Contents

SALE OF GOODS ACT 1930 .......................................................................................................3

Distinction Between Sale And Agreement To Sale : ...................................................................3
FORMATION OF CONTRACT OF SALE : .................................................................................4
INGRIDIENTS/ESSENTIALS : ....................................................................................................4
1. Seller and buyer ( Parties to contract of sale) ..........................................................................4
2. Goods .....................................................................................................................................4
3. Transfer of property ................................................................................................................4
4. Price .......................................................................................................................................4
5. Essential elements of a valid contract ......................................................................................4
MEANING AND TYPES OF GOODS ..........................................................................................5
Meaning of goods [Section 2(7)] ................................................................................................5
Types of Goods [Section 6] ........................................................................................................5
1.Existing Goods.....................................................................................................................5
2. Future Goods [Section 2(6)] ...............................................................................................5
3. Contingent Goods [Section 6(2)] .........................................................................................5
CONDITIONS AND WARRANTIES ...........................................................................................6
Meaning of Conditions [Section 12(2)] ...................................................................................6
Meaning of Warranty [Section 12(3)]......................................................................................6
Conditions to be treated as Warranty [Section 13] ...................................................................6
CAVEAT EMPTOR & IT’S EXCEPTION : ...........................................................................7
MEANING OF PASSING OF PROPERTY/ TRANSFER OF PROPERTY ................................ 10
SIGNIFICANCE OF TRANSFER OF PROPERTY ................................................................. 11
RULES RELATING TO PASSING OF PROPERTY/TRANSFER OF OWNERSHIP FROM
SELLER TO BUYER............................................................................................................... 12
Essentials for Transfer of Property............................................................................................ 12
PERFORMANCE OF THE CONTRACT .................................................................................... 13
Rights and Duties of The Buyer ................................................................................................ 13
Rights and Duties of the Seller ................................................................................................. 14
UNPAID SELLER AND HIS RIGHTS ....................................................................................... 15
RIGHTS OF AN UNPAID SELLER [SECTION 46-52, 54-56, 60-61] .................................... 15
I. Rights against the goods .................................................................................................... 15
1. Right of Lien [Section 47, 48 and 49]............................................................................. 16
2. Right of Stoppage of Goods in Transit [Sec. 50] ............................................................ 16
3. Right of Resale [Section 46(1) and 54] ........................................................................... 17
II. Rights of Unpaid Seller against the Buyer Personally ..................................................... 17
1. Suit for price (Sec. 55) ................................................................................................... 17
2. Suit for damages for non-acceptance (Sec. 56) ................................................................ 17
Buyer's Remedies Against Seller For Breach of Contract .......................................................... 18
1. Suit for Damages for Non-Delivery ...................................................................................... 18
2. Suit for price ......................................................................................................................... 18
3. Suit for specific performance ................................................................................................ 18
4. Suit for Breach of Warranty .................................................................................................. 18
5. Suit for Damages for Repudiation of contract before Due date (Anticipatory Breach) ........... 18
6. Suit for Interest [Section 61(2)] ......................................................................................... 19
 SALE OF GOODS ACT 1930
The sale of Goods Act deals with “contract of sale of goods”.

“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.”

‘Contract of sale’ is a generic term which includes both a sale as well as an agreement to sell.

Distinction Between Sale And Agreement To Sale :

BASIS SALE AGREEMENT TO SALE

Meaning When in a contract of sale, When in a contract of sale the parties

the exchange of goods for to contract agree to exchange the
money consideration takes goods for a price at a future
place immediately, it is specified date is known as an
known as Sale. Agreement to Sell.

Nature Absolute Conditional

Type of Contract It is an executed contract. It is an executory contract.

Title In sale, the title of goods In an agreement to sell, the title of

transfers to the buyer with goods remains with the seller as
the transfer of goods. there is no transfer of goods.

Transfer of risk Yes (as risk passes with No

property).

Consequences of Responsibility of buyer. Responsibility of seller.

subsequent loss or
damage to the goods

Right of unpaid seller Right to sue for the price. Right to sue for damages.

Suit for breach of The buyer can claim Here the buyer has the right to claim
contract by the seller damages from the seller damages only.
and proprietary remedy
from the party to whom the
goods are sold.
FORMATION OF CONTRACT OF SALE :

INGRIDIENTS/ESSENTIALS :

1. Seller and buyer ( Parties to contract of sale)

There must be a seller as well as a buyer.

“Buyer” means a person who buys or agrees to buy goods [Section 29(10)]. “Seller” means a person
who sells or agrees to sell goods [Section 29(13)].

2. Goods
There must be some goods.

“Goods” means

 every kind of movable property

 other than actionable claims and money
 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. [Section 2(7)].

3. Transfer of property
Property means the general property in goods, and not merely a special property. [Section 2(11)].

General property in goods means ownership/ title of the goods.

Special property in goods means possession of goods.

Thus, there must be either a transfer of ownership of goods or an agreement to transfer the ownership
of goods. The ownership may transfer either immediately on completion of sale or sometime in future
in agreement to sell.

For example : Transfer of Title : Contract of Sale.

Transfer of possession : may be Bailment, Pledge, Mortgage as well etc.

4. Price
There must be a price. Price here means the money consideration for a sale of goods. [Section 2(10)].

When the consideration is only goods, it amounts to a ‘barter’ and not sale. When there is no
consideration, it amounts to gift and not sale.

5. Essential elements of a valid contract

In addition to the aforesaid specific essential elements, all the essential elements of a valid contract as
specified under Section 10 of Indian Contract Act, 1872 must also be present since a contract of sale is
a special type of a contract.
MEANING AND TYPES OF GOODS

Meaning of goods [Section 2(7)]

Goods mean every kind of movable property other than actionable claims and money, and include the
following:

 Stock and share

 Growing crops, grass and thing attached to or forming part of the land which are agreed to be served
before sale or under the Contract of sale.

Types of Goods [Section 6]

1.Existing Goods
Existing goods mean the goods which are either owned or possessed by the seller at the time of
contract of sale.The existing goods may be specific or ascertained or unascertained as follows:

a) Specific and Ascertained Goods: [Section 2(14)]:

Specified goods are the goods which are identified and agreed upon at the time when a contract of sale
is made.

For example : specified TV, VCR, Car, Ring.

Goods are said to be ascertained when out of a mass of unascertained goods, the quantity extracted for
is identified and set aside for a given contract. Thus, when part of the goods lying in bulk are identified
and earmarked for sale, such goods are termed as ascertained goods.

c) Unspecified/Unsanctioned Goods:

These are the goods which are not identified and agreed upon at the time when a contract of sale is
made.

e.g. goods in stock or lying in lots.

2. Future Goods [Section 2(6)]

Future goods mean goods to be manufactured or produced or acquired by the seller after the making of
the contract of sale. There can be an agreement to sell only. There can be no sale in respect of future
goods because one cannot sell what he does not possess.

3. Contingent Goods [Section 6(2)]

These are the goods the acquisition of which by the seller depends upon a contingency which may or
may not happen.

E.g.: Farmer making a contract to supply 100 KG of paddy if proper rain falls in the season.
CONDITIONS AND WARRANTIES
It is usual for both seller and buyer to make representations to each other at the time of entering into a
contract of sale. Some of these representations are mere opinions which do not form a part of contract
of sale. Whereas some of them may become a part of contract of sale.

Representations which become a part of contract of sale are termed as stipulations which may rank as
condition and warranty.

The terms on which the contract of sale is based are either known as condition or warranties.

E.g. a mere commendation of his goods by the seller doesn’t become a stipulation and gives no right
of action to the buyer against the seller as such representations are mere opinion on the part of the
seller. But where the seller assumes to assert a fact of which the buyer is ignorant, it will amount to a
stipulation forming an essential part of the contract of sale.

Meaning of Conditions [Section 12(2)]

A condition is a stipulation which is essential to the main purpose of the contract
The breach of which gives the aggrieved party a right to reject the goods and right to terminate the
contract.

The essential stipulation to the main purpose of contract.

For example: Y ordered a Red Saree for her wedding day to be delivered by 4 th Dec. i.e., her wedding
day , but the supplier delivered black Saree on 5th dec. after her wedding.

It is a breach of condition and the contract will be repudiated.

Meaning of Warranty [Section 12(3)]

A warranty is a stipulation which is collateral to the main purpose of the contract
The breach of which gives the aggrieved party a right to claim damages but not a right to reject
goods and to terminate the contract.

The coletral, subsidiary or ancillary stipulation to the main purpose of contract.

For example: Y ordered a black coat to be used in winters to be delivered by 4 th Dec., but the supplier
delivered it on 5th dec.

It is a breach of warranty and the contract will not be repudiated.

Conditions to be treated as Warranty [Section 13]

In the following three cases a breach of a condition is treated as a breach of a warranty:

 Where the buyer waives a condition; once the buyer waives a condition, he cannot insist on its
fulfillment.

e.g. by accepting defective goods or beyond the stipulated time amount to waiving a conditions.
 Where the buyer elects to treat breach of the condition as a breach of warranty.

e.g., where he claims damages instead of repudiating the contract.

 Where the contract is not severable and the buyer has accepted the goods or part thereof, the
breach of any condition by the seller can only be treated as breach of warranty.

It cannot be treated as a ground for rejecting the goods unless otherwise specified in the contract.
Thus, where the buyer after purchasing the goods finds that some condition is not fulfilled, he cannot
reject the goods. He has to retain the goods entitling him to claim damages.

CAVEAT EMPTOR & IT’S EXCEPTION :

Section 16 of the Sale of Goods Act 1930 incorporates the principle of caveat emptor which reads
as-

“Subject to the provisions of this act or any other law for the time being in force there is no
implied condition or warranty as to quality or fitness for any particular purpose of goods
supplied.”

Scope Of Caveat Emptor

In Ward v. Hobbes (1878) 4 AC 13, the House of Lords held that a vendor cannot be expected to
use artifice or disguise to conceal the defects in the product sold, since that would amount to fraud
on the vendee; yet the doctrine of caveat emptor does not impose duty on vendor to disclose each
and every defect in the product. The caveat emptor imposes such obligation on vendee to use care
and skill while purchasing such product.

In Wallis v. Russel (1902) 2 IR 585, the Court of Appeal explained the scope of caveat emptor-

“Caveat emptor does not mean in law that the buyer must “take a chance,” it means he must “take
care.” It applies to the purchase of specific things, e.g. a horse, or a picture, upon which the buyer
can, and usually does, exercise his own judgment; it applies also whenever the buyer voluntarily
chooses what he buys; it applies also whereby usage or otherwise it is a term of the contract, that
the buyer shall not rely on the skill or judgment of the seller.”

Exceptions To The Rule Of Caveat Emptor- Section 16 of The Sale of Goods Act, 1930

1. Section 16(1) – Fitness for buyers purpose

Sub section (1) of Section 16 of the said Act prescribes the circumstances in which the seller is
obliged to supply goods to the buyer as per the purpose for which he intends to make a purchase. It
states that when the seller either expressly or by necessary implication is aware of the purpose for
which buyer makes purchase thereby relying on seller’s skill and judgment and the goods to be
purchased are of a description which the seller in his ordinary course of business supply, then there
is as implied condition that the goods shall be reasonably in accordance with the purpose
Requirements of the Section 16(1) are as follows:-

 The buyer should make the seller aware of the particular purpose for which he is making
purchase;

 The buyer should make purchase on the basis of seller’s skill or judgment;

 The goods must be of a description which it is in the course of the seller’s business to
supply.

In the case of Shital Kumar Saini v. Satvir Singh, the petitioner purchased a compressor with one
year warranty. The defect appeared within three months. The petitioner asked for a
replacement. The seller replaced it but without providing any further warranty. The State
Commission allowed it to be rejected stating that there was an implied warranty guaranteed under
Section 16 of the Sale of Goods Act, 1930 that the goods should be reasonably fit for the purpose
for which they are sold.

Sale under Trade Name [Proviso to S. 16 (1)]

Sometimes a buyer purchases goods not on the basis of skill and judgment of the seller but by
relying on the trade name of the product. In such case, it would be unfair to burden the seller with
the responsibility for quality. The proviso to Section 16 of the Sale of Goods Act, 1930 deals with
such cases. The proviso says:

“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 the fitness for any particular purpose.”

Merchantable quality [Section 16(2)]

The second important exception to the doctrine of caveat emptor is incorporated in Section 16(2)
of the Act. The Section provides that the dealer who sells the goods has a duty to deliver the goods
of merchantable quality.

Sub-Section (2) which contains this exception says:

“Where the 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 the merchantable quality.”

Meaning of Merchantable Quality: Merchantable quality means that if the goods are purchased
for resale they must be capable of passing in the market under the name or description by which
they are sold.

Merchantable quality depends on two factors:-

  Marketability- Merchantability does not merely mean that the goods shall be marketable,
but that they shall be marketable at their full value. “Merchantability does not mean that the
things are saleable in the market because it looks all right; it is not merchantable in that
event if it has defects unfitting it for its only proper use but not apparent on ordinary
examination.”

 Reasonable fitness for general purposes- “Merchantable quality” means, in the second
place, that if the goods are purchased for self-use, they must be reasonably fit for the
purpose for which they are generally used. Example: The plaintiff bought a hot-water bottle
which is ordinarily used for application of heat to the human The bottle burst scalding the
plaintiff’s wife. The seller was held liable.

Examination by buyer [Proviso to S.16(2]

The proviso to section 16(2) declares that “if the buyer has examined the goods, there shall be no
implied condition as regards defects which such examination ought to have revealed. The
requirement of the proviso is satisfied when the seller gives the buyer full opportunity to examine
the goods and whether the buyer made any use of the opportunity or not should make no
difference.

Conditions implied by trade usage [ Sec. 16(3)]

Sub-Section (3) of section 16 gives statutory force to conditions implied by the usage of a
particular trade. It says:

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

In another case of Peter Darlington Partners Ltd v Gosho Co Ltd, where a contract for the sale of
canary seed was held subject to the custom of the trade that for impurities in the seed, the buyer
would get a rebate on the price, but would not reject the goods.

However, an unreasonable custom will not, however, affect the parties’ contract.

Express Terms [ Section 16(4)]

It is open to the parties to include any express conditions or warranties in their contract. But an
express warranty or condition does not negative a warranty or condition implied by the Act unless
the express terms are inconsistent with the implied conditions. Thus, where sleepers supplied to a
railway company were required to be approved by its experts, it was held that it did not exclude the
implied condition of merchnatableness.

Origin Of Caveat Venditor:

In the twentieth century with the enactment of English Sale of Goods Act, 1893 and later modified
by English Sale of Goods Act, 1979 the exceptions to the rule of caveat emptor have become more
prominent than the rule itself. Further, on account of the complex structure of modern goods, it is
only the sellers who can assure the contents and the quality of the goods. For these reasons, it
became necessary to restrict the rule of caveat emptor by grafting a few exceptions upon its scope.
There is a duty now to deliver appropriate goods and also to provide appropriate information about
them. Thus, it has led to the birth of ‘caveat venditor’ which means ‘let the seller beware’ in
contrast to caveat emptor.

Caveat Venditor:The development of seller’s obligation

It has been observed: “Caveat emptor is dying or so it is often supposed. And this death is thought
to be no isolated event, but to exemplify the death of freedom of contract generally. Contracting
parties are no longer free to set what terms they wish, except, in particular, tightly-defined market,
sellers, can no longer abuse their freedom by selling sub-standard goods and relying on exclusion
clauses. The benevolent hand of law has replaced the harsh rule of the market.

With its origin being traced in the need for disclosure of information for the purpose of facilitating
the reason for purchase of the buyer, gradually this rule has gained prominence and the obligations
of the seller have been given proper shape along with various statutes and case laws limiting the
rule of caveat emptor to ‘reasonable examination’. Examples like beer contaminated with arsenic,
milk-containing typhoid germs are good enough to establish that courts have been generous
enough to exempt the buyer from the duty to examine the goods where the defects could not have
been traced in ordinary circumstances

The first test which was accepted by the Law Commission was the statement of Justice Dixon
in Australian Knitting Mills v. Grant, that the goods should be in such an actual state that the buyer
fully acquainted with the facts and, therefore, knowing that hidden defects existed and not being
limited to their apparent condition would buy them without abatement of price obtainable for such
goods if in reasonably sound order and condition and without any special terms. The second test
was the ‘usability test’ by the Law Commission comes from the verdict of Lord Reid in the case
of Kendall v. Lillico & Sons Ltd, what sub-section (2) now means by ‘merchantable quality’ is that
the goods in the form in which they were tendered were of no use for any purpose for which goods
which complied with the description under which these goods were sold normally to be used, and
hence not sellable under that description.

MEANING OF PASSING OF PROPERTY/ TRANSFER OF PROPERTY

“Passing of property implies transfer of ownership and not the physical possession of goods.”

When goods are sold the general property in goods (ownership) transfer from seller to buyer.
The Transfer of ownership may not mean transfer of property or vice-versa. Sometimes the property in
goods is transferred without delivery of goods and sometimes the property is delivered and but
property in goods (ownership) is not transferred.

For example: where a principal sends goods to his agent, he merely transfers the physical possession
and not the ownership of goods. Here, the principal is the owner of the goods but is not having
possession of goods and the agent is having possession of goods but is not the owner.

SIGNIFICANCE OF TRANSFER OF PROPERTY

“THE RISK INVOLVED WITH THE PROPERTY PASSES WITH THE PASSING OF
PROPERTY.”

The time of transfer of ownership of goods decides various rights and liabilities of the seller and the
buyer. Hence, It is essential to determine the time of passing of property, in order to fix the
responsibility on loss or destruction of property.

Thus, it becomes very important to know the exact time of transfer of ownership of goods from seller
to buyer to answer the following questions:

a. Ownership -- The moment the property in goods passes, the seller ceases to be their owner and
the buyer acquires the ownership. The buyer can exercise the proprietary rights over the goods.
For example, the buyer may sue the seller for non-delivery of the goods or when the seller has
resold the goods, etc.

b. Who shall bear the risk?

It is the owner who has to bear the risk and not the person who merely has the possession.

Risk follows ownership -- The general rule is that the risk follows the ownership, irrespective
of whether the delivery has been made or not. If the goods are damaged or destroyed, the loss
shall be borne by the person who was the owner of the goods at the time of damage or
destruction. Thus the risk of loss prima facie is in the person in whom the property is.

c. Who can take action against third party?

It is the owner who can take action and not the person who merely has the possession.

Action Against Third parties -- When the goods are in any way damaged or destroyed by the
action of third parties, it is only the owner of the goods who can take action against them.

d. Who can sue for price?

The seller can sue for the price only if the ownership of goods has been transferred to the
buyer.

Suit for Price - The seller can sue the buyer for the price, unless otherwise agreed, only after
the gods have become the property of the buyer.
 e. In case of insolvency of a buyer whether the official receiver or assignee can take the
possession of goods from seller?
The Official Receiver or Assignee can take the possession of of goods from seller only if the
ownership of goods has been transferred to the buyer.
f. In case of insolvency of a seller whether the official receiver or assignee can take the
possession of goods from buyer?
The official receiver or assignee can take the possession of goods from buyer only if the
ownership of goods has not been transferred to the buyer.

Insolvency - In the event of insolvency of either the seller or the buyer, the question whether
the goods can be taken over by the Official Receiver or Assignee, will depend on whether the
property in goods is with the party who has become insolvent.

RULES RELATING TO PASSING OF PROPERTY/TRANSFER OF

OWNERSHIP FROM SELLER TO BUYER
For the purposes of ascertaining the time at which the ownership is transferred from seller to the
buyer, the goods have been classified into the following three categories:

a) Specific or ascertained goods.

Specific goods mean goods identified and agreed upon at the time when a contract of sale is made.
[Section 2(14)]

b) Unascertained goods.

c) Goods sent ‘on approval’ or ‘on sale on return’ basis.

Essentials for Transfer of Property

The two essentials requirements for transfer of property in the goods are:

1. Goods must be ascertained/specified: Unless the goods are ascertained, they (or the
property therein) cannot pass from the seller to the buyer. Thus, 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

2. Intention to PASS Property in Goods must be there: In a 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 regard shall be had to the terms of the contract, the conduct of the
parties and the circumstances of the case.
PERFORMANCE OF THE CONTRACT
It is the duty of the seller and buyer that the contract is performed. The duty of the seller is to deliver
the goods and that of the buyer to accept the goods and pay for them in accordance with the contract of
sale.

Rights and Duties of The Buyer

RIGHT DUTIES

1. To have delivery of the goods as per 1 To accept the delivery of goods, when
contract. (secs. 31 & 32) the seller is willing to make the
delivery as per the contract

(Sec. 31)

2. To reject the goods when they are not 2. To pay the price in exchange for
of the description, quality or quantity as possession of the goods
specified in the contract (Sec 37).

3. To repudiate the contract when goods 3. To apply for delivery of the goods.
are delivered in installments without (Sec. 35)
any agreement to that effects [ Sec. 38
(1)]

4. To be informed by the seller, when the 4 To demand delivery of the goods at a

goods are to be sent by sea route, so reasonable hour ( sec 36 (4)]
that he may arrange for their insurance
[Sec 39 (30)]

5 To have a reasonable opportunity to 5 To accept delivery of the goods in

examine the goods for ascertaining installments and pay for them, in
whether they are in conformity with the accordance with the contract. (Sec. 38
contract. (sec. 41) (2)

6 To sue the seller for recovery of the 6 To bear the risk of deterioration in the
price, if already paid, when the seller course of transit, when the goods are to
fails to deliver the goods. be delivered at a place other than
where they are sold ( sec 40)

7 To sue the seller for damages if the 7 To inform the seller in case the buyer
seller wrongfully neglects or refuses to refuses to accept or rejects the goods (
deliver the gods to the buyer ( sec 57) sec 43)

8 To sue the seller for specific 8 To take the delivery of the goods within
performance a reasonable time after the seller
tenders the delivery (Sec. 44)
9 9

To sue the seller for damages for To pay the price, where the property in
breach of a warranty or for breach of a the goods are passed to the buyer, in
condition treated as breach of a accordance with the terms of the
warranty ( Sec 59) contract ( Sec 55)

10 To sue the seller the damages for 10 To pay damages for non-acceptance of
anticipatory breach of contract ( Sec goods ( Sec 56)
60)

11 To sue the seller for interest where

there is a breach of contract on the part
of the seller and price has to be
refunded to the buyer ( sec 61)

Rights and Duties of the Seller

The rights and duties of a seller, under the Act, may be summarized as below:

RIGHT DUTIES
1. To reserve the right of disposal of the goods 1 To make the arrangement for transfer of
until certain conditions are fulfilled. ( sec 25 property in the goods to the buyer.
(1)
2. To assume that the buyer has accepted 2. To ascertain and appropriate the goods to the
the goods , where the buyer contract of sale

(i) Conveys his acceptance;

(ii) Does an act adopting the sale; or
(iii) Retains the goods without giving a notice
of rejection, beyond the specified date (or
reasonable time), in a sale on approval. (sec
24)
3. To deliver the goods only when applied for
by the buyer ( sec 35)
4. To make delivery of the goods in
installments, when so agreed ( sec 39 (1)
5. To exercise lien and retain possession of the 5.
goods, until payment of the price ( sec 47 (1)
6. To stop the goods in transit and resume 6.
possession of the goods, until payment of the
price ( sec 49 (2) and 50
3. To pass an absolute and effective title to the
goods, to the buyer.
4. To deliver the goods in accordance with the
terms of the contract ( sec 31)
To ensure that the goods supplied conform to
the implied / express conditions and
warranties.
To put the goods in a deliverable state and to
deliver the goods as and when applied for by
the buyer ( sec 35)
7 To resell the goods under certain 7 To deliver the goods within the time specified
circumstances ( sec 54) in the contract or within a reasonable time
and a reasonable hour. [ sec 36 (2) and (4)]
8 To withhold delivery of the goods when the 8 To bear all expenses of and incidental to
property in the goods has not passed to the making a delivery ( i.e. upto the stage of
buyer (sec 46 (2) putting the goods into a deliverable sate 0
(sec 36 (5)
9 To sue the buyer for price when the property 9 To deliver the goods in the agreed quantity.
in the goods has passed to the buyer or when (Sec. 37 (1).
the price is payment on a certain day, in
terms of the contract, and the buyer fails to
make the payment (sec 55)
10 To deliver the goods in installments only
when so desired by the buyer. (Sec 38 (1))
11 To arrange for insurance of the goods while
they are in transmission or custody of the
carrier. (Sec. 39 (2).
12 To inform the buyer in time, when the goods
are sent by a sea route, so that he may get the
goods insured [Sec. 39 (3) ]

UNPAID SELLER AND HIS RIGHTS

Meaning of an Unpaid Seller [Sec 45(1)(2)]

The seller of goods is deemed to be an ‘unpaid seller’-

When the whole of the price has not been paid or tendered. When a bill of exchange or other
negotiable instrument (such as cheque) has been received as conditional payment, and it has been
dishonored. [Section 45(1)].

The term ‘seller’ includes any person who is in the position of a seller (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). [Section 4592)].

RIGHTS OF AN UNPAID SELLER [SECTION 46-52, 54-56, 60-61]

The rights of an unpaid seller can broadly be classified under the following two categories:

 Rights against the goods

 Rights against the buyer personally

I. Rights against the goods

(where the property in the goods has passed to the buyer)
1. Right of Lien [Section 47, 48 and 49]
The right of lien means the right to retain the possession of the goods until the full price is received.

Three circumstances under which right of lien can be exercised. [Section 47(1)]

1. Where the goods have been sold without any stipulation to credit; (Cash-Sale)
2. Where the goods have been sold on credit, but the term of credit has expired; (Credit - Sale)
3. Where the buyer becomes insolvent.

Other provisions regarding right of lien. [Sections 47(2), 48, 49(2)]

1. The seller may exercise his right of lien when he is in possession of goods, even if he possesses the
goods as agent or bailee for buyer. [Section 47(2)]

2. 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 agreement to
waive the lien. [Section 48].

3. The seller may exercise his right of lien even though he has obtained a decree for the price of the
goods. [Section 49(2)].

In the following cases circumstances under which right of lien cannot be exercised:

1. 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. [Section 49(1)(a)].

2. When the buyer or his agent lawfully obtains possession of the goods. [Section 49(1)(b)]

3. When the seller waives his right of lien. [Section 49(1)(c)].

4. When the buyer disposes of the goods by sale or in any other manner with the consent of the seller.
[Section 53(1)].

5. Where document of title to goods has been issued or lawfully transferred to any person as buyer or
owner of the goods and that person transfers the document by way of sale, to a person who takes the
document in good faith and for consideration. [Proviso to Section 53(1)].

2. Right of Stoppage of Goods in Transit [Sec. 50]

The right of stoppage of goods means the right of stopping the goods while they are in transit, to
regain possession and to retain them till the full price is paid.

Conditions under which right of stoppage in transit can be exercised. [Section 50]

The unpaid seller can exercise the right of stoppage in transit only if the following conditions are
fulfilled:

a. The seller must be an unpaid seller.

 b. The seller must have parted with the possession of goods, i.e. the goods must not be in the
possession of seller. (the goods must be delivered to the carrier.)
c. The goods must be in the course of transit.
d. The goods must have not been delivered to the buyer.
e. The buyer must have become insolvent.

3. Right of Resale [Section 46(1) and 54]

An unpaid seller can resell the goods under the following three circumstance:

1. Where the goods are of a perishable nature.

2. Where the seller expressly reserves a right of resale if the buyer commits a default in making
payment.

3. Where the unpaid seller who has exercised his right of lien or stoppage in transit gives a notice to
the buyer about his intention to resell and buyer does not pay or tender within a reasonable time.

II Rights against the goods

(where the property in the goods has not passed to the buyer)

Right of withholding delivery. [Section 46(2)]

Where the property in the goods has not been passed to the buyer, the unpaid seller, cannot exercise
right of lien, but get a right of withholding the delivery of goods, similar to and co-extensive with lien
and stoppage in transit where the property has passed to the buyer.

II. Rights of Unpaid Seller against the Buyer Personally

The unpaid seller, in addition to his rights against the goods as discussed above, has the following
three rights of action against the buyer personally:

1. Suit for price (Sec. 55)

Where property in goods has passed to the buyer; or where the sale price is payable ‘on a day certain’,
although the property in goods has not passed; and the buyer wrongfully neglects or refuses to pay the
price according to the terms of the contract, the seller is entitled to sue the buyer for price, irrespective
of the delivery of goods. Where the goods have not been delivered, the seller would file a suit for price
normally when the goods have been manufactured to some special order and thus are unsalable
otherwise.

2. Suit for damages for non-acceptance (Sec. 56)

Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue
him for damages for non-acceptance. The seller’s remedy in this case is a suit for damages rather than
an action for the full price of the goods.
Buyer's Remedies Against Seller For Breach of Contract
A buyer also has certain remedies against the seller who commits a breach. These are:

1. Suit for Damages for Non-Delivery

When the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue
the seller for damages for non-delivery. This is in addition to the buyer's right to recover the price, if
already paid, in case of non-delivery.

2. Suit for price

Where the buyer has paid the price and the goods are not delivered to him, he can recover the amount
paid.

3. Suit for specific performance

When the goods are specific or ascertained, a buyer may sue the seller for specific performance of the
contract and compel him to deliver the same goods. The court orders for specific performance only
when the goods are specific or ascertained and an order for damages would not be an adequate
remedy.

Specific performance is generally allowed where the goods are of special significance or value e.g. a
rare paining, a unique piece of jewellery, etc.

4. Suit for Breach of Warranty

Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat the
breach of condition as breach of warranty, the buyer cannot reject the goods. The buyer may,

(a) set up the breach of warranty in extinction or diminution of the price payable by him, or

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

5. Suit for Damages for Repudiation of contract before Due date (Anticipatory
Breach)
Where the seller repudiates the contract before the date of delivery, the buyer may adopt any of the
following two courses of action. --

A. He may treat the contract as rescinded and sue the seller for damages. This is also known
as 'damages for anticipatory breach'. The damages will be assessed according to the prices
prevailing on the date of breach.

B. He may treat the contract as subsisting and wait till the date of delivery. The contract
remains open at the risk and for the benefit of both the parties. If the seller subsequently
chooses to perform there shall be no damages otherwise he shall be liable to damages assessed
according to the prices on the day stipulated for delivery.
6. Suit for Interest [Section 61(2)]
In case of breach of the contract on the part of seller, the buyer may sue the seller for interest from the
date on which the payment was made.

The buyer may recover such interest or special damages, as may be recoverable by law. He may also
recover the money paid where the consideration for the payment of it has failed.

In the absence of a contract to the contrary, the court may award interest, to the buyer, in a suit by him
for the refund of the price in a case of a breach on the part of the seller, at such rate as it thinks fit on
the amount of the price from the date on which the payment was made.