Sale Of Goods
Introduction
The Sale of Goods Act, 1930 governs the contracts relating to sale of goods. It applies to the whole of India except the State of Jammu & Kashmir.
The contacts for sale of goods are subject to the general principles of the law relating to contracts i.e. the Indian Contact Act. A contract for sale of goods has, however, certain peculiar features such as, transfer of ownership of the goods, delivery of goods rights and duties of the buyer and seller, remedies for breach of contract, conditions and warranties implied under a contract for sale of goods, etc. These peculiarities are the subject matter of the provisions of the Sale of Goods Act, 1930.
ELEMENTS OF A SALE, SALE CONTRACT AND GOODS?
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. It thus includes both an actual 'sale' and an 'agreement to sell', which has been distinguished later.
'Goods' means every kind of movable property other than actionable claims and money; and includes stocks and shares, growing crops, grass and things attached to or forming part of the land, which are agreed to be served from land before sale, or under for contract of sale.
A 'sale' must be distinguished from an 'agreement to sell' since the legal implications of the two terms are vastly different. A contract wherein, the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of property in the goods is to take place at a future time, or subject to some conditions, thereafter to be fulfilled, it is called an agreement to sell. 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.
Effects Of Destruction Of Goods รข€“ Already Contracted
There are various kinds of goods and the parties have various options to agree about the delivery of the goods. What shall be the fate of a contract if the goods are perished or destroyed?
Destruction before making of contract-- Where in a contract for sale of specific goods, at the time of making the contract, the goods, without knowledge of the seller, have perished or become so damaged as no longer to answer to their description in the contract, the contract shall become null and void. This is based on the rule of impossibility of performance. Since the subject matter of the contract, which is one of its essential ingredients, itself is destroyed, the contract cannot be carried out.
'Perishing of goods' includes not only complete destruction of the goods when the seller has been irretrievably deprived by the goods or when the goods have been stolen or have in some other way been lost and are untraceable, but also when the goods become un merchantable i.e. when the goods has lost their commercial value.
Destruction After the Agreement to Sell but before Sale-- Where in an agreement to sell specific goods, if subsequently the goods, without any fault on the part of the seller of buyer, perish or become so damaged as no longer answer to their description in the agreement, the agreement shall become void, provided the goods are perished before the ownership and risk passes to the buyer. This rule is based on the ground of impossibility of performance.
If the title to be goods has already passed to the buyer, he must pay for the goods though the same cannot be delivered.
Documents Of Title To Goods
A document of title to goods is one, which entitles and enables its rightful holder to deal with the goods represented by it, as if he were the owner. It is used in the ordinary course of business as proof of the ownership, possession or control of goods. It authorises the possessor to receive the goods. It also confers a right on the possessor to transfer the goods to another person, by mere delivery or by proper endorsement the delivery.
Cash memo, bill of lading, dock warrant, warehouse keeper's or wharfinger's certificate, lorry receipt (L/R), railway receipt (R/R) and delivery order are some of the instances of document of title to goods.
Express & Implied Conditions/Warranties: A Sale
Conditions and warranties may be express or implied.
Express conditions and warranties are which, are expressly provided in the contract. Implied conditions and warranties are those which are implied by law or custom; these shall prevail in a contract of sale unless the parties agree to the contrary.
Condition as to title-- 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 case of a sale, he has a right to sell the goods, and
In case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass.
The words 'right to sell' contemplate not only that the seller has the title to what he purports to sell, but also that the seller has the right to pass the property. If the seller's title turns out to be defective, the buyer may reject the goods.
Condition as to Description-- In a contract of sale by description, there is an implied condition that the goods shall correspond with the description. The term ' sale by description' includes the following situation;
Where the buyer has not seen the goods and buys them relying on the description given by the seller.
Where the buyer has seen the goods but he relies not on what he has seen but what was stated to him and the deviation of the goods from the description is not apparent.
Packing of goods may sometimes be a part of the description. Where the goods do not conform to be method of packing described (by the buyer or the seller) in the contract, the buyer can reject the goods.
Condition as to Quality or Fitness-- Where the buyer, expressly or by implication, makes known the seller the particular purpose for which 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 or not as the manufacturer of producer), there is an implied condition that the goods shall be reasonably fit for such purpose. In other words, this condition of fitness shall apply, if:
The buyer makes known to the seller the particular purpose for which the goods are required,
The buyer relies on the seller's skill or judgment,
The goods are of a description which he sellers ordinarily supplies in the course of his business, and
The goods supplied are not reasonably fit for the buyer's purpose.
Condition as to Merchantability-- Where the goods are bought by description from a seller, who deals in goods of that description (whether or not as the manufacturer or producer) there is an implied condition that the goods shall be of merchantable quality.
Merchantable quality ordinarily means that the goods should be such as would be commercially salable under the description by which they are known in the market at their full value.
Condition as to Wholesomeness-- In case of sale of eatable provisions and foodstuff, there is another implied condition that the goods shall be wholesome. Thus, the provisions or foodstuff must not only correspond to their description, but must also be merchantable and wholesome. By 'wholesomeness' it means that goods must be for human consumption.
Condition Implied by Custom or Trade Usage-- An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade. In certain sale contracts, the purpose for which the goods are purchased may be implied from the conduct of the parties or from the nature or description of the goods. In such cases, the parties enter into the contract with reference to those known usage. For instance, if a person buys a perambulator or a medicine the purpose for which it is purchased is implied from the thing itself; the buyer need not disclose the purpose to the seller.
Conditions in a Sale by Sample-- 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. Usually, a sale by sample is implied when a sample is shown and the parties intend that the goods should be of he kind and quality as the sample is.
Conditions in a sale by Sample as well as by Description-- A vast majority of cases where samples are shown, are sales by sample as well as by description. In a contract for sale by sample as well as by description, the goods supplied must correspond both with the sample as well as with the description.
IMPLIED WARRANTIES
A condition becomes a warranty when--
the buyer waives the conditions or opts to treat the breach of the condition as a breach of warranty ; or
The buyer accepts the goods or a part thereof, or is not in a position to reject the goods.
Implied Warranty of Quiet Possession-- In every contract of sale, unless there is a contrary intention, there is implied warranties that the buyer's shall have and enjoy quiet possession of the goods. If the buyer's right to possession and enjoyment of the goods is in any way disturbed as consequences of the seller's defective title, the buyer may sue the seller for damages for breach of this warranty.
Implied Warranty of Freedom from Encumbrances-- The buyer is entitled to a further warranty that the goods shall be free from any charge or encumbrance in favour of any third party not declared or known to buyer before or at the time when the contract is made. If the buyer is required to discharge the amount of the encumbrance it shall be a breach of this warranty and the buyer shall be entitled to damages for the same.
Transfer Of Property In Goods
The property in the goods is said, to be transferred from the seller to the buyer when the latter acquires the proprietary rights over the goods and the obligations linked thereto. 'Property in Goods' which means the ownership of goods, is different from ' possession of goods' which means the physical custody or control of the goods.
The transfer of property in the goods from the seller to the buyer is the essence of a contract of sale. Therefore the moment when the property in goods passes from the seller to the buyer is significant for following reasons:
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.
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.
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.
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.
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.
Essentials for Transfer of Property-- The two essentials requirements for transfer of property in the goods are:
Goods must be ascertained-- 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
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.
Types Of Contracts (With Regard To Delivery Of Goods)
There are various types of contracts from the point of view of the delivery of goods.
F.A.S. or F.A.R. Contract- F.A.S. stands for 'Free Alongside Ship' and F.A.R. stands for 'Free Along with Rail'. Under FAS or far contracts, the seller is required to deliver the goods alongside the ship or rail named in the contract and to notify the buyer that the goods have been so delivered. The property in the goods passes to the buyer when the seller delivers the goods alongside the ship or rail. Thereafter, it is the buyer's duty to arrange for the contract of affreightment and insurance of the goods while the transit.
F.O.B. OR F.O.R Contracts-- F.O.B. stands for 'Free on Board' and F.O.R. stands for 'Free on Rail'. In a F.O.B. (or F.O.R.) contract, the seller is required to deliver the goods on board the sip (or on rail), named in the contract. Thus, the seller has to bear all expenses upto and including shipment of goods on behalf of the buyer, who is responsible for their freight, insurance and subsequent expenses.
Thus, as soon as the goods are put on board the ship, the property in them passes to the buyer. This will be so even if the goods are not specific or ascertained. The buyer is liable to pay the price even if the goods are lost in transit. The property in goods shall, however not pass if the seller reserves the right of disposal.
C.I.F. Contract-- The words 'C.I.F.' stand for cost, insurance and freight. A CIF contract is a type of contract wherein the price includes cost, insurance and freight charges. Under a CIF contract the seller is required to insure the goods, deliver them to the shipping company, arrange for their affreightment and send the bill of lading and insurance policy together with the invoice and a certificate of origin to a bank. The documents are usually delivered by the bank against payment of seller since he continues to be the owner of goods until the buyer pays for them and obtains the documents. The property in the goods passes to the buyer on the delivery of documents. The buyer is equally protected as he is called upon to pay only against the documents and the moment he pays, he obtains the documents, which enable him to get delivery of the goods. If in the meantime the goods are lost neither the buyer nor the seller is put to loss, whoever is the owner at the time of the loss can recover it from the insurer.
Ex-ship contracts-- Under an 'ex-ship contract the seller has to delivery the goods to the buyer at the port of destination. In such contracts the property in the goods does not pass until actual delivery. The goods are at the seller's risk during the voyage. It is therefore, for the seller to insure the goods to protect his interest. The seller is to pay the freight, or otherwise release the ship owner's lien and to furnish the buyer with a delivery order or an effectual direction to the ship owner to deliver.
Rights Against The Goods
Where the property in the goods has passed to the buyer.
Right of Lien-- 'Lien is the right to retain possession of goods until certain charges in respect thereof are paid. An unpaid seller who is in possession of the goods is entitled to retain them until payment of the price, where --
The goods have been sold without any stipulation s to credit;
The goods have been sold on credit, but the term of credit has expired or
The buyer becomes insolvent.
Where the goods have been sold on credit, the right of lien shall remain suspended over the period of credit and shall revive on the expiry of that period.
The right of lien is linked with possession of the goods and not with the title. It is not affected even if the seller has transferred the documents of title till he remains in possession of the goods. However, if the buyer has further transferred the documents of title to a bona fide purchaser the seller's lien is defeated.
Right of Stoppage in transit--The right of stoppage of goods in transit, arises to an unpaid seller after he has parted with the possession of the goods. The seller has the right to resume possession of the goods while they are in the course of transit and to retain them until payment or tender of the price. The right of stoppage in transit is available to an unpaid seller, when the buyer becomes insolvent and the goods are in transit.
The buyer is said to be 'insolvent' when he has ceased to pay his debts in the ordinary course of business, or cannot pay his debts as they becomes due whether he has committed an act of insolvency or not.
Right of Resale-- The rights of lien and stoppage in transit, would not have been of much value if he seller had no right to resell the goods, because the seller cannot continue to hold the goods indefinitely. Section 54 provides an unpaid seller with a limited right to resell the goods.
An unpaid seller may resell the goods--
When the goods are of perishable nature, without giving any notice to the buyer, of the resale.
In case of other goods, when after giving a notice to the buyer of his intention to resell the goods, the buyer does not pay the price within a reasonable time; and
Where the seller has expressly reserved the right of resale in the contract. No notice to the buyer is required in that case.
Where the property in the goods has not passed to the buyer
Right of with holding Delivery -- Where the property in the goods has not passed to the buyer, the unpaid seller has the right to withhold delivery of the goods, which is similar to and co-extensive with his rights of lien and stoppage in transit which he would have had if the property had passed.
Rights Against the Buyer Personally (Seller's Remedies Against buyer for Breach of Contract)-- Besides, the above rights against the goods, an unpaid seller has certain rights against the buyer personally. The seller enjoys the following rights in personam (also known as remedies for breach of contract).
Suit for Price -- When the property in the goods has passed to the buyer, and the buyer wrongfully neglects or refuses to pay the price, the seller is entitled to sue him for the price.
Where under a contract of sale the price is payable on a certain day irrespective of delivery or passing of property, and the buyer refuses or neglects to pay on that day, the seller may sue him for the price.
Suit for Damages for Non-Acceptance -- Where the buyer wrongfully neglects or refuses to pay for the goods, the seller may sue him for damages for non-acceptance.
Suit for Damages for Repudiation of contract before date of delivery Where the buyer repudiates the contract before the date of delivery, the seller may adopt any of the following two courses of action, viz.-
The seller may treat the contact as rescinded and sue the buyer 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.
The seller 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 buyer 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.
Suit for Interest --The seller may recover interest or special damages whereby law interest or special damages may be recoverable.
Buyer's Remedies Against Seller For Breach of Contract
A buyer also has certain remedies against the seller who commits a breach. These are:
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.
Suit for price- Where the buyer has paid the price and the goods are not delivered to him, he can recover the amount paid.
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.
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.
Suit for Damages for Repudiation of contract before Due date-Where the seller repudiates the contract before the date of delivery, the buyer may adopt any of the following two courses of action--
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.
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.
Suit for interest- The buyer may recover such interest or special damages, as may be recoverable bylaw. 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.
Rights and Duties of The Buyer
RIGHT DUTIES
1. To have delivery of the goods as per contract. (secs. 31 & 32) 1.
To accept the delivery of goods, when the seller is willing to make the delivery as per the contract
(Sec. 31)
2. To reject the goods when they are not of the description, quality or quantity as specified in the contract (Sec 37). 2.
To pay the price in exchange for possession of the goods
3. To repudiate the contract when goods are delivered in installments without any agreement to that effects [ Sec. 38 (1)] 3. To apply for delivery of the goods. (Sec. 35)
4. To be informed by the seller, when the goods are to be sent by sea route, so that he may arrange for their insurance [Sec 39 (30] 4. To demand delivery of the goods at a reasonable hour ( sec 36 (4)
5. To have a reasonable opportunity to examine the goods for ascertaining whether they are in conformity with the contract. (sec. 41) 5. To accept delivery of the goods in installments and pay for them, in accordance with the contract. (Sec. 38 (2)
6. To sue the seller for recovery of the price, if already paid, when the seller fails to deliver the goods. 6. To bear the risk of deterioration in the course of transit, when the goods are to be- delivered at a place other than where they are sold ( sec 40)
7. -To sue the seller for damages if the seller wrongfully neglects or refuses to deliver the gods to the buyer ( sec 57) 7. To inform the seller in case the buyer refuses to accept or rejects the goods ( sec 43)
8. To sue the seller for specific performance 8. To take the delivery of the goods within a reasonable time after the seller tenders the delivery (Sec.- 44)
9. To sue the seller for damages for breach of a warranty or for breach of a condition treated as breach of a warranty ( Sec 59) 9. To pay the price, where the property in the goods are passed to the buyer, in accordance with the terms of the contract ( Sec 55)
10. To sue the seller the damages for anticipatory breach of contract ( Sec 60) 10. To pay damages for non-acceptance of goods ( Sec 56)
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 summarised as below:
RIGHT DUTIES
1.
To reserve the right of disposal of the goods until certain conditions are fulfilled. (sec 25(1))
1. To make the arrangement for transfer of property in the goods to the buyer.
2.
To assume that the buyer has accepted the goods, where the buyer
Conveys his acceptance;
Does an act adopting the sale; or
Retains the goods without giving a notice of rejection, beyond the specified date (or reasonable time), in a sale on approval. ( sec 24)
2. To ascertain and appropriate the goods to the contract of sale
3. To deliver the goods only when applied for by the buyer ( sec 35) 3. To pass an absolute and effective title to the goods, to the buyer.
4.
To make delivery of the goods in installments, when so agreed ( sec 39 (1)
4.
To deliver the goods in accordance with the terms of the contract ( sec 31)
5.
To exercise lien and retain possession of the goods, until payment of the price ( sec 47 (1)
5. To ensure that the goods supplied conform to the implied / express conditions and warranties.
6.
To stop the goods in transit and resume possession of the goods, until payment of the price ( sec 49 (2) and 50
6.
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 circumstances ( sec 54)
7. To deliver the goods within the time specified 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 property in the goods has not passed to the buyer (sec 46 (2)
8.
To bear all expenses of and incidental to making a delivery ( i.e. upto the stage of putting the goods into a deliverable sate 0 (sec 36 (5)
9.
To sue the buyer for price when the property in the goods has passed to the buyer or when the price is payment on a certain day, in terms of the contract, and the buyer fails to make the payment. (sec 55)
9. To deliver the goods in the agreed quantity. (Sec. 37 (1).
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) ]
The Sale of Goods Act, 1930 governs the contracts relating to sale of goods. It applies to the whole of India except the State of Jammu & Kashmir.
The contacts for sale of goods are subject to the general principles of the law relating to contracts i.e. the Indian Contact Act. A contract for sale of goods has, however, certain peculiar features such as, transfer of ownership of the goods, delivery of goods rights and duties of the buyer and seller, remedies for breach of contract, conditions and warranties implied under a contract for sale of goods, etc. These peculiarities are the subject matter of the provisions of the Sale of Goods Act, 1930.
ELEMENTS OF A SALE, SALE CONTRACT AND GOODS?
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. It thus includes both an actual 'sale' and an 'agreement to sell', which has been distinguished later.
'Goods' means every kind of movable property other than actionable claims and money; and includes stocks and shares, growing crops, grass and things attached to or forming part of the land, which are agreed to be served from land before sale, or under for contract of sale.
A 'sale' must be distinguished from an 'agreement to sell' since the legal implications of the two terms are vastly different. A contract wherein, the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of property in the goods is to take place at a future time, or subject to some conditions, thereafter to be fulfilled, it is called an agreement to sell. 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.
Effects Of Destruction Of Goods รข€“ Already Contracted
There are various kinds of goods and the parties have various options to agree about the delivery of the goods. What shall be the fate of a contract if the goods are perished or destroyed?
Destruction before making of contract-- Where in a contract for sale of specific goods, at the time of making the contract, the goods, without knowledge of the seller, have perished or become so damaged as no longer to answer to their description in the contract, the contract shall become null and void. This is based on the rule of impossibility of performance. Since the subject matter of the contract, which is one of its essential ingredients, itself is destroyed, the contract cannot be carried out.
'Perishing of goods' includes not only complete destruction of the goods when the seller has been irretrievably deprived by the goods or when the goods have been stolen or have in some other way been lost and are untraceable, but also when the goods become un merchantable i.e. when the goods has lost their commercial value.
Destruction After the Agreement to Sell but before Sale-- Where in an agreement to sell specific goods, if subsequently the goods, without any fault on the part of the seller of buyer, perish or become so damaged as no longer answer to their description in the agreement, the agreement shall become void, provided the goods are perished before the ownership and risk passes to the buyer. This rule is based on the ground of impossibility of performance.
If the title to be goods has already passed to the buyer, he must pay for the goods though the same cannot be delivered.
Documents Of Title To Goods
A document of title to goods is one, which entitles and enables its rightful holder to deal with the goods represented by it, as if he were the owner. It is used in the ordinary course of business as proof of the ownership, possession or control of goods. It authorises the possessor to receive the goods. It also confers a right on the possessor to transfer the goods to another person, by mere delivery or by proper endorsement the delivery.
Cash memo, bill of lading, dock warrant, warehouse keeper's or wharfinger's certificate, lorry receipt (L/R), railway receipt (R/R) and delivery order are some of the instances of document of title to goods.
Express & Implied Conditions/Warranties: A Sale
Conditions and warranties may be express or implied.
Express conditions and warranties are which, are expressly provided in the contract. Implied conditions and warranties are those which are implied by law or custom; these shall prevail in a contract of sale unless the parties agree to the contrary.
Condition as to title-- 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 case of a sale, he has a right to sell the goods, and
In case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass.
The words 'right to sell' contemplate not only that the seller has the title to what he purports to sell, but also that the seller has the right to pass the property. If the seller's title turns out to be defective, the buyer may reject the goods.
Condition as to Description-- In a contract of sale by description, there is an implied condition that the goods shall correspond with the description. The term ' sale by description' includes the following situation;
Where the buyer has not seen the goods and buys them relying on the description given by the seller.
Where the buyer has seen the goods but he relies not on what he has seen but what was stated to him and the deviation of the goods from the description is not apparent.
Packing of goods may sometimes be a part of the description. Where the goods do not conform to be method of packing described (by the buyer or the seller) in the contract, the buyer can reject the goods.
Condition as to Quality or Fitness-- Where the buyer, expressly or by implication, makes known the seller the particular purpose for which 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 or not as the manufacturer of producer), there is an implied condition that the goods shall be reasonably fit for such purpose. In other words, this condition of fitness shall apply, if:
The buyer makes known to the seller the particular purpose for which the goods are required,
The buyer relies on the seller's skill or judgment,
The goods are of a description which he sellers ordinarily supplies in the course of his business, and
The goods supplied are not reasonably fit for the buyer's purpose.
Condition as to Merchantability-- Where the goods are bought by description from a seller, who deals in goods of that description (whether or not as the manufacturer or producer) there is an implied condition that the goods shall be of merchantable quality.
Merchantable quality ordinarily means that the goods should be such as would be commercially salable under the description by which they are known in the market at their full value.
Condition as to Wholesomeness-- In case of sale of eatable provisions and foodstuff, there is another implied condition that the goods shall be wholesome. Thus, the provisions or foodstuff must not only correspond to their description, but must also be merchantable and wholesome. By 'wholesomeness' it means that goods must be for human consumption.
Condition Implied by Custom or Trade Usage-- An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade. In certain sale contracts, the purpose for which the goods are purchased may be implied from the conduct of the parties or from the nature or description of the goods. In such cases, the parties enter into the contract with reference to those known usage. For instance, if a person buys a perambulator or a medicine the purpose for which it is purchased is implied from the thing itself; the buyer need not disclose the purpose to the seller.
Conditions in a Sale by Sample-- 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. Usually, a sale by sample is implied when a sample is shown and the parties intend that the goods should be of he kind and quality as the sample is.
Conditions in a sale by Sample as well as by Description-- A vast majority of cases where samples are shown, are sales by sample as well as by description. In a contract for sale by sample as well as by description, the goods supplied must correspond both with the sample as well as with the description.
IMPLIED WARRANTIES
A condition becomes a warranty when--
the buyer waives the conditions or opts to treat the breach of the condition as a breach of warranty ; or
The buyer accepts the goods or a part thereof, or is not in a position to reject the goods.
Implied Warranty of Quiet Possession-- In every contract of sale, unless there is a contrary intention, there is implied warranties that the buyer's shall have and enjoy quiet possession of the goods. If the buyer's right to possession and enjoyment of the goods is in any way disturbed as consequences of the seller's defective title, the buyer may sue the seller for damages for breach of this warranty.
Implied Warranty of Freedom from Encumbrances-- The buyer is entitled to a further warranty that the goods shall be free from any charge or encumbrance in favour of any third party not declared or known to buyer before or at the time when the contract is made. If the buyer is required to discharge the amount of the encumbrance it shall be a breach of this warranty and the buyer shall be entitled to damages for the same.
Transfer Of Property In Goods
The property in the goods is said, to be transferred from the seller to the buyer when the latter acquires the proprietary rights over the goods and the obligations linked thereto. 'Property in Goods' which means the ownership of goods, is different from ' possession of goods' which means the physical custody or control of the goods.
The transfer of property in the goods from the seller to the buyer is the essence of a contract of sale. Therefore the moment when the property in goods passes from the seller to the buyer is significant for following reasons:
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.
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.
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.
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.
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.
Essentials for Transfer of Property-- The two essentials requirements for transfer of property in the goods are:
Goods must be ascertained-- 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
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.
Types Of Contracts (With Regard To Delivery Of Goods)
There are various types of contracts from the point of view of the delivery of goods.
F.A.S. or F.A.R. Contract- F.A.S. stands for 'Free Alongside Ship' and F.A.R. stands for 'Free Along with Rail'. Under FAS or far contracts, the seller is required to deliver the goods alongside the ship or rail named in the contract and to notify the buyer that the goods have been so delivered. The property in the goods passes to the buyer when the seller delivers the goods alongside the ship or rail. Thereafter, it is the buyer's duty to arrange for the contract of affreightment and insurance of the goods while the transit.
F.O.B. OR F.O.R Contracts-- F.O.B. stands for 'Free on Board' and F.O.R. stands for 'Free on Rail'. In a F.O.B. (or F.O.R.) contract, the seller is required to deliver the goods on board the sip (or on rail), named in the contract. Thus, the seller has to bear all expenses upto and including shipment of goods on behalf of the buyer, who is responsible for their freight, insurance and subsequent expenses.
Thus, as soon as the goods are put on board the ship, the property in them passes to the buyer. This will be so even if the goods are not specific or ascertained. The buyer is liable to pay the price even if the goods are lost in transit. The property in goods shall, however not pass if the seller reserves the right of disposal.
C.I.F. Contract-- The words 'C.I.F.' stand for cost, insurance and freight. A CIF contract is a type of contract wherein the price includes cost, insurance and freight charges. Under a CIF contract the seller is required to insure the goods, deliver them to the shipping company, arrange for their affreightment and send the bill of lading and insurance policy together with the invoice and a certificate of origin to a bank. The documents are usually delivered by the bank against payment of seller since he continues to be the owner of goods until the buyer pays for them and obtains the documents. The property in the goods passes to the buyer on the delivery of documents. The buyer is equally protected as he is called upon to pay only against the documents and the moment he pays, he obtains the documents, which enable him to get delivery of the goods. If in the meantime the goods are lost neither the buyer nor the seller is put to loss, whoever is the owner at the time of the loss can recover it from the insurer.
Ex-ship contracts-- Under an 'ex-ship contract the seller has to delivery the goods to the buyer at the port of destination. In such contracts the property in the goods does not pass until actual delivery. The goods are at the seller's risk during the voyage. It is therefore, for the seller to insure the goods to protect his interest. The seller is to pay the freight, or otherwise release the ship owner's lien and to furnish the buyer with a delivery order or an effectual direction to the ship owner to deliver.
Rights Against The Goods
Where the property in the goods has passed to the buyer.
Right of Lien-- 'Lien is the right to retain possession of goods until certain charges in respect thereof are paid. An unpaid seller who is in possession of the goods is entitled to retain them until payment of the price, where --
The goods have been sold without any stipulation s to credit;
The goods have been sold on credit, but the term of credit has expired or
The buyer becomes insolvent.
Where the goods have been sold on credit, the right of lien shall remain suspended over the period of credit and shall revive on the expiry of that period.
The right of lien is linked with possession of the goods and not with the title. It is not affected even if the seller has transferred the documents of title till he remains in possession of the goods. However, if the buyer has further transferred the documents of title to a bona fide purchaser the seller's lien is defeated.
Right of Stoppage in transit--The right of stoppage of goods in transit, arises to an unpaid seller after he has parted with the possession of the goods. The seller has the right to resume possession of the goods while they are in the course of transit and to retain them until payment or tender of the price. The right of stoppage in transit is available to an unpaid seller, when the buyer becomes insolvent and the goods are in transit.
The buyer is said to be 'insolvent' when he has ceased to pay his debts in the ordinary course of business, or cannot pay his debts as they becomes due whether he has committed an act of insolvency or not.
Right of Resale-- The rights of lien and stoppage in transit, would not have been of much value if he seller had no right to resell the goods, because the seller cannot continue to hold the goods indefinitely. Section 54 provides an unpaid seller with a limited right to resell the goods.
An unpaid seller may resell the goods--
When the goods are of perishable nature, without giving any notice to the buyer, of the resale.
In case of other goods, when after giving a notice to the buyer of his intention to resell the goods, the buyer does not pay the price within a reasonable time; and
Where the seller has expressly reserved the right of resale in the contract. No notice to the buyer is required in that case.
Where the property in the goods has not passed to the buyer
Right of with holding Delivery -- Where the property in the goods has not passed to the buyer, the unpaid seller has the right to withhold delivery of the goods, which is similar to and co-extensive with his rights of lien and stoppage in transit which he would have had if the property had passed.
Rights Against the Buyer Personally (Seller's Remedies Against buyer for Breach of Contract)-- Besides, the above rights against the goods, an unpaid seller has certain rights against the buyer personally. The seller enjoys the following rights in personam (also known as remedies for breach of contract).
Suit for Price -- When the property in the goods has passed to the buyer, and the buyer wrongfully neglects or refuses to pay the price, the seller is entitled to sue him for the price.
Where under a contract of sale the price is payable on a certain day irrespective of delivery or passing of property, and the buyer refuses or neglects to pay on that day, the seller may sue him for the price.
Suit for Damages for Non-Acceptance -- Where the buyer wrongfully neglects or refuses to pay for the goods, the seller may sue him for damages for non-acceptance.
Suit for Damages for Repudiation of contract before date of delivery Where the buyer repudiates the contract before the date of delivery, the seller may adopt any of the following two courses of action, viz.-
The seller may treat the contact as rescinded and sue the buyer 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.
The seller 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 buyer 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.
Suit for Interest --The seller may recover interest or special damages whereby law interest or special damages may be recoverable.
Buyer's Remedies Against Seller For Breach of Contract
A buyer also has certain remedies against the seller who commits a breach. These are:
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.
Suit for price- Where the buyer has paid the price and the goods are not delivered to him, he can recover the amount paid.
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.
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.
Suit for Damages for Repudiation of contract before Due date-Where the seller repudiates the contract before the date of delivery, the buyer may adopt any of the following two courses of action--
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.
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.
Suit for interest- The buyer may recover such interest or special damages, as may be recoverable bylaw. 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.
Rights and Duties of The Buyer
RIGHT DUTIES
1. To have delivery of the goods as per contract. (secs. 31 & 32) 1.
To accept the delivery of goods, when the seller is willing to make the delivery as per the contract
(Sec. 31)
2. To reject the goods when they are not of the description, quality or quantity as specified in the contract (Sec 37). 2.
To pay the price in exchange for possession of the goods
3. To repudiate the contract when goods are delivered in installments without any agreement to that effects [ Sec. 38 (1)] 3. To apply for delivery of the goods. (Sec. 35)
4. To be informed by the seller, when the goods are to be sent by sea route, so that he may arrange for their insurance [Sec 39 (30] 4. To demand delivery of the goods at a reasonable hour ( sec 36 (4)
5. To have a reasonable opportunity to examine the goods for ascertaining whether they are in conformity with the contract. (sec. 41) 5. To accept delivery of the goods in installments and pay for them, in accordance with the contract. (Sec. 38 (2)
6. To sue the seller for recovery of the price, if already paid, when the seller fails to deliver the goods. 6. To bear the risk of deterioration in the course of transit, when the goods are to be- delivered at a place other than where they are sold ( sec 40)
7. -To sue the seller for damages if the seller wrongfully neglects or refuses to deliver the gods to the buyer ( sec 57) 7. To inform the seller in case the buyer refuses to accept or rejects the goods ( sec 43)
8. To sue the seller for specific performance 8. To take the delivery of the goods within a reasonable time after the seller tenders the delivery (Sec.- 44)
9. To sue the seller for damages for breach of a warranty or for breach of a condition treated as breach of a warranty ( Sec 59) 9. To pay the price, where the property in the goods are passed to the buyer, in accordance with the terms of the contract ( Sec 55)
10. To sue the seller the damages for anticipatory breach of contract ( Sec 60) 10. To pay damages for non-acceptance of goods ( Sec 56)
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 summarised as below:
RIGHT DUTIES
1.
To reserve the right of disposal of the goods until certain conditions are fulfilled. (sec 25(1))
1. To make the arrangement for transfer of property in the goods to the buyer.
2.
To assume that the buyer has accepted the goods, where the buyer
Conveys his acceptance;
Does an act adopting the sale; or
Retains the goods without giving a notice of rejection, beyond the specified date (or reasonable time), in a sale on approval. ( sec 24)
2. To ascertain and appropriate the goods to the contract of sale
3. To deliver the goods only when applied for by the buyer ( sec 35) 3. To pass an absolute and effective title to the goods, to the buyer.
4.
To make delivery of the goods in installments, when so agreed ( sec 39 (1)
4.
To deliver the goods in accordance with the terms of the contract ( sec 31)
5.
To exercise lien and retain possession of the goods, until payment of the price ( sec 47 (1)
5. To ensure that the goods supplied conform to the implied / express conditions and warranties.
6.
To stop the goods in transit and resume possession of the goods, until payment of the price ( sec 49 (2) and 50
6.
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 circumstances ( sec 54)
7. To deliver the goods within the time specified 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 property in the goods has not passed to the buyer (sec 46 (2)
8.
To bear all expenses of and incidental to making a delivery ( i.e. upto the stage of putting the goods into a deliverable sate 0 (sec 36 (5)
9.
To sue the buyer for price when the property in the goods has passed to the buyer or when the price is payment on a certain day, in terms of the contract, and the buyer fails to make the payment. (sec 55)
9. To deliver the goods in the agreed quantity. (Sec. 37 (1).
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) ]
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