such consent may be expressed
or may be implied by a course of dealing.
(2) Agreement in restraint of trade.- Notwithstanding anything contained in section 27 of the Indian
Contract Act, 1872 (9 of 1872), such contracts may provide that a partner shall not carry on any
business other than that of the firm while he is a partner.
[s 11.1] “Subject to the provisions of this.”—
These words are intended to show that a partnership contract will be subject to the provisions of this Act.
Where a provision is mandatory, the contract shall not prevail. Thus court decreed dissolution of partnership
prayed by the plaintiff on the ground of section 44(f) of the Act i.e. the partnership could only be carried on at a
loss, despite the fact that partnership agreement provided against the dissolution and for the continuance of
partnership until the construction of dock was fully completed.7 Similarly, according to the Gujarat High Court8
this statutory right to dissolution was not allowed to have been taken away by arbitration clause of partnership
Page 2 of 4
S. 11. Determination of rights and duties of partners by contract between the partners.-
deed. The clause providing for submission of disputes to arbitration does not have the effect of taking away
right conferred on a partner by section 43 of the Act to have partnership dissolved.
[s 11.2] Liberty to the parties to determine their mutual rights and obligation.—
This section incorporates the principle that except in cases where this Act makes a mandatory provision, the
parties are entitled to agree to any terms and provide for their mutual rights and obligations. The provisions of
sections 12 to 17, 20 and 42 are subject to the contract. The provisions of sections 9 and 10 are not subject to
the contract. The principles laid down in sections 11, 18 and 19 are subject to the provisions of this Act.
[s 11.3] Variations by consent.—
Partners, if they please, may, in the course of the partnership, daily come to a new arrangement for the purpose of
having some addition or alteration in the terms on which they carry on business provided those additions or alterations
be made with the unanimous concurrence of all the partners.9
This section does not interfere with a judge’s exercise of discretion under section 44 (corresponding to section
254 of the Indian Contract Act, 1872) which will not be reviewed if not shown to be capricious or to disregard
any legal principle.10 A partner’s claim to a decree for dissolution rests in its origin not on contract but on his
inherent right to invoke the court’s discretion on equitable grounds, in spite of the terms that the partnership
shall continue and shall only be dissolved on certain specific contingency which has not occurred. So where
Defendants, a firm of contractors had undertaken construction of New Alexandria Dock in island of Bombay and
they entered into a partnership with plaintiff providing that their partnership shall continue until construction of
dock was completed and partnership should then be wound-up. However, from the very beginning, their
business had a considerable loss and the plaintiff sought remedy of dissolution from the court [under section
254 (6) of the Indian Contract Act, 1872, corresponding to section 44(f) of the present partnership Act] on the
ground that business can only be carried on at a loss. The Court—despite the term regarding the continuance
of partnership while the construction of dock was not completed—granted dissolution of partnership observing
that to meet this precise predicament the court’s power to decree dissolution is conferred.
Illustrations
(1) A, B and C intending to enter into partnership, execute written articles of agreement, by which it is stipulated
that the net profits shall be equally divided. Afterwards they carry on the partnership business for many years, A
receiving one half of the net profits and the other half being divided equally between B and C. All parties know
Page 3 of 4
of and acquiesce in this arrangement. This course of dealing supersedes the provision in the articles as to the
division of profits.11
(2) A, B and C enter into an agreement of partnership. It is agreed that if any partner desires to retire, he should
sell his share to the other partners. In case of any dispute, the matter should be referred to arbitration. A
instead of carrying out the terms of the partnership agreement files a suit for dissolution. Held, that the suit did
not lie and in view of the express agreement between the parties the provisions of section 44 had no
application.12
[s 11.4] Agreement against dissolution by Court.—
It must be noted that the contract contemplated in section 11 of the Act cannot be contrary to the provisions of
this Act as section 11 makes this clear by enacting “subject to the provisions of this Act.” So it is not open to the
parties to the contract to take away by contract the right of dissolution conferred on him by section 44 of the
Act.13 The J & K High Court observed that section 44 of the Act confers an absolute and independent right on
a partner to have partnership dissolved on the grounds specified therein. Similarly, according to the Madras
High Court14 section 11 of the Act allows the contract between parties subject to the provisions of the Act and
section 44 providing for dissolution by Court being one of the provisions of the Act, the contract is undoubtedly
subject to the right under section 44. Thus the right of dissolution under section 44 is not subject to contract
between the parties. Section 11, therefore, does not overrule section 44 of the Act. The court also observed
that in the Act itself whenever a particular section is intended by the legislature to be subject to the contract
between the partners, it has expressly so stated e.g. sections 12–17 and 42 of the Act.
On the other hand, the Allahabad High Court15 viewed that section 11 of the Act has been so worded as to
make it clear that the relationship of partners should be determined by the contract between the parties unless
the same was prohibited by any provision in the Act and that provision for arbitration not being illegal or invalid
under any provision of the Act, the plaintiffs suit for dissolution cannot lie and the partnership should not be
dissolved on the happening of the contingencies mentioned in the Indian Partnership Act, 1932. While coming
to the aforesaid conclusion the Allahabad High Court distinguished the Privy Council case of Rahmatunnisa
Begum v Price,16 earlier referred to, on the ground that there the decree of dissolution of the Partnership was
the only appropriate protection available to the plaintiff, while that was not so before them as in the Allahabad
case the dissatisfied partner with the conduct of the business of the firm had other remedies besides dissolution
e.g. selling ones share or submitting dispute to arbitration.
Secondly, in the Privy Council case the partnership business had considerable loss from the beginning while
this aspect was absent, and on the contrary the working of the firm showed considerable profit. Lastly, the Privy
Page 4 of 4
Council case was decided on the wordings of section 252 of the Indian Contract Act, 1872, whose wordings
were not the same as those of section 11 of the Indian Partnership Act, 1932, with which the Allahabad High
Court was concerned.
See Gujarat High Court decision for arbitration clause and right of dissolution on page 155 note 8 supra.
7 Rehmat-un-Nissa Begam v Price, 45 IA 61 : 42 Bom 380.
8 Manibhai S Patel v Swashray Construction Co, 23 (1982) IGLR 312.
9 Per Lord Langdale, MR, England v Curling, (1844) 8 Beav 129, 133.
10 Rehmat-un-Nissa Begam v Price, (1917) 45 IA 61 , 42 Bom 380.
11 See Repealed section 252 of the Indian Contract Act, 1872.
12 Dropadi v Bankeylal, (1939) All 577 : 184 IC 511, (1939) AA 548. But this case has been dissented from in
Venkataswami v Venkataswami, AIR 1954 Mad. 9 [LNIND 1953 MAD 55] : (1953) 2 Mad LJ 396.
13 Hardutt Singh v Mukha Singh, AIR 1973 J&K 46 .
14 V Venkataswamy v G Venkataswami, AIR 1954 Mad. 9 [LNIND 1953 MAD 55] : (1953) 2 Mad LJ 396.
15 Dropadi v Bankey Lal, AIR 1939 All 548 .
16 Rahmatunnisa Begum v Price, AIR 1917 PC 116 : 42 Bom 380.
End of Document
S. 12. The conduct of the business-
MullaK Kannan
Subject to contract between the partners—
(a) every partner has a right to take part in the conduct of the business;
(b) every partner is bound to attend diligently to his duties in the conduct of the business;
(c) any difference arising as to ordinary matters connected with the business may be decided by a majority
of the partners, and every partner shall have the right to express his opinion before the matter is
decided, but no change may be made in the nature of the business without the consent of all the
partners; and
(d) every partner has a right to have access to and to inspect and copy any of the books of the firm.
Maharashtra.—In its application to the State of Maharashtra, in section 12,—
(a) in clause (c), the word “and” appearing at the end shall be deleted;
(b) in clause (d), for the words “books of the firm,” the words “books of the firm; and” shall be substituted;
(c) after clause (d), the following clause shall be added, namely:—
Page 2 of 4
(d) in the event of the death of a partner, his heirs of legal representatives or their duly authorised agents
shall have a right of access to and to inspect and copy any of the books of the firm.—Maharashtra Act
29 of 1984, section 4 (w.e.f. 1 January 1985).
[s 12.2] Clause (a): Right of partners to attend to business.—
Clause (a) provides for a partner’s right to take part in the conduct of the partnership business. This right cannot
be taken away except by a contract. It is quite common in practice to provide by express agreement that this or
that partner need not, and sometimes even that he may not, take any active part in the business, and also for
the payment of salary to a managing or acting partner. Any such salary will of course rank, in taking accounts
as between the partners, as a debt from the firm.
[s 12.3] Clause (b): Duty to attend.—
Every partner is under an obligation to attend diligently to his duties in the conduct of the partnership business
unless partnership provides that he need not attend. The word “diligently” is of great significance. A partner has
to use his knowledge and skill in the conduct of the partnership business. Refusal and neglect on the part of
any one partner to perform his duties gives to the other partner, on whom the whole conduct of the business is
thrown, a right to compensation.17
[s 12.4] Sub-section (c) Power of majority.—
The Supreme Court observed that under clause (a) every partner has a right to take part in the conduct of the
partnership business. While a partner exercises his right under clause (a), it is only if any difference arises as to
ordinary matters that the question of decision by a majority arises as otherwise clause (c) would not come into
play.18 The majority partners cannot bind other partners with regard to matters of vital importance and decision
with regard to the same must be with the consent of all the partners.19 Clause (c) is intended for effective
directions in the management and conduct of the partnership business.18 This power, though not in itself of a
judicial kind, is subject to the rule of natural justice which governs quasi-judicial powers of private persons and
bodies in general. Every partner must have an opportunity of being heard, and the decision must be made in
good faith with a view to the collective interest of the firm.20 So where a managing partner was working as such
from the beginning by the consent of all the partners but had no opportunity of being heard when the resolution
of majority removing him as such was passed, the Delhi High Court considered the action of majority as
inspired by ill will and not with a sense of responsibility for furtherance of business interest of partnership. It was
not also recorded in the minute book of the firm.21 It would appear that where a suit is filed by one partner
without the consent of the other partners, the majority of the partners may decide to discontinue the suit.22
Clause (c) is based on democratic principles.
Page 3 of 4
Not only the nature of business,23 but the place where it is carried on, may not be varied without the consent of
all the partners.
[s 12.5] Power of majority to expel partners.—
See note to section 33.

[s 12.6] Sub-section (d): Right of access to books.—
A partner may inspect the books of the firm, and make extracts therefrom. This, however, does not give him
any privilege to use those extracts for purposes hostile or injurious to the firm after he has ceased to be a
partner.24 A partner may employ an agent, who is not objectionable, to inspect the books on his behalf.25
17 Krishnamachariar v Shankara Sah, AIR 1921 PC 91 : (1920) 22 Bom LR 1343 : 57 IC 713.
18 Erin Estate v CIT Madras, AIR 1958 SC 779 [LNIND 1958 SC 56] (783) : [1959] SCR 573 : (1958) SCJ 912 : (1958) 2
Mad LJ 145.
19 Suresh Kumar Sanghi v Amrit Kumar Sanghi, AIR 1982 Del 131 [LNIND 1981 DEL 17] at 141, para 32.
18 Erin Estate v CIT Madras, AIR 1958 SC 779 [LNIND 1958 SC 56] (783) : [1959] SCR 573 : (1958) SCJ 912 : (1958) 2
Mad LJ 145.
20 Const v Harris, (1823) T&R 496, 525. See section 33 wherein this principle of good faith is stated.
21 See supra note 19.
22 House Ltd Agency v Paints and Lacquers Ltd, AIR 1954 Cal 409 [LNIND 1953 CAL 60] .
23 Attorney General v GN Rly, (1860) 1 Dr & Sm 154 : 29 LJ Ch 794.

Page 4 of 4
24 Trego v Hunt, (1896) AC 7 , 26 (HL).
25 Bevan v Webb, (1901) 2 ChD 59 .
End of Document
S. 13. Mutual rights and liabilities.-
MullaK Kannan
(a) a partner is not entitled to receive remuneration for taking part in the conduct of the business;
(b) the partners are entitled to share equally in the profits-earned, and shall contribute equally to the
losses sustained by the firm;
(c) where a partner is entitled to interest on the capital subscribed by him such interest shall be payable
only out of profits;
(d) a partner making, for the purposes of the business, any payment or advance beyond the amount of
capital he has agreed to subscribe, is entitled to interest thereon at the rate of six per cent per annum;
(e) the firm shall indemnify a partner in respect of payments made and liabilities incurred by him—
(i) in the ordinary and proper conduct of the business, and
(ii) in doing such act, in an emergency, for the purpose of protecting the firm from loss, as would be
done by a person of ordinary prudence, in his own case, under similar circumstances; and
(f) a partner shall indemnify the firm for any loss caused to it by his wilful neglect in the conduct of the
business of the firm.
[s 13.1] Sub-section (a): Remuneration.—
This sub-section does not touch the case of undue labor and trouble being imposed on one partner by
another’s wilful neglect of the business to which he ought to attend. A partner on whom the whole conduct of
Page 2 of 5
the business has been thrown in this manner is entitled to compensation,26 but any moneys obtained as salary
or remuneration are in the nature of profits accrued to him.27
Clause (a) makes an initial presumption that work done for the firm is gratuitous as every partner including a
managing partner is bound to attend diligently the business of the firm and cannot charge his other partners
with any sum like salary, commission etc. for taking trouble in conducting partnership business. But this is a
presumption which can be dispensed with by agreement between the partners as to how the extra labor is to be
remunerated.28 Moreover when as a result of wilful refusal by one of the partners to perform his obligations,
the business of partnership had been continued and the contractual obligations of the firm with regard to the
outsiders had been performed by the other co-partner without the assistance from the former partner, the Privy
Council allowed the latter partner to have proper allowance for the work done by him.29 In Airey v Borham30
two partners agreed to devote their whole time to the partnership business; but they quarreled and one of them
afterwards attended the partnership business before its dissolution. An inquiry was directed by the Court to
ascertain what allowance should be made to him for having carried on the business alone.
[s 13.2] Sub-section (b): Share in profits and losses.—
As this sub-section lays down a presumption in the case of partners as to equality of shares, the burden of
proof lies on the party who sets up a contract to the contrary.31 The contract to the contrary may even be that
one of the partners is to have only a fixed salary.32 The contract might provide that the profit or loss of two
partners is joint.33 As regards the question of losses in business, it is perfectly open to partner A to say that as
between himself and his partner B, the partner A shall bear all the losses of the business. This, of course,
applies only as between themselves, for whatever their agreement may be, they would both be liable to third
parties.34
According to the Supreme Court35 two presumptions are clubbed by section 13(1)(b) of the Act. First, if no
specific contract is proved, the shares of partners must be presumed to be equal. So where there is unequal
shares, the first presumption has no application. The second presumption is that where partners are to
participate in profits in certain shares, they should also participate in losses in similar shares. Hence if profits
are shared in unequal shares, that applies equally to losses; according to the Supreme Court.
[s 13.3] Sub-sections (c), (d): Interest on capital and advances.—
Where a partner is entitled to interest on the capital, he will be paid interest only if there are profits. If, however,
he advances moneys to the firm, he will be entitled to interest at 6% from the firm whether there are profits or
not,36 but he is not entitled to interest after the date of dissolution.37
[s 13.4] Sub-section (e): Partner’s right to indemnity and contribution.—
Page 3 of 5
In addition to the ordinary claim of an agent to be indemnified, a partner may be entitled to reimbursement for
what may be called emergency or salvage expenses incurred by him personally on behalf of the firm in
circumstances of extraordinary requirement.38 Money payments to satisfy debts of the firm are the commonest
examples under this head. There may also be urgent and necessary payments required for keeping the
business of the firm in existence as a going concern; thus in a mining business it may be necessary to sink a
new shaft promptly to get at unexhausted minerals. There is no rule whereby the measure of the amount, which
can be allowed as proper, is limited to the nominal capital of the concern.39
The question whether a given act can or cannot be said to be done in carrying on a business in the way in which it is
usually carried on must evidently be determined by the nature of the business and by the practice of persons engaged
in it. Evidence on both of these points is therefore necessarily admissible.40
[s 13.5] Sub-section (f): Wilful neglect and fraud.—
In the case of wilful neglect, partners may contract with each other that they will not be liable to the firm for any
loss caused to it by their neglect in the conduct of the business of the firm. The case of fraud, however, stands
on a different footing. A partner cannot contract himself out of his liability to the firm for any loss caused to it by
his fraud. See notes to section 10.
The words “wilful neglect” would mean an act done deliberately and intentionally in contradistinction to an act
done in inadvertence or by a mistake or by accident.41
The firm is liable to third persons for the wilful neglect or fraud of one of the partners, but under this section, the
innocent partners are entitled to compensation from their partner for the loss caused to them by his wilful
neglect.42
According to the Allahabad High Court43 the legal position was that in view of section 13 of the Act either the
firm shall indemnify partner for payments made by liabilities incurred by him or alternatively a partner shall
indemnify a firm for any loss caused to it by his wilful neglect in the conduct of business of firm. But the section
does not contemplate suit by a partner for damages against another partner. The liability of a partner is to a firm
and not to one particular partner.
Page 4 of 5
26 Krishnamachariar v Sankara Sah, (1920) 22 Bom LR 1343 : 57 IC 713 : AIR 1921 PC 91 .
27 S Magnus v CIT, AIR 1958; Bom 467 : (1958) 60 BOM LR 41 .
28 VD Dhanawatey v CIT, MP, AIR 1968 SC 683 [LNIND 1967 SC 307] : [1968] 2 SCR 62 [LNIND 1967 SC 307] ; Shelat
Bros v Nanalal H Shelat, AIR 1973 Mad. 78 [LNIND 1972 MAD 128] : (1972) 85 LW 716 .
29 See supra note 26.
30 Airey v Borham, (1861) 29 Beav 620 : 54 ER 768.
31 Jadobram v Bulloram, (1899) ILR 26 Cal 281.
32 Raghunandan Nanu v Hormasjee Bezonjee, (1927) 51 Bom 342 : 29 Bom LR 207 : 100 IC 1025 : AIR 1927 Bom 187 .
33 Hukumchand Sarupchand v Hansraj Harji, (1938) 2 Mad LJ 966 (PC).
34 Raghunandan Nanu v Hormasjee Bezonjee, (1927) 51 Bom 342, 348, supra.
35 M Govindu & Co v CIT AP, AIR 1975 SC 2284 [LNIND 1975 SC 385] : (1976) 1 SCC 248 [LNIND 1975 SC 385] .
36 See Somasundaram v Sevugan Chettiar, AIR 1940 Mad. 505 [LNIND 1938 MAD 435] : (1940) 190 IC 748 ; Motilal v
Sarupchand, (1936) AIR 1937 Bom 81 : 38 Bom LR 1058 : 167 IC 208.
37 Chandra v Madhaviah, AIR 1961 Mad. 478 [LNIND 1960 MAD 181] : (1961) 2 Mad LJ 67 : 1961–74 LW 256.
Page 5 of 5
38 See the Indian Partnership Act, section 21.
39 Mining Co’s Case, (1853) 4 DM&G 19, 42.
40 Lindley on Partnership, 9th Edn, p 180.
41 Tamboli v GIP Rly, 52 Bom 169 (PC); Govind v Rangnath, 32 Bom LR 232 (250) : 54 Bom 226 : AIR 1930 Bom 572 .
42 Thomas v Atherton, (1878) 10 ChD 185 (CA).
43 Gurdayal Prasad v Raghunath Prasad, AIR 1976 All 141 at 146, para 18.
End of Document
S. 14. The property of the firm.-
MullaK Kannan
Subject to contract between the partners, the property of the firm includes all property and rights and interests
in property originally brought into the stock of the firm or acquired, by purchase or otherwise, by or for the firm,
or for the purposes and in the course of the business of the firm, and includes also the goodwill of the business.
Unless the contrary intention appears, property and rights and interests in property acquired with money
belonging to the firm are deemed to have been acquired for the firm.
[s 14.1] Partner’s nature of Share in partnership property.—
All joint property of partners is not partnership property. Only property answering the description in section 14 is
partnership property. Principles of co-ownership cannot apply to partnership property e.g. Co-owner can,
without the consent of others, transfer his interest to a stranger. A partner cannot do this. One co-owner is not
the agent of the other. A partner is.44 As firm has no legal existence or legal personality, partnership property
will vest in all partners and in that sense every partner has an interest in the partnership property. But during
the subsistence of partnership, no partner can deal with any portion of the property as his own. Nor can he
assign his interest in a specific item of partnership property to any one. His right is to obtain such profits as fall
on his share and on dissolution of firm to a share in the assets of firm which remains after satisfying liabilities
set out in section 48(a)(b) of the Act. The whole concept of partnership is to embark upon a joint venture and for
that purpose to bring in as capital money or property. Once that is done, whatever is brought in would cease to
be the exclusive property of the person who brought it in. It would be trading assets of partnership in which all
partners would have interest in proportion to their share in joint venture of business of partnership.45 During
partnership the partners cannot take away their property that they may have put into the stock of partnership.
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The individual owner becomes a joint owner with other partners.46 No partner has any beneficial interest in any
particular estate or property until partnership is wound up and accounts taken.47
[s 14.2] Partnership property.—
Property belonging to the partners or to one of them, does not become partnership property merely by being
used for the purposes of the business.48 In Davis v Davis,49 a testator devised his residuary estate comprising
his business, the premises on which the business was carried on and some adjoining premises, to his two sons
as tenants in common. The sons continued the business for three years without any express agreement. They
borrowed the money on mortgage of adjoining premises as well as on their business premises and used the
money in the business, especially in the purchase of new plant and machinery. It was held that the sons were
partners in the business but that the premises on which the business was carried on and the adjoining premises
belonged to them as co-owners. Co-owners may be partners in respect of a business carried on or upon the
property without being partners in respect of the property itself. As the Patna High Court50 observed that
persons may be mere co-owners of the property and may yet be partners in the profits made from its use. Two
brothers may have been devised coal mine by will of the father. The sons may work the mine in partnership as
a colliery business but does not make the mine part of the partnership property. Similarly, where two persons
horsed a coach and shared profits derived from running; it was held that two persons were partners in profits
but not in the horses by which the work was done.51 Mere use of property by a firm does not make the property
as belonging to partnership.
In relation to the question of property of the partnership firm, the Supreme Court examined in Mohd Laiquiddin v
Kamala Devi Misra52 section 14 of the Indian Partnership Act, 1932, the legal position and the terms of the
contract between the parties. Section 14 defines what a property of the firm is. It is subject to the contract
between the parties. According to this section, the property of the firm includes all properties and rights and
interests in property originally brought into the stock of the firm or acquired by purchase or otherwise by or for
the firm or for the purposes and in the course of the business of the firm and includes also the goodwill of the
business. The general rule laid down in the section “subject to contract between the parties” makes it clear that
the partners may agree between themselves to change the general rule and such an agreement may be
expressed or implied.
By virtue of section 14 of the Act, even immovable property can be thrown into partnership stock without any
formal document and registration for transferring the property to partnership is not necessary.53 What is
required is that there must be evidence that such property was brought into stock of firm and the evidence of
mere user of property by the firm for its business does not make it a partnership property.54
[s 14.3] Individual right in property could be merged into partnership asset by conduct.—
In Shreedhar Govind Kamerkar v Yesahwant Govind Kamerkar,55 the appellant claimed full ownership in
tenanted premises and in business on ground of being sole assignor of property. Parties herein are brothers.
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The dispute between them is tenancy right in respect of a premises known as “Navalkar Building” situate at NC
Kelkar Road, Dadar in the town of Mumbai. The appellant allegedly acquired the said tenancy right in terms of a
deed of assignment entered into by and between him and one Saraswati Balkrishna Pawar and three others.
He was said to have obtained possession of the said premises on 23 March 1978, whereafter he started a
business under the name and style of “Shree Medico”. He along with his three brothers, entered into a
partnership on 1 April 1971. The same was dissolved on 31 March 1977, inter alia, on the premise that the
appellant had been claiming full ownership in relation to the said tenanted premises as also the business in
Shree Medico.
In the absence of any instrument of partnership, the Court was left to gather proof of what formed the assets of
the partnership from only the admission of parties and other documents filed. The appellant admitted that the
royalty received from the said tenanted premises was being deposited in the partnership account. This was
held to be a clear pointer to show that the same was the property of the partnership. The fact that the usufruct
of his lease hold was to be deposited in the partnership account was itself proof that the tenancy formed the
part of the assets of the partnership.
Where a tenant of the premise subsequently entered into a partnership with certain partners and has thrown
into partnership his tenancy right which he had. It was held by the Division Bench of the Gujarat High Court that
it amalgamated partnership asset and amounted to sub-letting under the Bombay Rents Control Act, 1947, and
exposed the original tenant of the premise to eviction at the suit of his landlord.56
Illustrations
(1) A and B are partners. A, without the authority of B, buys railway shares in his own name with the money and
on account of the firm. The shares are partnership property.57
(2) A and B are partners. A buys land with partnership moneys, for his sole benefit. Thereafter A debits himself
in the firm books and becomes a debtor to the firm for the amount of the purchase money. The land is not
partnership property, because there was clearly a contrary intention.58
(3) A and B are partners. A buys land in his own name out of the profits of the partnership business. The land is
partnership property, because there are no facts showing a contrary intention.59
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(4) A, B and C are partners. The partners buy a property in the name of a fictitious person with the moneys of
the partnership. The legal and equitable interest in the property passes to all the three partners.60
(5) A and B, partners, effect assurance on their lives for and on account of partnership and the premiums in
respect of the assurance policies are paid out of the funds of the partnership. The policies form part of the
partnership assets.61
(6) A, B and C carry on business as members of a joint Hindu family. After a partition had been effected
between them they continued to carry on the business as partners and stipulated that their shares in the
immovable properties were not to be varied, but their shares in the business were varied. This raises a strong
presumption that the partners did not regard the immovable properties as part of the assets of the partnership
business.62
It is competent to partners by an agreement between themselves to convert partnership property into the
separate property of an individual partner and vice versa.63 The word “includes” shows that the meaning given
is not exhaustive.64 A debt due to a firm at the date of dissolution is a property of the dissolved firm.
[s 14.4] Partnership arrangement does not annihilate individual property rights of a partner.—
A partnership firm is an association of persons. But in spite of that unity between themselves, every partner can
have his own separate existence from the firm. Holding that any right which a partner has over any property,
other than the partnership property, would remain as his individual asset, the Supreme Court ruled in Shashi
Kapila v RP Ashwin65 that the mere fact that the particular person has chosen to include himself as a partner
of a firm will not result in incorporation of all his individual properties as the assets of the partnership. Referring
to the section, the Court said in the instant case, it was an admitted fact that appellant was a tenant of the
building even earlier than the formation of the firm Shiva and Co. In such a situation the tenancy right of the
appellant in respect of the building is a separate right available to the appellant individually over which the
partnership has no claim. Appellant never contended that he had offered the suit property as an asset of the
partnership firm. Nor did the firm at any time claim that appellant threw the tenancy right over the building into
the hotchpot of the partnership at any time.
In Ashok Transport Agency v Awadhesh Kumar,66 the same proposition was illustrated in another situation of
how survival rights of a proprietary concern and partnership take place in the continuation of civil proceedings.
A partnership firm differs from a proprietary concern owned by an individual. A partnership is governed by the
provisions of the Indian Partnership Act, 1932. Though a partnership is not a juristic person, O XXX rule 1 CPC
enables the partners of a partnership firm to sue or to be sued in the name of the firm. A proprietary concern is
only the business name in which the proprietor of the business carries on the business. A suit by or against a
Page 5 of 7
proprietary concern is by or against the proprietor of the business. In the event of the death of the proprietor of
a proprietary concern, it is the legal representatives of the proprietor who alone can sue or be sued in respect of
the dealings of the proprietary business. The provisions of rule 10 of O XXX which make applicable the
provisions of O XXX to a proprietary concern enable the proprietor of a proprietary business to be sued in the
business names of his proprietary concern. The real party who is being sued is the proprietor of the said
business. The said provision does not have the effect of converting the proprietary business into a partnership
firm.
[s 14.5] Goodwill.—
Goodwill of business is inclusive of positive advantages such as carrying on commercial undertaking at a

particular place and in a particular name and also its business connection, its business prestige and several
intangible advantages which business may acquire.67 Goodwill of business is an asset like any other asset and
representatives of deceased partner are entitled to share in it. If action be taken in time, the surviving partners
can be restrained by injunction from appropriating goodwill.68 “Goodwill” is properly a commercial term,
signifying the value of the business in the hands of a successor, so far as increased by the continuity of
undertaking being preserved in the shape of the right to use the old name and otherwise. It is something more
than the mere chance or probability of old customers maintaining their connection, though this is a material part
of the practical fruits; it may be summed up as “the whole advantage of the reputation and connection of the
firm which may have been built up by years of honest work or by lavish expenditure.”69 See sections 35 and
55.
In a Supreme Court case70 an appellant, one of the partners, on dissolution of the firm, purchased the goodwill
of the firm, carried on hosiery business in the name of the same firm and obtained quota of Woollen yarn after
the dissolution of the firm in the firm’s name for the Textile Commissioner on the basis of the firm’s consumption
figures before its dissolution. The question for determination was whether the quota allotted to Appellant, after
dissolution of business and all accounts settled between the partners is the partnership property or not. The
Supreme Court held that the fact that quota was granted in the firm’s name does not convert the quota into
partnership asset as the business name did belong to Appellant. The Appellant, after dissolution, carried on
business in the same name of the firm and he was entitled to apply for quota in that business name and so
quota granted in that business name is his separate property. It is not the asset of the firm and it is not also an
after acquired asset of partnership.
[s 14.6] Valuation of goodwill.—
See note “Valuation of goodwill” under section 55.

[s 14.7] Trade Mark.—
It could form part of the firm’s property.71

Page 6 of 7
44 Vraj Kuwar Bai v Kunjbiharilal, AIR 1971 MP 109 [LNIND 1970 MP 87] : 1971 MPLJ 144 .
45 A Narayanappa v Bhaskar, AIR 1966 SC 1300 [LNIND 1966 SC 27] : [1966] 3 SCR 400 [LNIND 1966 SC 27] .
46 Sudhansukanta v Mahindra Nath, A, 1965 Pat 144.
47 Re Adarji Dalal, AIR 1931 Bom 428 : (1931) 33 Bom LR 576 .
48 Davis v Davis, (1894) 1 ChD 393 ; Lachhman Das v Gulab Devi, AIR 1936 All 270 : 162 IC 143.
49 Davis v Davis, (1894) 1 ChD 393 .
50 Sudhansukanta v Mahindra Nath, AIR 1965 Pat. 144 , para 7.
51 Fromont v Coupland, 2 Bing 170.
52 Mohd Laiquiddin v Kamala Devi Misra, (2010) 2 SCC 407 : [2010] 1 SCR 873 : (2010) 2 Mad LJ 820 (SC).
53 Chief Controlling Revenue Authority v Chidambaram, AIR 1970 Mad. 5 ; Prem Raj Brahman v Bhani Ram Brahmin,
(1946) 1 Cal 191 ; Sudhan Sukanta, AIR 1965 Pat. 144 ; Ram Sahay Mall Rameshwar Daya v Bishwanath Prasad, AIR
1963 Pat. 221 .
54 Sudhan Kanta v Manindra Nath, AIR 1965 Pat. 144 .
55 Shreedhar Govind Kamerkar v Yesahwant Govind Kamerkar, [2006] Supp SCR 751 : 2007 (1) UJ 54 (SC).
56 Shah Chatrabhuj Narsi v Nansibhai, (1980) 21 GLR 377 .
57 Ex parte Hinds, (1849) 3 De G and Sm 613.
58 Smith v Smith, (1800) 5 Ves 189.
59 Nerot v Burnard, (1827) 4 Russ 247; Sudarsanam v Narsimhulu, (1902) 25 Mad 149, 165, 166.
Page 7 of 7
60 Wray v Wray, (1905) 2 ChD 349 .
61 Re Adarji Mancherji Dalal, (1931) 55 Bom 795 : 133 IC 845 AIR 1931 Bom 428 .
62 Lachman Das v Gulab Devi, (1936) 162 IC 143 : (1936) AA 270.
63 Bolton v Puller, (1796) 1 Bos&P 539. Lindley on Partnership, 9th Edn, pp 422–426; Buban Mohan v Surendra Mohan,
AIR 1951 Cal 69 [LNIND 1951 CAL 56] (FB) : (1952) ILC 2 Cal 23.
64 Appaya v Subrao, (1937) 39 Bom LR 1214 : AIR 1938 Bom 108 .
65 Shashi Kapila v RP Ashwin, AIR 2002 SC 101 [LNIND 2001 SC 2564] : (2002) 1 SCC 583 [LNIND 2001 SC 2564] .
66 Ashok Transport Agency v Awadhesh Kumar, AIR 1999 SC 1484 : (1998) 5 SCC 567 .
67 New Gujarat Cotton Mills Ltd v Labour Appellate Tribunal, AIR 1957 Bom 111 [LNIND 1956 BOM 161] : (1957) 27
Comp Cas 500 (Bom).
68 Mohammad Abdul Sathar Baig v Hafija Bibi, AIR 1944 Mad. 346 [LNIND 1943 MAD 206] : (1944) Mad 729.
69 Trego v Hunt, (1896) AC 7 , 24; Churton v Douglas, (1858) Johns 174. [Apart from the right to use the name of the firm,
goodwill involves a right to represent that you are carrying on the business of the firm, to solicit the customers of the old
firm, to have the books of the firm, and to prevent anybody else from saying that he is carrying on the business. Hill v
Fearis, (1905) 1 ChD 466 , in argunendo.] New Gujarat Cotton Mills Ltd v Labour Appellate Tribunal, (1957) A Bom 111
: (1957) 59 Bom 209.
70 Shadi Lal v Nagin Chand, AIR 1973 SC 776 [LNIND 1972 SC 483] : (1973) 1 SCC 185 [LNIND 1972 SC 483] .
71 Balaji Chettiar v Hindustan Lever Bros Ltd, AIR 1967 Mad. 148 [LNIND 1965 MAD 74] (151) : ILR 1967 (1) Mad 753 .
End of Document
S. 15. Application of the property of the firm.-
MullaK Kannan
S. 15. Application of the property of the firm.-
Subject to contract between the partners, the property of the firm shall be held and used by the partners
exclusively for the purposes of the business.
[s 15.1] Use of partnership property.—
The rule laid down in this section is subject to the contract between the parties. The words “shall be held and
used exclusively for the purposes of the business” indicate that the partnership property must be used
exclusively for the partnership business. The word “exclusively” would indicate that such property is not to be
used for a purpose other than that of partnership business. So a mortgage of partnership property by a partner
for his own benefit is invalid.72
If a partner uses the property of the firm for his own purposes, he will be liable to account to the firm for the
profits, if any, that he may make. A contract of partnership is uberrimae fidei.
72 Vraj Kuwar Bai v Kunjbiharilal, AIR 1971 MP 109 [LNIND 1970 MP 87] : (1971) MPLJ 44 .
End of Document
S. 16. Personal profits earned by partners.-
MullaK Kannan
Subject to contract between the partners,—
(a) if a partner derives any profit for himself from any transaction of the firm, or from the use of the
property or business connection of the firm or the firm name, he shall account for that profit and pay it
to the firm;
(b) if a partner carries any business of the same nature as and competing with that of the firm, he shall
account for and pay to the firm all profits made by him in that business.
[s 16.1] Personal profits.—
The rules laid down in this section flow as consequence of the main and dominant principle viz. a partner is an
agent of the other partners, underlying the Indian Partnership Act, 1932. The said rules also flow from the
duties stated in section 9. The rule (a) is applicable even after dissolution and the Privy Council73 in one case
directed the partner to account for the assets together with interest thereon. Where a partner had retained the
assets of a firm in his hands without any settlement of accounts and he had applied the assets in continuing the
business for his own benefit. The section may be illustrated by the following illustrations:—
(l) A, B and C are partners in trade. C, without the knowledge of A and B, obtains for his own sole benefit a
lease of the house in which the partnership business is carried on. A and B are entitled to participate, if they
please, in the benefit of the lease.74
Page 2 of 3
(2) A, B and C carry on business together in partnership as merchants trading between Bombay and London.
D, a merchant in London to whom they make their consignments, secretly allows C a share of commission
which he receives upon such consignments in consideration of C using his influence to obtain the
consignments from him. C is liable to account to the firm for the money so received by him.
[s 16.2] Competing business.—
One or more persons may, with the knowledge and consent of all parties, be members of two distinct firms
carrying on as similar, if not a directly competing business, as where the two undertakings are a morning and
an evening newspaper. In such a case members of a firm A who also belong to firm B are not entitled, though a
majority in A, to user’s special information for the purposes of B.75 The rule enunciated in clause (b) will not
apply if the business carried on by a partner is not of the same nature or competing with that of the partnership
business nor injurious in anyway to the partnership business nor if it is totally independent business not within
the scope of the partnership business.76 In Aas v Benham,76 defendant, a partner of a firm of Ship Brokers,
assisted in the formation of a limited company for the purpose of building ships and in so doing availed himself
of information as a member of firm and occasionally used the name and office papers of the firm in his
correspondence on that subject and he received remuneration for his services in the formation of a company for
shipbuilding. The plaintiffs, the other two partners of the firm of shipbrokers, claimed an account from the
defendant for his profits and salary in connection with the new company. But it was held that as the business of
the new company was beyond the scope of and did not compete with the partnership business the plaintiffs
claim failed. Lindley LJ in the Court of Appeal observed that the defendant was never in fact acting for his firm
nor did his other partners (plaintiffs) ever suppose that the defendant was so acting, nor did the defendant
derive any benefit from his connection with the firm.
Regarding the information used by the defendant for his benefit, the court observed that it was not the source of
information but the use to which it is applied is important. To hold that a partner can never derive any personal
benefit from information which he obtains as a partner would be manifestly absurd. Developing the point the
court mentioned that in the course of carrying on his business, a partner is well acquainted with a particular
branch of science or trade and he publishes a book on it, the profits thereby obtained could not be claimed by
the firm. Thus, according to this decision, a partner may make personal profit from information obtained in the
course of partnership business where he does so in another activity which is outside the scope of partnership
business. Here, partnership business was of ship broker (ship broking) and defendant had made profit in the
business which had no connection with that of partnership.
Similarly, in India also it was held77 that knowledge and information derived by a partner from partnership was
not regarded as partnership property.
Page 3 of 3
73 Ahmad Musaji v Hashim Ebrahim, 42 IA 91 : 17 Bom LR 432.
74 Featherstonhaugh v Fenwick, (1810) 17 Ves. 298 : 34 E.R. 115.
75 Glassington v Thwaites, (1823) 1 S&St 124.
76 Trimble v Goldberg, (1906) AC 494 ; Aas v Benham, (1891) 2 ChD 244 .
77 Rattanlal v Jai Janinder Prasad, AIR 1976 P&H. 200 .
End of Document
S. 17. Rights and duties of partners.-
MullaK Kannan
(a) after a change in the firm.- where a change occurs in the constitution of a firm, the mutual rights and
duties of the partners in the reconstituted firm remain the same as they were immediately before the
change, as far as may be;
(b) after the expiry of the term of the firm; and.- where a firm constituted for a fixed term continues to carry
on business after the expiry of that term, the mutual rights and duties of the partners remain the same
as they were before the expiry, so far as they may be consistent with the incidents of partnership at
will; and
(c) where additional undertakings are carried out.- where a firm constituted to carry out one or more
adventures or undertakings carries out other adventures or undertakings, the mutual rights and duties
of the partners in respect of the other adventures or undertakings are the same as those in respect of
the original adventures or undertakings.
This section gives general rules for the determination of the rights and duties of the partners after the
happening of events which would otherwise leave these rights and duties undetermined. Sub-section (a) covers
cases where there has been a change in the firm. Sub-section (b) provides for the case where the original term
fixed has expired; and sub-section (c) provides for the case where a firm formed for particular undertakings
proceeds to carry out other undertakings.
[s 17.1] Sub-section (a): Change in the firm.—
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This sub-section would cover the case of a new partner introduced into the firm. This sub-section was applied
to a case in which A and B were partners with ten annas and six annas share respectively. On the death of A
his son stepped into his shoes and without any express agreement carried on the business with B. A’s son was
held entitled to ten annas share.78 A new partner, however, may not be bound by a special term of which he
had no notice.79 If a partner dies after the passing of decree and the business was being carried on, since the
rights and duties shall be construed to remain the same, the amount due under the decree, if paid to the firm,
the death of the partner would not require any further enquiry for determination of how the amount must be
distributed.80
If two partners retire from partnership which was carrying on dealership in setting up a petrol outlet, the rights of
remaining partners to carry on business and enforce their rights against the principal cannot be defeated for the
only reason that the contractual term of consent from the retiring partners had not been given to the principal. A
retirement deed for consideration executed by the retiring partners shall be treated as such consent.81
[s 17.2] Sub-section (b): Extension of partnership.—
The continuance of business without liquidating the partnership affairs is presumed to be a continuance of the
partnership. Where the partnership is continued after the expiry of the period fixed by the partnership
agreement, such terms of the partnership agreement as are consistent with a partnership at will remain
applicable, but such terms as are inconsistent with a partnership at will cease to be applicable.
The following provisions have been held to be consistent with the incidents of a partnership at will—
(1) option for a surviving partner to purchase a deceased partner’s share at a fixed valuation;82
(2) articles of partnership for a fixed year having an arbitration clause and the partnership is continued beyond
that fixed year. It was held that the arbitration clause is still binding;83 and
(3) a power to nominate a successor.84
On the other hand, a power to expel contained in articles of a partnership for seven years is not exercisable
Page 3 of 3
after that term has expired although the partnership may have been continued on the old footing. Such of the
articles as are inconsistent with a partnership at will have no application.85
[s 17.3] Sub-section (c): Additional undertakings.—
This sub-section contemplates a case in which the partners are the same, but there are further or other
underta`kings for which the partnership was originally formed.
78 Dawood Sahib v Sheikh Mohideen, AIR 1934 Mad. 5 : (1937) 2 Mad LJ 760 : 175 IC 766 : 1937–46 LW 520 .
79 Austen v Boys, (1857) 24 Beav 598, 606.
80 Niranjan Sarkar v South Eastern Coal Fields Ltd, 2017 (1) CG LJ 260.
81 Bharat Petroleum Corp Ltd v BM Motors, AIR 2015 SC 251 [LNINDU 2014 SC 22] : 2014 (5) Scale 143 [LNINDU 2014
SC 22] : (2014) 16 SCC 749 [LNINDU 2014 SC 22] : 2014 (10) SCJ 580 [LNINDU 2014 SC 22] .
82 Cox v Willoughly, (1880) 1 ChD 863 .
83 Gillet v Thornton, (1875) 19 Eq 599 .
84 Cuffe v Murtagh, (1881) 7 LR Ir 411.
85 Clark v Leach, 32 Beav 14 : 55 ER 6.
End of Document
S. 18. Partner to be agent of the firm.-
MullaK Kannan
The Indian Partnership Act, 11th ed > The Indian Partnership Act (Act IX of 1932) > Chapter IV
Relations of Partners to Third Parties
Chapter IV Relations of Partners to Third Parties
Subject to the provisions of this Act, a partner is the agent of the firm for the purposes of the business of the
firm.
[s 18.1] Partner is agent—
In the leading case of Cox v Hickman,1 Lord Wensleydale laid down the law as follows:
A man who allows another to carry on trade, whether in his own name or not, to buy and sell, and to pay over all the
profits to him, is undoubtedly the principal, and the person so employed is the agent, and the principal is liable for the
agent’s contracts in the course of his employment. So if two or more agree that they should carry on a trade, and share
the profits of it, each is a principal, and each is an agent for the other, and each is bound by the other’s contract in
carrying on the trade, as much as a single principal would be by the act of an agent, who was to give the whole of the
profits to his employer.
In other words, a partner transacts business for himself as principal, and also as an agent for the other partners
even though the other partner is a sleeping partner.2 One of the tests of partnership is whether there was a
binding contract of mutual agency between the partners.3 See note “Carried on by all or any of the persons
concerned, acting for all,” under section 4.
Page 2 of 2
The converse does not follow. There is no general presumption that the firm is the agent of the partners.
Payment to the firm is no discharge of a separate debt to one partner, unless it is proved that the firm had
authority to receive payment for him.4
The principle of agency does not carry with it a right to a reasonable remuneration for the work done. The
reason is that a partner has a dual capacity of principal and agent.
1 Cox v Hickman, (1860) 8 HLC 268, 312.
2 Wallace Bros v CIT, (1948) 50 Bom LR 482 .
3 Janki Nath v Dholkar Mal, AIR 1935 Pat. 376 : 156 IC 200.
4 Powell v Broadhurst, (1901) 2 Ch 160 .
End of Document
S. 19. Implied authority of partner as agent of the firm.-
MullaK Kannan
(1) Subject to the provisions of section 22, the act of a partner which is done to carry on, in the usual way,
business of the kind carried on by the firm, binds the firm.
The authority of a partner to bind the firm conferred by this section is called his “implied authority.”
(2) In the absence of any usage or custom of trade to the contrary, the implied authority of a partner does
not empower him to—
(a) submit a dispute relating to the business of the firm to arbitration,
(b) open a banking account on behalf of the firm in his own name,
(c) compromise or relinquish any claim or portion of a claim by the firm,
(d) withdraw a suit or proceeding filed on behalf of the firm,
(e) admit any liability in a suit or proceeding against the firm,
(f) acquire immovable property on behalf of the firm,
(g) transfer immovable property belonging to the firm, or
(h) enter into partnership on behalf of the firm.

[s 19.1] “Implied authority.”—
“Every partner is in contemplation of law the general and accredited agent of the partnership, or as it is
Page 2 of 9
sometimes expressed, each partner is praepositus negotiis societatis, and may consequently bind all the other
partners by his acts in all matters which are within the scope and objects of the partnership.”5 The implication of
sub-section (1) is that the most intelligent and prudent partner may be liable for the acts of an imprudent or a
reckless partner provided they are done in usual course of business. His want of knowledge or disapproval of
such acts serve no purpose. If the act is “outside the usual course of the business of the firm” it will not bind the
firm, even if it is prudent or has benefited the firm, unless it is ratified and approved by all the partners. Power to
do the usual does not include power to do the unusual. Whether a particular act is done in the usual way of the
business of the kind carried on by the firm is a question to be determined by the nature or kind of the business
carried on by the firm. For this purpose, the firms are divided into two categories: trading firms and non-trading
firms. A trading firm is one whose business depends upon buying and selling goods. But a firm of solicitors,6
engineering contractors,7 cinematographic theatre proprietors8 are instances of non-trading partnership and
members of such a firm have no implied authority to borrow money on the credit of the firm for partnership
purposes. An auctioneer9 does not buy and it is non-trading. As Lush, J10 said that a firm is not a trading firm
merely because its business involves spending of money. Trading firm is one which depends on the buying and
selling of goods. But a partner of a trading firm has implied authority to borrow money for purposes of
partnership on the credit of the firm and in so borrowing he may bind the other partners although he may
wrongfully apply it to other than partnership purposes.11 According to the Bombay High Court12 no duty is cast
on the person advancing the money to make any inquiry and other partners of the trading firm are liable even if
borrowed money is misappropriated by the borrowing partner. Hence:
if the partnership be of a general commercial or trading nature, he may pledge or sell the partnership property; he may
buy goods on account of the partnership; he may borrow money, contract debts, and pay debts on account of the
partnership; he may draw, make, sign, endorse, accept, transfer, negotiate, and procure to be discounted promissory
notes, bills of exchange, cheques and other negotiable paper in the name and on account of the partnership. Each
partner is the agent only for the business of the firm and his acts beyond that business will not bind the firm. Neither
will his acts done in violation of his duty to firm, bind it when the other party to transaction is cognisant of or co-
operates in such breach.13
Illustrations
(a) A and B trade in partnership, A residing in England, and B in India. A draws a bill of exchange in the name
of the firm. B has no notice of the bill, nor is he at all interested in the transaction. The firm is liable on the bill,
provided the holder did not know of the circumstances under which the bill was drawn.
Page 3 of 9
(b) A being one of a firm of solicitors and attorneys, draws a bill of exchange in the name of the firm without
authority. The other partners are not liable on the bill, for it is no part of the ordinary business of a solicitor to
draw, accept, or endorse bills of exchange.
(c) A and B carry on business in partnership as bankers. A sum of money is received by A on behalf of the firm.
A does not inform B of such receipt, and afterwards A appropriates the money to his own use. The partnership
is liable to make good the money.
(d) A and B are partners. A with the intention of cheating B goes to a shop and purchases articles on behalf of
the firm, such as might be used in the ordinary course of the partnership business, and converts them to his
own separate use, there being no collusion between him and the seller. The firm is liable for the price of the
goods.
[s 19.2] What partners may generally do.—
In order to bind a firm, an act or instrument done or executed by a partner or other person on behalf of the firm
shall be done or executed in the firm name, or in any other manner expressing or implying an intention to bind
the firm.14 In an ordinary partnership, every partner may bind the firm by any of the following acts15:—
(1) He may sell any goods or personal chattels of the firm.
(2) He may purchase on account of the firm any goods of a kind necessary for or usually employed in the
business carried on by it.
(3) He may receive payment of debts due to the firm, and give receipts. A release by one partner binds the
firm.
(4) He may engage servants for the partnership business.
In the case of partnerships of a general, commercial or trading nature, a partner

Page 4 of 9
(1) may accept, make, and issue bills16 and other negotiable instruments in the name of the firm. In
trading firms every partner has implied power to bind the firm if there is no agreement to the contrary.
However, a non-trading firm is not bound unless the issue of negotiable instruments by one partner is
shown to be necessary or usual in the particular business. In the case of non-trading firm, the implied
authority to bind his co-partners depends on the nature of the business of the partnership.17
When a negotiable instrument is regularly drawn by a partner in a trading firm in a transaction

incident to the firm’s business, another partner is not the less liable because his name does not
appear on the face of the instrument.18
In order to take a case out of this general law, it must be shown that the holder of a bill knew that,
at the time he received it, that the transaction was the private affair of a single person;19
(2) may borrow money on the credit of the firm;
(3) may for that purpose pledge any goods or personal chattels belonging to the firm; and
(4) may for the like purpose make an equitable mortgage by deposit of title deeds belonging to the firm;
(5) may acknowledge a debt and it binds the firm. Section 19(2) of the Indian Partnership Act, 1932 laying
down the exceptions to the implied authority of a partner does not lay down that the partner cannot
acknowledge the subsisting debt of a firm in favour of its creditors. On the contrary it is provided that a
partner cannot compromise or relinquish a claim nor can admit any liability in a suit or proceeding
against a firm. Acknowledgement of liability of a firm in respect of a subsisting debt made by a partner
before the suit was filed does not amount to compromising or relinquishing a claim or portion thereof
nor does it amount to admission of any liability in a suit or proceeding as against the firm;20
(6) may hire on the credit of the firm any goods of a kind used in its business. Where a partner hired an
elephant to trap wild elephants and one of the terms was that the hirer should pay Rs 5,000 if the
elephant died during the period of hire, it was held that the other partners were bound by that term.21
[s 19.3] Sub-section (2): What a partner cannot do.—
Sub-section (2) gives a list of acts which do not fall within a partner’s implied authority, unless there is any
usage or custom of trade to the contrary, such acts, however, can be ratified by the partners.22 Although a
partner is entitled to assign a decree in favour of the firm, he has no implied authority to assign such a decree
Page 5 of 9
for a lesser sum. This would amount to relinquishing a portion of the claim by the firm.23 It is not within the
implied authority of a partner to set off his own separate debt against the debt due to the firm.24
(1) Submitting dispute to arbitration:—
The instructive reasoning of Best, CJ in Stead v Salt,25 is worth mentioning. According to the Chief Justice, an
authority can only be implied for what is necessary to carry on the trade in which partners are concerned. To
enter into a submission for arbitration is not part of the ordinary business of a trading firm.
However, it has been held26 that it is possible for other partners who were not a party to reference to arbitration
to ratify the act of reference to arbitration made by the other partner and this ratification can be express or
implied. If the other partners stand by after being aware of the arbitration proceedings, they will be deemed to
have ratified the act of their partners.
(2) Standing as surety:—
A partner signing as a surety on behalf of his firm cannot bind the other partners of the firm to answer the claim
of the creditor who can make the signatory partner liable as a surety. This view was expressed by the Gujarat
High Court27 where it was not the usual course of business of the respondent firm to execute any surety
contract for the benefit of the third parties when they become the debtor. The Court relied on Nathaniel
Lindley:28
unless it can be shown that the giving of guarantee is necessary for carrying on the business of the firm in the ordinary
way, one of the members will be held to have no implied authority to bind the firm for, generally speaking, it is not usual
for persons in business to make themselves answerable for the conduct of other people.
The court emphasised that the partner’s act of standing as a surety must be shown to be done in the usual way
to carry on the business of the kind carried on by the firm. The evidence showed that the Respondent firm was
doing ordinary commercial activity like selling ghee and was not carrying on any business of underwriting loan
Page 6 of 9
transaction of third party by standing as a surety. Also, there was no ratification by other partners. The court
explained section 22 of the Indian Partnership Act, 1932 as merely of procedure and cannot be the basis of
making the Respondent firm (or other non-signatory partners) liable if the concerned act of a partner to stand as
surety was not done in the usual way to carry on the business of the kind carried on by the firm. If this basic
requirement is not satisfied, even if a partner complied with the procedure, of section 22 of the Indian
Partnership Act, 1932, it would remain an abortive exercise.
[s 19.4] Usage or Custom.—
The term “usage of trade” is to be understood as referring to a particular usage to be established by

evidence.29 To prove such a usage, there need not be either the antiquity, the uniformity, or the notoriety of
custom in its technical sense; usage may still be in course of growth, and may require evidence for its support
in each case.30
“Custom of trade” refers to a general custom of merchants which has been ratified by decisions of courts and
adopted as settled law.
[s 19.5] Partner not automatically liable under section 138 of the Negotiable Instruments Act, 1881.—
Under section 141 of the Negotiable Instruments Act, 1881, only those partners of a firm can be proceeded,
who were in charge of the affairs of the company and responsible for it. However, every partner of the firm
cannot automatically be roped in section 141 of the Negotiable Instruments Act, 1881 because it raises a legal
fiction in terms whereof the Directors of a company which would include the partners of a firm would be deemed
to have committed an offence along with the company if they are in charge of the affairs of the company and
responsible for it. In a case where the authorised signatory of the partnership has signed a cheque, no person
other than the authorised signatory and the partnership firm could be made liable. No other partner could be
proceeded with for the criminal offence in the absence of specific averments implicating the other partners.
[s 19.6] VDS scheme under the Income-tax Act, 1961 partnership cannot avail benefits.—
An act of partner binds the firm. In Tanna & Modi v CIT,31 in a search and seizure operation some undisclosed
income was subject to penal action against an individual in a partnership in such individual capacity. The very
same income was sought to be disclosed under voluntary disclosure scheme under the Income-tax Act, 1961 to
obtain concessions and the benefit was also given. Later the CIT cancelled the assessment holding that a fraud
had been committed by the partnership that the amount declared under the scheme was the very same amount
which was unearthed by the department in a search and seizure operation. The court held:
it is one thing to say that for the purpose of invoking the provisions of the Income Tax Act and other taxation laws of a
firm, a firm and its partners are treated to be separate entities but while construing a statute involving immunity from
Page 7 of 9
certain penal actions, in our opinion, the provisions thereof should not ordinarily be judged on the touchstone of the
provisions of the 1961 Act, only because the 1997 Scheme has a direct nexus therewith.
5 Story on Agency, section 124; Bank of Australasia v Breillat, (1847) 6 Moo PC 152, 193 : (1848) NSW Sup C3 : 13 ER
642.
6 Hedley v Boinbridge, (1842) 3 QB 316 .
7 Raghavaveera Sons v Padmavathi, AIR 1978 Mad. 81 [LNIND 1977 MAD 176] , at para 9 : (1978) 1 Mad LJ 36.
8 Higgins v Beauchamp, (1914) 3 KB 1192 : (1914) All ER 937 .
9 Wheatley v Smithers, (1906) 2 KB 321 .
10 Higgins v Beauchamp, (1914) 3 KB 1192 , 1195 : (1914) All ER 937 .
11 Brown v Kidger, (1858) 28 LJ (Ex) 66 ; Saremal Punamchand v Kapurchand Punamchand, AIR 1924 Bom 260 : (1923)
25 Bom LR 1093 ; see also Veeria Perumal Pillai v Avukkarumnal Muhammad Pathummal, AIR 1958 Ker. 257 [LNIND
1957 KER 221] .
12 Saremal Punamchand v Kapurchand Punamchand, AIR 1924 Bom 260 : (1923) 25 Bom LR 1093 .
13 Story on Agency, section 124; Bank of Australasia v Berillat, (1847) 6 Moo PC 152, 193 : (1848) NSW Sup C3 : 13 ER
642.
14 Section 22.
Page 8 of 9
15 Frederick Pollock, A Digest of the Law of Partnership, 12th Edn, Stevens and Sons, 1877, p 33.
16 Bunarsee Das v Gholam Hoosein, (1870) 13 Moo Ind App 358 .
17 Ernest H Scamell, Lindley on the Law of Partnership, 13th Edn, Sweet & Maxwell Ltd, 1971, p 169.
18 Chandanlal v Amin Chand, AIR 1960 P&H. 500 . G Subbarayudu v Narasimham, AIR 1974 AP 307 [LNIND 1973 AP
116] . Motilal Manucha v Unao Commercial Bank, AIR 1930 PC 238 : (1930) 32 Bom LR 1571 .
19 Bunarsee Das v Gholam Hossein, (1870) 13 Moo Ind App 358 ; Motilal Manucha v Unao Commercial Bank, AIR 1930
PC 238 : (1930) 32 Bom LR 1571 ; Raghavaveera Sons v Padmavathi, AIR 1978 Mad. 81 [LNIND 1977 MAD 176] :
(1978) 1 Mad LJ 36.
20 Firm of Sarabhai Hathising v Ratilal Nathalal, AIR 1979 Guj 110 [LNIND 1978 GUJ 66] : (1979) 20 GLR 484 .
21 Mathura Nath v Sreejukta Bageshwari, AIR 1928 Cal 57 : (1927) 46 Cal 362 .
22 Ram Bahadur Thakur v Thakur Das, AIR 1958 All 522 [LNIND 1958 ALL 34] .
23 Krishnaji Bharmalji & Co v Abdul Razak Ahmedbhoy, AIR 1942 Bom 22 : (1941) 43 Bom LR 888 ; Mudenur Nagappa v
Bhagawanji Rasaji, AIR 1936 Mad. 593 [LNIND 1936 MAD 76] : (1936) 59 Mad 1036.
24 Dalichand V Parekh v Mathuradas Ravji, AIR 1958 Bom 428 [LNIND 1957 BOM 110] : (1957) 59 Bom LR 1066 : (ILR)
1958 Bom 218.
25 Stead v Salt, (1825) 130 ER 452 .
26 Mohinder Kaur Kochhar v Punjab National Bank, AIR 1981 Del 106 [LNIND 1980 DEL 245] .
27 Porbandar Commercial Cooperative Bank Ltd v Bhanji Lavji, AIR 1985 Guj 106 [LNIND 1984 GUJ 183] : (1985) 1 GLR
49 .
Page 9 of 9
28 A Treatise on the Law of Partnership, 11th Edn, Sweet & Maxwell, 1950, p 203.
29 Section 92(5) of the Indian Evidence Act, 1872.
30 Juggomohun Ghose v Manickchund, (1859) 7 Moo Ind App 263 , 282.
31 Tanna & Modi v CIT, AIR 2007 SC 2301 [LNIND 2007 SC 715] : (2007) 7 SCC 434 [LNIND 2007 SC 715] : (2007) 8
Scale 511 [LNIND 2007 SC 715] .
End of Document
S. 20. Extension and restriction of partner’s implied authority.-
MullaK Kannan
S. 20. Extension and restriction of partner’s implied authority.-
The partners in a firm may, by contract between the partners, extend or restrict the implied authority of any
partner.
Notwithstanding any such restriction, any act done by a partner on behalf of the firm which falls within his
implied authority binds the firm, unless the person with whom he is dealing knows of the restriction or does not
know or believe that partner to be a partner.
[s 20.1] Restriction of authority.—
A third party is not affected by a secret limitation of a partner’s implied authority, unless he has actual notice of
it. The reason for this rule is that a third party is entitled to assume that all the partners have full implied
authority.
End of Document
S. 21. Partner’s authority in an emergency.-
MullaK Kannan
S. 21. Partner’s authority in an emergency.-
A partner has authority, in an emergency, to do all such acts for the purpose of protecting the firm from loss as
would be done by a person of ordinary prudence, in his own case, acting under similar circumstances, and such
acts bind the firm.
See notes to section 13(e).
End of Document
S. 22. Mode of doing act to bind firm.-
MullaK Kannan
In order to bind a firm, an act or instrument done or executed by a partner or other person on behalf of the firm
shall be done or executed in the firm-name, or in any other manner expressing or implying an intention to bind
the firm.
[s 22.1] Act binding firm.—
A firm can only be bound by what is done on behalf of the firm; even if the firm has the use of money borrowed
by a partner in his own name, this is at most evidence, but not conclusive, to show that the borrowing was in
fact on account of the firm.32 Where a partner took some premises on lease in his own name, it was held that
he did not intend to act on behalf of the firm nor to act as its benamidar nor did he intend to bind the firm.33
Where a managing partner executes a surety bond and from the terms thereof it appears that he clearly meant
to act on behalf of the firm, the other partners become liable.34 But this case cannot be considered an authority
on the question of whether one partner can bind the other partners without their consent while executing a
surety bond. This point was not argued in that case. According to English law no partner can bind the firm by
giving a guarantee unless he is authorised by special agreement or it is allowed by general usage of firm
engaged in that kind of business.35
The Gujarat High Court35 has also shared the same view.
[s 22.2] Relation between sections 19 and 22:—
See Porbandar Commercial Cooperative Bank Ltd v Bhanji Lavji36, while discussing section 19. (Page 189
note 27).
Page 2 of 2
32 Ramchandra v Kasem Khan, AIR 1925 Cal 29 : (1924) 28 Cal WN 824 : 81 IC 513.
33 Devji v Maganlal, AIR (1965) SC 139 [LNIND 1964 SC 122] : [1964] 7 SCR 564 [LNIND 1964 SC 122] .
34 Suwalal v Fazle Hussain, AIR 1939 Ngp 31 : (1939) 179 IC 771 .
35 Brettle v Williams, (1849) 4 Ex 623 ; Porbandar Commercial Co-op Bank Ltd v Bhanji Lavji, AIR 1985 Guj 106 [LNIND
1984 GUJ 183] : (1985) 1 GLR 49 .
35 Brettle v Williams, (1849) 4 Ex 623 ; Porbandar Commercial Co-op Bank Ltd v Bhanji Lavji, AIR 1985 Guj 106 [LNIND
1984 GUJ 183] : (1985) 1 GLR 49 .
36 Porbandar Commercial Cooperative Bank Ltd v Bhanji Lavji, AIR 1985 Guj 106 [LNIND 1984 GUJ 183] : (1985) 1 GLR
49 .
End of Document
S. 23. Effect of admissions by a partner.-
MullaK Kannan
An admission or representation made by a partner concerning the affairs of the firm is evidence against the
firm, if it is made in the ordinary course of business.
[s 23.1] Partner’s admission.—
A partner’s admission is at most evidence against all the partners of the firm and as such evidence it may affect
them more or less.37 Of course a partner cannot increase his authority to bind the firm by any statement of his
own about it.38 This section is subject to provisions of section 19.
The admissions are not conclusive evidence. A partner’s statement about the extent of his authority can add
nothing to the authority he has in fact.39
37 Stead v Salt, (1825) 130 ER 452 , 453.
38 Ex parte Agace, (1792) 2 Cox 312.
39 Ex parte Agace, (1792) 2 Cox 312. See Jacobs v Morris, (1902) 1 Ch 816 .
Page 2 of 2
End of Document
S. 24. Effect of notice to acting partner.-
MullaK Kannan
S. 24. Effect of notice to acting partner.-
Notice to a partner who habitually acts in the business of the firm of any matter relating to the affairs of the firm
operates as notice to the firm, except in the case of a fraud on the firm committed by or with the consent of that
partner.
[s 24.1] Notice to partner.—
Notice to any habitually acting partner of anything relating to partnership affairs is generally notice to the firm.
It is not a mere question of constructive notice or inference of fact, but a rule of law which imputes the knowledge of the
agent to the principal, or, in other words, the agency extends to receiving notice on behalf of his principal of whatever is
material to be stated in the course of the proceedings.40
40 Rampal Singh v Balbhaddar Singh, (1902) 25 All 1 , 17 : 29 IC 203; Morumal v Gobindram, AIR 1933 Sindh 176 :
(1933) AS 176 : 144 IC 452. Cf section 3, Explanation III of the Transfer of Property Act, 1882.
End of Document
S. 25. Liability of a partner for acts of the firm.-
MullaK Kannan
Every partner is liable, jointly with all the other partners and also severally, for all acts of the firm done while he
is a partner.
[s 25.1] Acts of the firm.—
See section 2(a).

[s 25.2] Done while he is a partner.—
The rule laid down in this section flows from the rule laid down in section 18. The condition that the act shall
have been done while he is a partner is very material so that any act done prior to, or subsequent to, his
becoming or ceasing to be the partner will not bind him. This condition is illustrated by the various other
sections, e.g., sections 31(2), 32(3), 34(2) and 35.
See notes to section 43 of the Indian Contract Act, 1872.

[s 25.3] Joint and several liability.—
This section is very important from the point of view of a creditor who has dealt with the firm. A creditor can sue
the partners jointly as well as separately and successively. A creditor has therefore several actions in respect of
the same debt. So the telephone department rented out to a firm telephone and the firm defaulted to pay the
dues in respect of the telephone charges, whereupon the telephone department disconnected the telephone
line held by a partner in his own name as well as the line held by a firm. In an action by a partner for
Page 2 of 4
disconnecting his own telephone line, it was held that any payment due by the firm in respect of the telephone
was the joint and several liability of the partners. When the partnership incurred liability to telephone
department, it became the liability of all the partners Relying on a judgment of the Supreme Court in Mandalsa
Devi v Ramnarain Pvt Ltd,41 wherein it had been held that a partnership has no legal personality and that a
proceeding against a firm is really a proceeding against all partners, the High Court ruled that. to meet this
liability of the firm towards the department, the department was competent to disconnect the telephone line of
the partner held by him personally.42
Under English law, the liability of partners on contracts is only a joint liability. See section 9 of the English
Partnership Act, 1890.
In Ashutosh v State of Rajasthan,43 the effect of section 24 and section 25 was expounded.
Section 24 deals with the effect of notice to a partner. Such notice may be binding if the following conditions are
satisfied:
(a) the notice must be given to a partner;
(b) the notice must be a notice of any matter relating to the affairs of the firm;
(c) fraud should not have been committed with the consent of such partner on the firm.
Section 24 is based on the principle that as a partner stands as an agent in relation to the firm, a notice to the
agent is tantamount to the principles and vice versa. As a general rule, notice to a principal is notice to all his
agents; and notice to an agent of matters connected with his agency is notice to his principal.
Under section 25, the liability of the partners is joint and several. It is open to a creditor of the firm to recover the
debt from any one or more of the partners. Each partner shall be liable as if the debt of the firm has been
incurred on his personal liability.
Page 3 of 4
In a partnership firm, the partner is always liable for partnership debt unless there is implied or express
restriction. Notice to a principal is notice to all his agents; and notice to an agent of matters connected with his
agency is notice to his principal. Thus, each partner shall be liable as if the debt of the firm has been incurred
on his personal liability. Interest on principal sum was decreed and directions issued.
Section 25 provides that every partner is liable, jointly with all the other partners and also severally for all acts of
the firm done while he is a partner. A firm is not a legal entity. It is only a collective or compendious name for all
the partners. In other words, a firm does not have any existence away from its partners. A decree in favour of or
against a firm in the name of the firm has the same effect as a decree in favour of or against the partners. While
the firm is incurring a liability, it can be assumed that all the partners were incurring that liability and so the
partners remain liable jointly and severally for all the acts of the firm. Consequently, property belonging to the
partners could be proceeded against for recovery of dues on account of sales tax assessed against the
partnership firm under the provisions of the Karnataka Sales Tax Act, 1957.44
In Income Tax Officer (III), Circle-I, Salem v Arunagiri Chettiar,45 the question was whether an erstwhile partner
is liable to pay the tax arrears due from the partnership firm pertaining to the period when he was a partner. The
Madras High Court has held that he is not. Disputing the correctness of the said judgment, the Revenue
Department came in appeal before the Supreme Court which held:
Section 25 of the Partnership Act does not make a distinction between a continuing partner and an erstwhile partner.
Its principle is clear and specific, viz., that every partner is liable for all the acts of the firm done while he is a partner
jointly along with other partners and also severally. Therefore, it cannot be held that the said liability ceases merely
because a partner has ceased to be partner subsequent to the said period.
[s 25.4] Torts.—
Both under English and under Indian Law, in the case of torts, partners are liable jointly and severally for
wrongful acts committed by a partner acting in the ordinary course of the partnership business. The principle
underlying this is that the other members hold him out to the world as a person for whom they are
responsible.46
See the next section.

Page 4 of 4
41 Bhagwanji Devraj v UOI, (1975) 16 GLR 357 cited and followed in Indravadan Pranlal Shah v General Manager,
Ahmedabad Telephone District AIR 1990 Guj 85 [LNIND 1989 GUJ 104] : 1990 (1) Guj LR 297: (1990) 1 GLH 1 .
42 Mandalsa Devi v Ramnarain Pvt Ltd, AIR 1965 SC 1718 [LNIND 1965 SC 91] : [1965] 3 SCR 421 [LNIND 1965 SC 91]
: 1966 MhLJ 273
43 Ashutosh v State of Rajasthan, AIR 2005 SC 3434 [LNIND 2005 SC 654] : (2005) 7 SCC 308 [LNIND 2005 SC 654] :
2005 (8) SC 58 .
44 Dena Bank v Bhikhabhai Prabhudas Parekh & Co, AIR 2000 SC 3654 [LNIND 2000 SC 721] : 2000 (5) SCC 694
[LNIND 2000 SC 721] : 2000 (4) Scale 125 [LNIND 2000 SC 721] .
45 Income Tax Officer (III), Circle-I, Salem v Arunagiri Chettiar, AIR 1996 SC 2160 [LNIND 1996 SC 641] : (1996) 9 SCC
33 [LNIND 1996 SC 641] : (1996) 134 CTR (SC) 167.
46 Earl of Dundonald v Materman, (1869) LR 7 Eq 504, 517.
End of Document
S. 26. Liability of the firm for wrongful acts of a partner.-
MullaK Kannan
Where, by the wrongful act or omission of a partner acting in the ordinary course of the business of a firm, or
with the authority of his partners, loss or injury is caused to any third party, or any penalty is incurred, the firm is
liable therefor to the extent as the partner.
[s 26.1] Ground of liability; usage of firm, how material.—
The principle of this section is a branch of the universal rule that everyone must answer for the acts and
defaults of his servants or agents in the course of their employment. This section refers to two kinds of tortious
acts, i.e., (i) one done while acting in the ordinary course of the business, and (ii) one done with the express or
implied authority of the other partners. In respect of the first category the firm would be liable for the acts of a
partner which he was to do properly but which he did improperly. If the wrongful act is done by a partner within
the scope of his employment, the firm would be liable. The next section amplifies section 26. The chief difficulty
that occurs in practice is that of knowing whether the neglect or fraud of a partner really took place “in the
management of the business of the firm,” or was only his own particular wrong, for which his position in the firm
gave him an opportunity.47 Where the default consists, as it usually does, in the misappropriation of money
which a customer or client was minded to entrust to the firm, it is material to consider whether it ever came into
the firm’s custody; in this case the firm is liable for misappropriation by a partner, whether he was the partner
originally trusted or not, and whether he acted in the exercise of apparently regular authority or not. Further, the
question of whether a partner was acting on behalf or with the ostensible authority of the firm can seldom be
answered except by reference to the expectations created either by the special usage of that firm, or by what is
usual in that kind of business generally. Depositing securities with a banker for safe custody will make his firm
responsible for a misappropriation of them; but putting money in the hands of one member of a banking firm to
Page 2 of 2
be invested at his discretion will not; for the former transaction is within the scope of what bankers in England
habitually do for their customers, the latter is outside it.48
In Hamlyn v Houston,49 one of two partners without the knowledge of his copartner by bribery induced a clerk
of the plaintiff a competitor in trade, in breach of duty to his employer to divulge confidential information in
regard to the plaintiff’s business. It was in the ordinary course of the business of the firm to obtain such
information by legitimate methods, and the partner acted in the interests of the firm. Both partners were held
liable to the plaintiff. The same principle was followed in a case where a partner received the stolen goods and
credited the sale proceeds to the firm.50 In the case of defamatory statements in a letter by the partners of a
firm on a privileged occasion, each partner has a personal privilege and only a partner actuated by malice is
liable in damages.51
47 See Munshi Basiruddin Mullick v Surja Kumar Naik, (1908) 12 Cal WN 716, 719.
48 Contrast Clayton’s case (1816) 1 Mer 572, 579 : 35 ER 781, 786 with Bishop v Countess of Jersey, (1854) 2 Drew 143.
49 Hamlyn v Houston, (1903) 1 KB 81 .
50 Hurruck Chand v Gobind Lal, (1906) 10 Cal WN 1053.
51 Meekins v Henson, (1962) 1 All ER 899 : (1964) 1 QB 472 .
End of Document
S. 27. Liability of firm for misapplication by partners.-
MullaK Kannan
Where—
(a) a partner acting within his apparent authority receives money or property from a third party and
misapplies it, or
(b) a firm in the course of its business receives money or property from a third party, and the money or
property is misapplied by any of the partners while it is in the custody of the firm, the firm is liable to
make good the loss.
[s 27.1] Difference between sub-sections (a) and (b).—
Under the first paragraph, the receipt and misapplication of the money or property must be by the same partner
before it reaches the firm; whereas, under the second paragraph the firm receives money or property, and the
money or property so received is misapplied by any of its members. In both cases the firm is liable to make
good the loss. The other distinction is that clause (a) contemplates that an act may not be within the ordinary
course of the firm’s business but it may have been within the scope of his ostensible authority.52 Clause (b)
refers to an act within the implied authority of a partner.
52 Rhodes v Moules, (1895) 1 Ch 236 .

Page 2 of 2
End of Document
S. 28. Holding out.-
MullaK Kannan
(1) Any one who by words spoken or written or by conduct represents himself, or knowingly permits
himself to be represented, to be a partner in a firm, is liable as a partner in that firm to any one who has
on the faith of any such representation given credit to the firm, whether the person representing himself
or represented to be a partner does or does not know that the representation has reached the person
so giving credit.
(2) Where after the partner’s death the business is continued in the old firm name, the continued use of
that name or of the deceased partner’s name as a part thereof shall not of itself make his legal
representative or his estate liable for any act of the firm done after his death.
[s 28.1] “Holding out.”—
This section is based on the well-known principle of estoppel. The principle of estoppel introduced in this
section imposes liability on two distinct classes of persons, i.e., (i) a person who is not a partner, and (ii) a
person who may be an ex-partner who suffers the other partners to represent that the ex-partner continues to
be the partner. The result is that he is held liable to such persons as if he were a partner. The words “given
credit to the firm” expressly refer to contractual debts. This section does not refer to tortious acts at all. The
creditor must in fact have given credit to the firm in the belief, induced by the express or tacit representation of
the supposed partner that he is a member of the firm. Without such facts there is no ground for holding any one
responsible. Any representation of this kind “can only conclude the defendants with respect to those who have
altered their condition on the faith of its being true.”53 It is not necessary to show that the statement or conduct
which amounts to holding out was wilful or fraudulent as the section does not use such an expression. The
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determining clement is not the knowledge of the party making it but the effects of the representation as having
caused another to act on the faith of it.54 In fact, this kind of liability is neither more nor less than a special
application of the principle of estoppel.
Where a man holds himself out as a partner, or allows others to do it he is then properly estopped from denying the
character he has assumed and upon the faith of which creditors may be presumed to have acted. A man so acting may
be rightly held liable as a partner by estoppel.55
No evidence of intention or knowledge of the consequences of his acts and conduct is necessary to make the apparent
parties liable.56
[s 28.2] Proof of “holding out.”—
The creditor need not prove specifically that he gave credit to the firm on the faith of a certain person being a
partner in it. Giving credit to a firm is the same thing as giving credit to all and each of the persons believed by
the creditor to be its members. It is a question of fact in each case whether credit was given on the faith of the
representation. In order to establish a liability under this section the creditor must prove by clear and
unambiguous evidence that the person charged was acting as a partner and under section 109 of the Indian
Evidence Act, 1872, the onus is then on the firm to show that the apparent partner was not really a partner.57
But, when the representation and the creditor’s knowledge of it are proved, the remaining inference is so easily
drawn that the results will almost always be the same. As the liability depends on estoppel and not on any
contract between the apparent partners, it is immaterial what the agreement between them, if any, may really
be.
[s 28.3] By conduct represents.—
Allowing one’s name to be put upon the prospectus58 or becoming a party to a resolution59 are illustrations of
such representation.
[s 28.4] By words or conduct represents.—
Oral representation that he is a partner or signing receipts of cargo for transport may lead to such an
inference.60 The representation as the basis of holding out may be express or implied. It may consist of verbal
or written statement or even may be by conduct. Conduct may be of any overt act of the party. Even omission
or mere neglect of a person where there is an obligation to do a particular act may amount to conduct. Whether
the particular words or conduct amount to holding out or not is a question of fact depending on the facts and
circumstances of that particular case.
Page 3 of 6
Mere fact that a person’s name is used in the firm name does not make that person a partner of the firm. So
when father was carrying on business in the name of son, it was held that it does not establish that son was a
partner as father might have used son’s name as father regarded it as propitious for the business. There must
be a consentient act on the part of son indicating that he was a member of the firm.61 So there can be no
liability if a person is represented as a partner without his knowledge and assent. Mere negligence or
carelessness in not seeing that all the note papers of a firm had been destroyed when the retired person left the
business did not bring him as a partner by holding out.62
[s 28.5] Knowingly permits himself to be represented.—
This would seem on principle to be a particular case of leading another person to believe that one is a partner.
There is nothing to show how much more than passive assent is signified by the “knowingly permits” of this
section. It can hardly be the law that, if A hears a report that Z is representing him as a partner in X & Co, he
becomes bound at his peril to notify to the world that he is not. But there is an amount of silence, in the face of
known persistent representations made to persons likely to be misled, which may be good evidence of
“knowingly permits himself to be represented.” All that can be said in general terms is that prudent men will
rather use a little abundant caution in due season than run the risk of much more trouble at a later time.
[s 28.6] Liable … to any one who has on the faith of any such representation given credit to the firm:—
A person who knew nothing of the representation and entered into a transaction with the firm will not be
permitted to take advantage of any such representation of which he subsequently knows.
However, it is not necessary that the representation must be directly made to the person giving credit to the
firm. One who makes an assertion intending it to be repeated and acted upon by third person will be liable to
those who afterwards hear of it and act upon it.63
There can be no question of any liability if the person to whom the representation was made did not believe it or
took it to be false or if he believed it but did not act upon it.
The doctrine of holding out which is a part of the law of estoppel would not apply to anything done or any credit
given after the death of the person making the representation.
[s 28.7] Deceased partner and retired partner.—
In practice, questions of this kind are suggested mainly by the case of a deceased or retired member’s name
Page 4 of 6
being continued in the firm. Since the law does not require the name of a firm to correspond with the name of
actual partners,64 the presence of a given name is of itself no representation that any person bearing that
name is in fact a partner. It is accordingly well settled that the continuance of a deceased partner’s name will
not make his estate liable for partnership debts contracted after his death and this is enacted in sub-section (2).
But a living retired partner may be exposed to risk in this way, that customers of the firm who have no notice of
his retirement and may go on dealing with the firm on the faith of his being a member. Therefore it is prudent
and usual to notify customers of changes in the constitution of the firm. No creditor, however, can hold a retired
partner liable whom he did not know to be a partner before the change in the firm, and who had ceased to be a
partner in fact when the credit was given. Thus a “dormant partner,” i.e., one not generally known to be a
partner, “may retire from a firm without giving notice to the world.”65
Strictly speaking, it seems that in the case of a retiring partner the representation that he is still a member of the
firm is not made by others and consented to by him, but it is his own; for, much oftener than not, credit given on
the faith of his being a partner is so given not because the other partners say anything, but because he has
said nothing. Indeed, the presence of a particular name in the firm has very little to do with the matter, save so
far as the disappearance of a personal name may be a warning that some member of that name has died or
retired. A retired member of a firm with an impersonal name might be liable to a customer who had known him
to be a member.66
[s 28.8] Not applicable to torts.—
The doctrine of “holding out” does not apply to liability for civil wrongs, as it rests entirely on credit having been
given to the person whom it is sought to make liable.65 One man is not answerable for another’s wrongful acts
merely because that other might be supposed to be his servant. Ostensible employment, if one may use the
term, is material only so far as it tends to prove real employment.67
[s 28.9] Effect of holding out.—
If a person holds himself out to be the partner of a firm, he becomes personally liable. He does not therefore
become a partner in the firm; and is not entitled to any rights as against those who are in fact partners in the
firm. By holding himself out to be a partner, he does not become the agent of the firm. He merely makes himself
personally liable for the credit given to the firm on the faith of his representation.
[s 28.10] Registration of firms and holding out.—
Where the provisions of Chapter VII are made applicable cases of a person being liable on the ground that he
has held himself out to be a partner will seldom occur. The Register will give information as to who are really
partners; and though there is no duty to take inspection it is unlikely that a third person will act on a
representation of partnership without such inspection; and if he does, no estoppel will arise, for the doctrine of
estoppel does not apply, where the facts are known to both sides.68
Page 5 of 6
53 Quarman v Burnett, (1840) 6 M&W 499, 509 : 151 ER 509.
54 Sarat Chunder Dev v Gopal Chunder Laha, (1893) 20 Cal 296 , 312 (PC); Barkat Ali Haji v Prasanna Kumar Talukdar,
AIR 1929 Cal 819 : (1929) 33 Cal WN 873.
55 Mollwo, March & Co v Court of Wards, (1872) LR 4 PC 419, 435.
56 Porter v Incell, (1905) 10 Cal WN 313, 320.
57 Bharat Spinning and Weaving Co v Manilal Lallubhai, AIR 1935 PC 175 : (1935) 37 Bom LR 826 : 157 IC 4.
58 Collingwood v Berkeley, (1863) 15 CBNS 145 .
59 Maddick v Marshall, (1863) 16 CBNS 387 , affirmed in 17 CBNS 829.
60 Snow White Food Products (Pvt) Ltd v Sohan Lal Bagla, AIR (1964) Cal 209 .
61 Tulsidas v Lyon Lord & Co, AIR 1925 Sind 225 .
62 Tower Cabinet Co Ltd v Ingram, (1949) 1 All ER 1033 : (1949) 2 KB 397 .
63 Frederick Pollock, A Digest of the Law of Partnership, 12th Edn, Stevens and Sons, 1877, p 60. Also see Parker J, in
Dickinson v Valpy, (1829) 10 B&C 128, 140, 141.
64 See note “Firm name” under section 4.
65 Health v Sansom, (1832) 4 B&Ad 172, 177.

Page 6 of 6
66 Smith v Bailey, (1891) 2 QB 403 .
65 Health v Sansom, (1832) 4 B&Ad 172, 177.
67 See Carter v Whalley, (1830) 1 B&Ad 11.
68 Mohori Bibee v Dharmodas Ghose, (1903) 30 IA 114 : 30 Cal 539.
End of Document
S. 29. Rights of transferee of a partner’s interest.-
MullaK Kannan
(1) A transfer by a partner of his interest in the firm, either absolute or by mortgage, or by the creation by
him of a charge on such interest, does not entitle the transferee, during the continuance of the firm, to
interfere in the conduct of the business, or to require accounts, or to inspect the books of the firm, but
entitles the transferee only to receive the share of profits of the transferring partner, and the transferee
shall accept the account of profits agreed to by the partners.
(2) If the firm is dissolved or if the transferring partner ceases to be a partner, the transferee is entitled as
against the remaining partners to receive the share of the assets of the firm to which the transferring
partner is entitled, and, for the purpose of ascertaining that share, to an account as from the date of the
dissolution.
[s 29.1] Share of partner.—
See “Partner’s nature of share in Partnership property” in commentary of section 14.

[s 29.2] Partner’s dealing with his share.—
The effect of the section is that a partner may transfer his share to a third person, absolutely or by way of
security, but cannot make the transferee a partner, unless the other partners recognize the transferee as a
partner.69 This section is subject to the terms of the partnership agreement, and if a partner has an
unconditional right to transfer his share, he is relieved from liability as between himself and his co-partners in
respect of transactions subsequent to the transfer and notice thereof given to them.70 But the transfer alone
does not render the transferee a member of the partnership and liable as between himself and other members
Page 2 of 5
to any of the debts of the firm until the co-partners acknowledge him to be a partner.69 The purchaser of a
share in a partnership (i.e., transferee) must personally indemnify his vendor against the partnership debts.71
The transferee has no direct claim to the profits which are received in the first instance by the transferor.72
Moreover, such a transfer will not entitle the transferee during the continuance of the firm to interfere in the
conduct of business. The transferee is entitled only to receive the share of profits of the transferring partner and
he shall accept the account of profits agreed to by the partners. What is meant by a share of a partner is his
proportion of the partnership assets after they have all been realised and converted into money and all the
partnership debts have been paid.73 But after dissolution the transferee is entitled as against the remaining
partners to demand accounts as from the date of dissolution and payment of the share of the partnership
assets to which the transferor would be entitled.74
[s 29.3] Specific performance:—
Specific performance of a contract to sell a share in a partnership business may be enforced.73

[s 29.4] Purchase of share by partner.—
A transfer of his interest by one partner to another, where there are only two partners, operates as a
dissolution.75 One of several partners may purchase the share of another for his own benefit, and not for the
benefit of the firm.76
[s 29.5] Power to introduce partners.—
See notes to section 31.

[s 29.6] Dissolution of partnership.—
Where a partner, other than the partner suing, has in any way transferred the whole of his interest in the firm to
a third party, the court may dissolve the firm.77
[s 29.7] Transferee’s right to account.—
A receiver appointed at the instance of a transferee is in no better position than the transferee himself, and is
not entitled to ask for accounts.78 But the transferee of a partner’s interest has, on dissolution or retirement
from the firm of the transferor, a statutory right to a judicial account and this is not affected by an arbitration
clause in the partnership deed.79
[s 29.8] What transferee cannot do.—
A transferee of a partner’s interest is not entitled, during the continuance of the partnership,
(1) to interfere in the conduct of the business;80 or

Page 3 of 5
(2) to require accounts;81 or
(3) to inspect the books of the firm (during the continuance of partnership); or
(4) to challenge the accounts of profits agreed to by the partners;
(5) cannot sue for dissolution or for account before dissolution.82 The assignor continues to remain
partner and assignee is only entitled to receive the share of profits due to assignor. It is only if and
when dissolution occurs that transferee would be entitled as against the remaining partners to ask for
account as from the date of dissolution and to receive his share of the assets of firm to which
transferring partner was entitled on that footing.83 The Supreme Court also reiterated that what the
assignee would get would be the right to receive the share of profits of the assignor and accept the
account of profit agreed to by the partners.84 Though the section deals with voluntary transfer of the
share of a partner, the principles contained in it can also be applied to involuntary transfer.85 For the
purpose of section 17(1) of the Registration Act, 1908, the interest of the partner in immovable assets
of the partnership is movable property and does not require registration.86 This is so because a
partner seeking to get his share could not get his share in specie in immovable property but only after
the assets have been converted into money and debts and liabilities discharged and it is only in the
residue that he could get his proportionate share.85
Creation of sub-partnership—does it involve transfer of partnership interest?—There is a clear distinction

between a case where a partner of a firm assigns his share in favour of a third person and a case where a
partner constitutes a sub-partnership with his share in the main partnership. Whereas in the former case, in
view of section 29(1) of the Indian Partnership Act, 1932, the assignee gets no right or interest in the main
partnership, except of course, to receive that part of the profits of the firm referrable to the assignment and to
the assets in the event of dissolution of the firm, but in the latter case, the sub-partnership acquires a special
interest in the main partnership. In CIT v Sunil J Kinariwala,87 the case was not one of a sub-partnership,
though in view of Section 29(1) of the Indian Partnership Act, 1932, the Trust, as an assignee, became entitled
to receive the assigned share in the profits from the firm not as a sub-partner because no sub-partnership came
into existence but as an assignee of the share of income of the assigner-partner.
In MV Karunakaran v Krishan,88 the Supreme Court explained that a distinction exists between the right of a
partner to sell a property during subsistence of the partnership and the right of an erstwhile partner to sell the
property of the firm after it stood dissolved. Where persons who had definite pre-existing rights as co-owners
merely applied their own property for running a business in partnership, on dissolution of partnership their right
in property would revive and they would continue to have undivided share in the property. Even during
Page 4 of 5
subsistence of partnership, question of their ceasing to have any interest therein on its automatic dissolution
would not arise.
69 Jefferys v Smith, (1827) 3 Russ 158; Mangilal v Bhanwarlal, AIR 1963 Raj. 153 [LNIND 1962 RAJ 211] .
70 Jefferys v Smith, (1827) 3 Russ 158.
69 Jefferys v Smith, (1827) 3 Russ 158; Mangilal v Bhanwarlal, AIR 1963 Raj. 153 [LNIND 1962 RAJ 211] .
71 Dodson v Downey, (1901) 2 Ch 620 .
72 Ramachar v TT Comm, AIR 1961 SC 1059 [LNIND 1961 SC 6] : [1961] 3 SCR 380 [LNIND 1961 SC 6] .
73 Reddi Veerraju v Chittori Lakshminarasamma, AIR 1971 AP 266 [LNIND 1970 AP 159] .
74 Mangilal v Bhanwarlal, AIR 1963 Raj. 153 [LNIND 1962 RAJ 211] ; Addanki Narayanappa v Bhaskara Krishnappa, AIR
1966 SC 1300 [LNIND 1966 SC 27] : [1966] 3 SCR 400 [LNIND 1966 SC 27] .
73 Reddi Veerraju v Chittori Lakshminarasamma, AIR 1971 AP 266 [LNIND 1970 AP 159] .
75 Health v Sansom, (1832) 4 B&Ad 172.
76 Cassels v Stewart, (1881) 6 App Cas 64 .
77 Section 44(e).
78 Mistry Gowa Petha v NH Moos, AIR 1931 Pat. 312 : (1931) 10 Pat 792 : 133 IC 40.
Page 5 of 5
79 Bonnin v Neame, (1910) 1 Ch 732 : 79 LJ Ch 388.
80 Reddi Veerraju v Chittori Lakshminaramma, AIR 1971 AP 266 [LNIND 1970 AP 159] ; Mangilal v Bhanwarlal, AIR 1963
Raj. 153 [LNIND 1962 RAJ 211] .
81 Mangilal v Bhanwarlal, AIR 1963 Raj. 153 [LNIND 1962 RAJ 211] .
82 Dhanaji Jelhaji v Gulabchand Pana, AIR (1925) Bom 345 : 27 Bom LR 409 : 87 IC 812.
83 Mangilal v Bhanwarlal, AIR 1963 Raj. 153 [LNIND 1962 RAJ 211] .
84 Addanki Narayanappa v Bhaskara Krishnappa, AIR 1966 SC 1300 [LNIND 1966 SC 27] : [1966] 3 SCR 400 [LNIND
1966 SC 27] .
85 Ajudhia Pershad v Sham Sunder, AIR 1947 Lah 13 .
86 Addanki Narayanappa v Bhaskara Krishnappa, AIR 1966 SC 1300 [LNIND 1966 SC 27] : [1966] 3 SCR 400 [LNIND
1966 SC 27] .
85 Ajudhia Pershad v Sham Sunder, AIR 1947 Lah 13 .
87 CIT v Sunil J Kinariwala, AIR 2003 SC 668 [LNIND 2002 SC 786] : (2003) 1 SCC 660 [LNIND 2002 SC 786] : (2003)
179 CTR (SC)15 : [2003] 259 ITR 10 (SC) : JT 2002 (10) SC 277 : 2003 (1) UJ 543 (SC) : 2002 (9) Scale 217 [LNIND
2002 SC 786] .
88 MV Karunakaran v Krishan, AIR 2007 SC 1501 [LNIND 2006 SC 1165] : 2009 (17) SCC 334 [LNIND 2006 SC 1165] :
2007(3) Andh LD 39 (SC) : 2007 (2) All WC (Supp) 1145 SC : 2007 (1) Ker LT 243 (SC) : (2007) 147 PLR 247 : 2006
(14) Scale 75 [LNIND 2006 SC 1165] : [2006] Supp (10) SCR 1234 .
End of Document
S. 30. Minors admitted to the benefits of partnership.-
MullaK Kannan
(1) A person who is a minor according to the law to which he is subject may not be a partner in a firm but,
with the consent of all the partners for the time being, he may be admitted to the benefits of
partnership.
(2) Such minor has a right to such share of the property and of the profits of the firm as may be agreed
upon, and he may have access to and inspect and copy any of the accounts of the firm.
(3) Such minor’s share is liable for the acts of the firm, but the minor is not personally liable for any such
act.
(4) Such minor may not sue the partners for an account or payment of his share of the property or profits
of the firm, save when severing his connection with the firm, and in such case the amount of his share
shall be determined by a valuation made as far as possible in accordance with the rules contained in
section 48:
Provided that all the partners acting together or any partner entitled to dissolve the firm upon notice
to other partners may elect in such suit to dissolve the firm, and thereupon the Court shall proceed
with the suit as one for dissolution and for settling accounts between the partners, and the amount
of the share of the minor shall be determined along with the shares of the partners.
(5) At any time within six months of his attaining majority, or of his obtaining knowledge that he had been
admitted to the benefits of partnership, whichever date is later, such person may give public notice that
Page 2 of 10
he has elected to become or that he has elected not to become a partner in the firm, and such notice
shall determine his position as regards the firm:
Provided that, if he fails to give such notice, he shall become a partner in the firm on the expiry of
the said six months.
(6) Where any person has been admitted as a minor to the benefits of partnership in a firm, the burden of
proving the fact that such person had no knowledge of such admission until a particular date after the
expiry of six months of his attaining majority shall lie on the person asserting that fact.
(7) Where such person becomes a partner,—
(a) his rights and liabilities as a minor continue up to the date on which he becomes a partner, but he
also becomes personally liable to third parties for all acts of the firm done since he was admitted to
the benefits of partnership, and
(b) his share in the property and profits of the firm shall be the share to which he was entitled as a
minor.
(8) Where such person elects not to become a partner,—
(a) his rights and liabilities shall continue to be those of a minor under this section up to the date on
which he gives public notice.
(b) his share shall not be liable for any acts of the firm done after the date of the notice, and
(c) he shall be entitled to sue the partners for his share of the property and profits in accordance with
sub-section (4).
(9) Nothing in sub-sections (7) and (8) shall affect the provisions of section 28.
Infant may be a partner.89 While he is an infant, he incurs no liability and is not responsible for the debts of firm
which he can repudiate both during his minority as well as on attaining majority.90 For the partnership debt the
creditor has no right to levy execution on the separate property of an infant partner.91
Notwithstanding the above legal position, as against his co-partners an infant cannot insist that in taking the
partnership accounts he shall be credited with profits and not be debited with losses. The infant partner must
either repudiate or abide by the agreement under which alone he shares the profits.92 Lastly, an infant partner
on becoming major must express speedily his determination to retire from the firm. This is well illustrated in
Goode v Harrison,93 where infant was and was known to be a member of the firm. On attaining majority, he did
not expressly either affirm or disaffirm the partnership. However, he was held liable for debts incurred by his co-
Page 3 of 10
partners subsequently, when he attained majority. According to the court’s view, an infant, when he becomes
major, must take care to notify that he has ceased to be a partner if he desires to avoid liability.94
[s 30.2] Indian law.—
Even before the Indian Partnership Act, 1932 was enacted, the law in India was that a minor could not make
any contract at all, and therefore could not be a partner,95 and this has been recognised by express enactment
in section 30(1). Obviously there cannot be a partnership of minors, as they cannot enter into a contract.96 A
person under the age of majority cannot be a partner by contract and he cannot be one of that group of persons
called firm.97 The minor, however, “may be admitted to the benefits of partnership,” and his share in the firm’s
property is subject to the firm’s debts. Creditor of a firm is not entitled to proceed against minor personally,
being restricted only to his interest in the property of the firm.98 See sub-section (3). The section applies only
where a minor is admitted to the benefits of a subsisting partnership, and is not in terms applicable to a case in
which a person is the sole proprietor of a business. So where B & H were partners in equal shares of a
confectionery business, H died leaving a minor son. After H’s death, B carried on business under the old name
with the partnership funds which he retained in his hands. The minor son alleged that after his father’s death,
he was admitted to the benefit of partnership. It was held that though B was bound to render account of profit of
the partnership to the minor son for employing the partnership capital since the death of H, the minor son
(plaintiff) could not be admitted to the benefit of partnership as no partnership existed after H’s death nor could
the plaintiff being a minor enter into a contract with B to form partnership.99 There should be at least two
partners before a minor is admitted.100
[s 30.3] Admitted for the benefit of partnership.—
We shall see the judicial interpretation focusing the meaning of this expression.
1. All four partners were to attend business and if consent was needed, all partners including minor had
to give their consent in writing. Minor was entitled to manage the affairs of the firm including inspection
of account books and had right to vote. Minor was entitled to share not only profit but also liable to bear
all the losses including loss of capital. It was held that section 30 did not render a minor a full partner
and any document which made a minor full partner and goes beyond this section is not valid. Here no
distinction was practically made between an adult partner and a minor and to all intents and purposes
minor was a full partner, though under section 30 he could only be admitted to the benefit of
partnership and not as a partner. The result was that tax authority were justified in not according
registration under the Income-Tax Act, 1961.101
2. Effect of a minor introduced as a partner through guardian, deed not void ab initio.—Progressive
Financers v CIT, Madras,102 dealt with the question of whether a partnership firm could be registered
Page 4 of 10
under the Income-Tax Act, 1961, where one of the partners was a minor and she was represented
through the guardian and signed as such in the partnership deed. The deed contained a specific recital
that the minor had been admitted only to the benefits of partnership but capital had been shown to
have been contributed on behalf of the minor also. The Supreme Court called for a reasonable
construction of the partnership, holding that the registration should have been granted by the Income
Tax Officer and set aside the orders passed by the authorities below that the partnership deed itself
was void ab initio. The construction of the partnership shall be such as to take the minor only for the
profits of the partnership and distribute the losses against the major partners only in the same
proportion to which they were entitled to profits.
3. Registration of Firm where minor is said to be a partner and not merely admitted to benefits of
partnership, not tenable.—In CIT v Dwarkadas Khetan and Co,103 the Supreme Court noticed the
divergent views amongst the High Courts on the point that where a minor is admitted as full partner by
adult partners, the partnership document can be registered after interpreting it to mean that the minor
has been admitted to the benefits of partnership and not as a full partner. Approving the view of the
Calcutta High Court and the Punjab High Court it was held, that the Income Tax authorities cannot
make out a new contract between the parties and register document which is different from the one
actually executed and ask to be registered. The apex court thus disapproved the view of the Madras
High Court holding that the document must be construed as showing only that the minor was admitted
not as full partner but to the benefits of partnership. The relevant para reads as follows (page 533).
Section 30 of the Indian Partnership Act clearly lays down that a minor cannot become a partner though with the
consent of the adult partners he may be admitted to the benefit of partnership. Any document which goes beyond this
section cannot be regarded as valid for the purpose of registration. Registration can only be granted of a document
between persons who are parties to it and on the covenant set out in it. If the Income Tax authorities register the
partnership as between adults only contrary to the terms of the document, in substance a new contract is made out. It
is not open to the Income Tax authorities to register a document, which is different from the one actually executed and
asked to be registered.
This sub-section is restricted to the accounts only. A minor is not entitled to inspect and/or to have a copy of
any other books.
Page 5 of 10
This sub-section excludes personal liability and restricts it the extent of the minor’s share in the partnership
assets. A minor being entitled to the benefits, it would be just and equitable that his share in the partnership
assets should be held liable. Similarly a minor partner would not be adjudged insolvent but his share in the
assets would vest in the Official Assignee.104
Under this sub-section a minor cannot sue for an account and profits or for his share of the property of the firm
except when he severs his connection with the firm. Moreover, such a suit by the minor does not however
dissolve the firm. But the court may treat the suit as of dissolution and accounts at the request of all the
partners or any partner entitled to dissolve the firm. In the undermentioned case, the Supreme Court observed
that section 30(4) contemplates that capital may have been contributed on behalf of a minor and guardian may
on behalf of a minor sever his connection with the firm. When guardian is entitled to sever the minor’s
connection with the firm, it must be held that he is entitled to refuse to accept the benefit of partnership or agree
to accept the benefit of partnership for a further period on terms which are in accordance with the law.105
Under section 30(5), it is provided that at any time within six months of his attaining majority or of his obtaining
knowledge that he had been admitted to the benefit of partnership, whichever date is later, such person may
give public notice of his election and accordingly his position as regards the firm shall be governed.106 This
sub-section is new as it does not prescribe the reasonable time as was under section 248, the Indian Contract
Act, 1872 but fixes six months period within which the minor should decide as to his connection with the firm.
Under the proviso to section 30(5), if he fails to give the required notice, he shall become a partner in a firm on
the expiry of six months’ time. So a minor need not give public notice if he has elected to become a partner.
The Kerala High Court in the undermentioned case observed that where the suit for enforcing partnership
liability had been instituted before the expiry of six months allowed to a minor under section 30(5), in that event
minor could not issue public notice as required by section 30(5) of the Indian Partnership Act, 1930—as before
six months’ period suit was filed—and so minor cannot be considered as partner merely for the reason of failure
to issue such public notice.107
When a minor elects to continue as a partner, he is entitled to his profits as computed at the end of the year,
regulated by partnership deed. On the other hand, if he elects to sever all his connection with partnership and
decides not to become a partner, he is entitled to whatever amount is due to him at the date when he makes
the election not to become a partner. This is so because in the first case there is no break in the continuity of
partnership and so there is no need to make up any accounts, while in the latter case, there is a break in
Page 6 of 10
partnership and accounts have to be made up as of a particular date because the minor who has become a
major has the right to claim a specific amount as due to him on a particular date.108 According to the Supreme
Court,109 section 30(5) of the Indian Partnership Act, 1930 presupposes the existence of partnership. A minor
after attaining majority cannot elect to become a partner of a firm which ceases to exist. When a partnership
was dissolved before the minor becomes a major, the partnership has become non-existent when the minor
becomes a major and it is legally impossible to hold that he became a partner of the dissolved firm by reason of
his inaction in the matter of exercising his option after he became a major within the time prescribed by section
30(5) of the Indian Partnership Act, 1930. In view of this, section 30(5) of the Indian Partnership Act, 1930 does
not apply to him. He is not a partner of the firm and so he cannot be adjudicated insolvent for the acts of
insolvency committed by major partners of firm.
According to Gujarat High Court,110 the rights and liabilities of a minor admitted to the benefit of partnership
continue up to the date on which he becomes a partner. A minor who has elected to become a partner under
section 30(5) will be personally liable not only for all acts of the firm done after he became a partner but also for
all such acts of the firm as had been done since he was admitted to the benefit of partnership.110 Thus he
incurs retrospective liability as it relates back to the date when minor was admitted to the benefit of partnership.
In England, the position is not so strict. If minor, on becoming major, neither affirms nor dis-affirms the
partnership, he is held liable only for debts incurred by the firm since his majority.111
Accordingly, Indian law seems to protect the creditors of a firm in a more favourable position than in
England.112
A minor who elects not to become a partner, his rights and liabilities are enumerated in this sub-section. He is
liable to the extent of his share both in the property as well as in the profits of the firm for all obligations incurred
by the firm up to the date on which he gives public notice of his intention to sever his connection with the firm
and his share is not liable for acts of firm done after such notice. He can bring a suit for account and ask for the
amount of his share in the partnership property and profits on the date of his severance.113
If the minor, after attaining majority, does in fact act as a partner before giving public notice, he will be liable to
third parties on the principles of holding out.
[s 30.11] Accounts.—
Before this Act, it was doubtful whether a minor could sue the partners for an account, but by sub-section (4) it
is settled that he is not entitled to sue for accounts or for payment of his share, except when severing his
Page 7 of 10
connection with the firm, during minority, and when, under sub-section (8)(c), after attaining majority he elects
not to become a partner. Where a minor on attaining majority becomes a partner, he is entitled to profits as
computed at the end of the year, and is not entitled to receive profits that may have arisen on calculation made
as on the day he attained majority.114
[s 30.12] Rights and liabilities of minor in a firm.—
The position of a minor in a firm may be stated as follows:—
Rights of Minor Disabilities
(1) May be admitted to the benefits of partnership (sub-section (1) May not be a partner (sub-section 1).
1).
(2) Right to inspect and copy any of the accounts of the firm (2) May not sue for accounts unless he severs his connection
(sub-section 2). with the firm (sub-section 4).
Rights of Minor Liabilities
(1) On severance he may sue for accounts (sub-section 4). (1) May have his share in the firm attached for the acts of the
firm (sub-section 3).
(2) On attaining majority may elect to become partner, and he (2) Unless within the period mentioned in sub-section (5), he
will be entitled to the share to which he was entitled as a minor elects not to become a partner, he will be liable as a partner
(sub-section 5). (sub-section 5).
(3) On attaining majority may elect not to become partner, in (3) Where a minor on attaining majority has elected to become
which case his share is not liable for any acts of the firm done a partner, he becomes personally liable to third parties for all
after the date of the public notice that he has elected not to acts of the firm done since he was admitted to the benefits of
become a partner (sub-section 5). partnership [sub-section 7(a)].
(4) After attaining majority, he may be liable for holding himself

out as a partner (sub-section 9).
89 Re A & M, (1926) 1 Ch 274 , the only two partners were both infants.
Page 8 of 10
90 See Goode v Harrison, (1821) 5 B&A 147 : 106 ER 1147.
91 Lovell and Christmas v Beauchamp, (1894) AC 607 .
92 Ernest H Scamell, Lindley on the Law of Partnership, 13th Edn, Sweet & Maxwell Ltd, 1971, p 55 citing Lovell and
Christmas v Beauchamp, (1894) AC 607 , 611.
93 Goode v Harrison, (1821) 5 B&A 147 : 106 ER 1147.
94 See section 30(5) of the Indian Partnership Act, 1932 for Indian position on this.
95 Sanyasi Charan Mandal v Krishnandhan Banerji, AIR 1922 PC 237 , 239–240 : (1922) 49 IA 108 : 49 Cal 560, 570 : 67
IC 124 : (1922) 24 Bom LR 700 [LNIND 1922 BOM 14] .
96 Shriram Sardarmal Didwani v Gourishankar Alias Rameshwar Joharmal, AIR 1961 Bom 136 [LNIND 1959 BOM 135] :
(1960) 62 Bom LR 336 .
97 Re A & M, (1926) 1 Ch 274 .
98 Sanyasi Charan Mandal v Asutosh Ghose, AIR 1915 Cal 482 [LNIND 1914 CAL 58] : (1915) 42 Cal 225 ; Joykisto
Cowar v Nittyanund Nundy, (1878) 3 Cal 738 .
99 Lachhmi Narain v Beni Ram, AIR 1931 All 327 : (1931) 53 All 479 : 130 IC 704.
100 AA Khan v Amer Karim, (1952) A Mys 131: Chhotelal R v Rajmal, AIR 1951 Ngp 448 .
101 CIT, Bombay v Dwarkadas Khetan & Co, AIR 1961 SC 680 [LNIND 1960 SC 305] : [1961] 2 SCR 821 [LNIND 1960
SC 305] : (1962) 2 Mad LJ 42.
102 Progressive Financers v CIT, Madras, AIR 1997 SC 2160 [LNIND 1997 SC 319] : (1997) 3 SCC 79 [LNIND 1997 SC
319] : [1997] 2 SCR 280 [LNIND 1997 SC 319] : 1997 (2) Scale 257 [LNIND 1997 SC 319] .
Page 9 of 10
103 CIT, Bombay v Dwarkadas Khetan & Co, AIR 1961 SC 680 [LNIND 1960 SC 305] : [1961] 2 SCR 821 [LNIND 1960
SC 305] : (1962) 2 Mad LJ 42 (SC); CIT v Badri Nath Ganga Ram, [2005] 273 ITR 485 : (2005) 194 CTR All 347 (All).
104 Sanyasi Charan Mandal v Ashutosh Ghose, AIR 1915 Cal 482 [LNIND 1914 CAL 58] : (1915) 42 Cal 225 ; Sanyasi
Charan Mandal v Krishnadhan Banerji, AIR 1922 PC 237 : (1922) 49 Cal 560 : (1922) 24 Bom LR 700 [LNIND 1922
BOM 14] : (1922) 49 IA 108 : 67 IC 124.
105 CIT, Bangalore v Shah Mohandas Sadhuram, AIR 1966 SC 15 [LNIND 1965 SC 128] : [1965] 3 SCR 771 [LNIND 1965
SC 128] : (1965) 2 SCWR 358 [LNIND 1965 SC 128] : (1965) 57 ITR 415 [LNIND 1965 SC 128] .
106 Shivagouda Ravji Patil v Chandrakant Neelkanth Sedalge, AIR 1965 SC 212 [LNIND 1964 SC 180] : [1964] 8 SCR 233
[LNIND 1964 SC 180] : 1964 All LJ 890, (1964) 1 SCWR 721 [LNIND 1964 SC 180] ; VJ Masarwala v P Shah & Co,
(1981) 22 GLR 689 .
107 PK Kunchachumma v The Chalapuram Bank Ltd, AIR 1958 Ker. 318 [LNIND 1957 KER 163] : 1957 Ker LJ 808 : 1957
Ker LT 1264 [LNIND 1957 KER 163] .
108 Bhogilal Laherchand v CIT, Bombay, AIR 1956 Bom 411 [LNIND 1955 BOM 109] : (1956) 58 Bom LR 57 : : ILR (1956)
Bom 93 [LNIND 1955 BOM 109] : (1955) 28 ITR 919 [LNIND 1955 BOM 109] .
109 Re A & M, (1926) 1 Ch 274 .
110 Section 30(7) (a); VJ Masarwala v P Shah & Co, (1981) 22 GLR 689 , 693, para 7.
110 Section 30(7) (a); VJ Masarwala v P Shah & Co, (1981) 22 GLR 689 , 693, para 7.
111 See Goode v Harrison, (1821) 5 B&A 147, 157 : 106 ER 1147.
112 Haramohandas Poddar v Sudarshan Poddar, AIR 1921 Cal 538 , 540.
Page 10 of 10
113 Lachhmi Narain v Beni Ram, AIR 1931 All 327 : (1931) 53 All 479 : 130 IC 704.
114 Bhogilal Laherchand v CIT, AIR 1956 Bom 411 [LNIND 1955 BOM 109] : (1956) 58 Bom LR 57 : ILR (1956) Bom 93
[LNIND 1955 BOM 109] : (1955) 28 ITR 919 [LNIND 1955 BOM 109] .
End of Document

Pollock and Mullah, The Sale of Goods Act and The Partnership Act

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Pollock and Mullah, The Sale of Goods Act and The Partnership Act

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Date and Time: Monday 17 January 2022 10:21:00 AM IST

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1. The Sale of Goods Act

The Sale of Goods Act

2(1) & (2) 62(1)/61(1)

2(4) 62(I)/61(l); 81(4) of the English Factors

2(5) & (6) 62(1)/61(1)

2(8) 62(3)/61(4) 96 Explanation

2(9) 1(1) of the English Factors Act, 1889

2(11), (12), (13) 62(1)/61(1)

The Sale of Goods Act

7 6/6 20 illus. (a), (b) & (c)

13(1) ll(l)(a)/ll(2) 118

13(2) ll(l)(c)/ll(4) 117

13(3) ll(6) 56, 62 to 67

16(1) 14(1)/14 opening part 114,115

16(2) & (4) 14(2) & (4)/14(2)

16(3) 14(3)/14(4) 110

19(1) & (2) 17/17

19(3) 18 (opening paragraph) / 18 opening

20 18 Rule 1/18 Rule 1

21 18 Rule 2/18 Rule 2 80

22 18 Rule 3/18 Rule 3 81

23 18 Rule 5/18 Rule 5 79,83, 84

24 18 Rule 4/18 Rule 4 78, illus. (b)

The Sale of Goods Act

27 21(1)/21(1) 108 Exception 1

29 23/23 108 Exception 3

37(1)&(2) 30(1) & (2)/30(1) (2) (3)

37(3) 30(3)/3()(4) 119

39(1) & (2) 32(1)&(2)/32(1)(2) 91

The Sale of Goods Act

48 42/42 106 illus.

53(1) 47/47 98,101,102,103

54(2) 48(3)/48(3) 107

55 49(1) & (2)/49(l)(2)

The Sale of Goods Act

64(1) to (5) 58(1) to (4)/57(l) to (6) 122

The Sale of Goods Act

Act No. III of 1930

[Passed by the Indian Legislature]

(Received the assent of the Governor-General on the 15 March, 1930)

The Sale of Goods Act

S 1. Short title, extent and commencement.-

(3) It shall come into force on the 1 day of July, 1930.

S 1. Short title, extent and commencement.-

[s 1.3] Date of commencement.—

S 1. Short title, extent and commencement.-

This Convention does not apply to sales:

(iii) on execution or otherwise by authority of law;

(iv) of stocks, shares, investment securities, negotiable instruments or money;

(v) of ships, vessels, hovercraft or aircraft;

S 1. Short title, extent and commencement.-

S 1. Short title, extent and commencement.-

S 1. Short title, extent and commencement.-

2 Subs. by the A.O. 1950, for sub-section (2).

4 Purpose, Relevance and Overview of the Convention available at http://www.uncitral.org/uncitral /en/uncitral_texts

5 Complete text of the convention as available at http://www.uncitral.org/pdf english/texts/sales/cisg/ V1056997-CISG-e-

The Sale of Goods Act

In this Act, unless there is anything repugnant in the subject or context,—

(1) “buyer” means a person who buys or agrees to buy goods;

(5) “fault” means wrongful act or default;

(10) “price” means the money consideration for a sale of goods;