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CHAPTER OUTLINE
Introduction and Interpretation
Formation of the Contract
(Agreement to Sell)
Contract of Sale
TEXT
You introduce yourself as a manager and people immediately ask what you sell. The very
concept of business will cease if there is no sale. Sales involve commercial relationship.
There is exchange of goods and services for money or other assets. Property, ownership,
transfer of ownership, rights and duties of buyers and sellersall of these bind people
to a contract. We discussed contract in Chapter 2 in a general way. In this chapter we
shall deal with a particular contract of sale and purchase between the seller and buyer,
respectively. You as a manager have no other choice but to know this law well, lest you
may experience pitfalls.
In 1893, the British Parliament enacted the Sale of Goods Law after repealing part of
its Contract Law with the purpose of serving the new business realities. Chapter VII of the
Indian Contract Law, Secs 76123, formed the Sale of Goods. To meet the new needs of
growing economy, this chapter on sale of goods was repealed to enact a new law on the
same lines as the British Law. It does not affect the rights, interests, obligations, and titles
acquired or which had already accrued before the enforcement of this Act. Work on the
legislation began as early as 1926 carefully examining the case law making new provisions.1
When sale of goods is mentioned,
remember its classification shown in
Sale of goods
Figure 5.1.
Formation of
Effects of
You may wonder what great
contract
contract
difficulties they faced. Today, objects
Performance
Suit for breach
of virtual world are obviously valuable
Unpaid seller
of contract
of contract
properties, but in those days people
could not comprehend how water, gas,
Figure 5.1 Sale of goods classification
and electricity could be valued. There
was doubt whether these objects came under the definition of goods or property and hence
saleable and purchasable.
Case 5.1 was a landmark one in the new era under Sale of Goods Act, because until then a
lawyer could argue that gas and electricity were not defined as goods. The Law Commission
CASE 5.1
The appellants were accused persons who were charged with having been party to
a criminal conspiracy to commit theft by dishonest consumption and use of electrical
energy belonging to the Calcutta Electric Supply Corporation between the January
1934 and 20 January 1935, and in consequence of such conspiracy theft was
committed at Bharat Laxmi Cinema, Jupiter Cinema, and at other places. It was argued
that Sec. 19 (a), Electricity Act, and Rule 31 were necessitated by the fact that there
can be no actual property in electrical energy.
Judgement: The appellants found guilty of conspiracy and theft and sentenced to fine and
imprisonment.
Reason:
*Rash
The evidence supplied showed that there was conspiracy to theft and altering of the
electricity meter.
1The
Law Commission Report analyses the changes in the new Act and discusses the definition of property in a special way;
for more, see http://lawcommissionofindia.nic.in/150/Report8.pdf (14 December 2010).
of India recommended for certain amendments so that it is made indubitably clear that
electrical energy, water, and gas come under the purview of the definition of goods.2
Agreements for the sale of goods are governed by the general principles of the Contract
Law: offer, acceptance, consideration, communication, competence to contract, free consent,
and the legality of the object. However, these may not be exhaustive enough to meet some
grave challenges in contracts of sale. Hence, the Sale of Goods Act caters to the needs of,
for instance, conditions and warranties in a contract; when does the ownership of the goods
pass from the seller to the buyer; how does the buyer acquire a good title; fixing of price;
remedies of the buyer if the goods are not delivered to him. All of this is the scope of the
Sale of Goods Act, 1930.
Basic definitions
Seller Person who sells or agrees to sell.
Buyer Person who buys or agrees to buy.
Goods All kinds of movable property, except actionable claims.
Sale Where under a contract of sale the property in the goods is transferred from the seller
to the buyer, the contract is called a sale.
Agreement to sale Where the transfer of the property in the goods is to take place at a
future time or subject to some condition thereafter to be fulfilled, the contract is called an
agreement to sell.
Price Consideration for the sale of goods in money. (When the consideration is only in
goods then it is barter and not sale.)
Transfer Transfer of ownership of goods or agreement to that effect.
The Act has found several reviews and amendments to adapt to the new complex course
of businesses. In 1993, for instance, the Multimodal Transportation of Goods Act was
enacted. As you now study the rest of the chapter you will be introduced to six different
steps to appreciate the practical wisdom enshrined in this Act.
TEXT
MANAGERS TAKEAWAY
Know what you sell.
Buy what you know.
Explanation
Example
Two parties
Movable goods
Price
Transfer of general
property
Valid contract
reality. In the Indian Contract Act, 1872 you saw the broad principles of offer, acceptance,
consideration, and communication as the essentials of a contract. In addition to these you
have the just visited seven definitions to make the sale a reality. In Table 5.1, you will learn
all the salient features that go into the formation of contract of sale of goods.
You may form a mental model (see Figure 5.2) of the formation of contract. In other
words, you will deal with four main concepts of the formation of a contract.
Formation of contract
General
Subject
matter
Price
Conditions
and
warranties
Case 5.2 clearly illustrates the transfer of property in goods for a price as the lynchpin
of the definition of the contract of sale. The sale comes about only with the transfer of
ownership: a seller ceases to own and the buyer begins to own.
CASE 5.2
Facts:
The contract was for the manufacture and supply of wagons. It was provided that the
contract would be governed by the standard conditions in so far as they are not
inconsistent with the correspondence exchanged between the parties. Under the
standard conditions, 90 per cent of the payment had to be made against the company
submitting the bill to the purchaser together with the completion certificate and on
payment of such 90 per cent price the vehicle in question would become the property
of the purchaser. The balance of 10 per cent was to be treated as security for the
due fulfillment of the contract. The balance was to be received on the receipt of
certificate from the purchaser to the effect that the actual delivery of the vehicle was
taken and that the delivery was made in due time. The respondents contended that
there was nothing in the special conditions which militated or was inconsistent with
the standard condition no. 15. The special conditions, read as a whole, show that the
raw materials purchased by the company against 90 per cent of advance payment do
not become the property of the railway board or the Union of India because under
the express terms of the contract, such advance payment is made towards the
contract price of the wagons and not towards price of the materials.
Transfer of property in goods for a price is the lynchpin of the definition of sale. The
difficulty in distinguishing between the contract of sale and work contract is an ageold one. The test would be whether the thing to be delivered has any individual
existence before delivery as the sole property of the party who is to deliver it. If the
answer is in the affirmative, it is sale of the thing, otherwise not. Another rule is that
if the main object of the contract is the transfer from A to B for a price of the
property in a thing in which B had no previous property, then the contract is a
contract of sale.
*Union
of India vs Central India Machinery (AIR 1977, SC1537). Also see for full text of the judgement, http://
www.indiankanoon.org/doc/530386/ (14 December 2010).
TEXT
As you have learnt in the Contract Act, no particular form is necessary to constitute a
contract of sale. There is offer and acceptance, the communication may be formal, informal,
or implied. The sale and transfer may occur immediately before, after simultaneous, or
payment in installments.
In order to understand exactly how the contract of sale comes about, you must learn some
fundamental distinctions. Table 5.2 distinguishes between each of the following:
(a) Sale and agreement to sell
(b) Sale and hire-purchase
(c) Agreement to sell and hire-purchase
(d) Sale and bailment
(e) Sale and contract for work and materials
The table is a logical consequence of the principles of contract that you studied in
Chapter 2 which covered the Contract Act, 1872. It goes to prove that both the Contract
Act and Sale of Goods Act are complimentary and both are based fundamentally on
the same principles.
Table 5.2 Fundamental distinctions on how the contract of sale comes about
Distinction between sale and agreement to sell
Distinction
Nature of contract
Creation of right
Remedies on breach of
contract
Risk of loss
Right of resale
Distinction
Sale
Agreement to sell
Hire purchase
Nature of contract
Contd
Table 5. 2 Contd
Distinction between sale and hire purchase
Distinction
Sale
Distinction
Hire-purchase
Bailee till he pays all the
installments.
May terminate the contract by
returning goods to its owner
without paying remainder of the
installments.
Owner takes no risk; if the hirer
does not pay installments the
goods are taken back.
Tax is not leviable until it turns
into sale.
Agreement to sell
Nature of contract
Transfer of goods
Ownership
Hire purchase
Becomes a sale after the
completion of the payment.
Immediate transfer of goods but
the ownership remains with the
seller.
No ownership rights hence
cannot sell or pledge.
Cannot claim beneHts until
complete payment is done.
Governed by Hire-Purchase Act,
1972.
Sale
Transfer of ownership from seller to the
buyer.
The buyer enjoys all the rights of his
property.
Distinction
Nature of Contract
Bailment
Sale
Delivery of goods.
*See Case 5.2 of Union of India vs Central India Machinery, where there was a confusion about sale and manufacturing to
deliver.
TEXT
Understanding Goods
It is important to know what the lawgiver has in mind when he refers to goodswhat they
are and what they are not.
Classification of Goods
Sec. 6 of the Sale of Goods Act classifies goods under following categories:
Existing goods These are the goods which are owned or possessed by the seller at the
time of sale.
Specific goods These are identified and agreed upon at the time of sale.
Ascertained goods Specific goods which become ascertained subsequent to the contract.
Unascertained or generic goods These are not identified and agreed upon at the time of sale
but defined only by description and may form part of the lot.
Future goods These are not possessed by the seller at the time of the contract but which
will be produced, procured, and supplied by him in the future. It is similar to the goods in
an agreement to sell.
Contingent goods These are of two types: contingent goods and contingent and future goods.
Contingent goods The acquisition and supply of these goods depends upon certain conditions,
such as arrival of a consignment. The seller is not liable for such goods since it is specifically
under conditions.
Contingent and future goods The procurement of contingent goods depends on a contingency,
whereas it is not so in a future contingency. The parties are liable for production or
procurement of goods. The promise, for instance, to produce and supply spare parts, must
be delivered in the future.
Case 5.3 brings to light the problems one confronts in the subject matter of contract of
sale. The problems get compounded in situations where there was no law determining a
course of action in a particular commercial activity, and then suddenly a law is made to be
implemented.
Petitioner: Badri Prasad vs Respondent: State of Madhya Pradesh*
Date: 11 October 1968
Facts:
The appellant entered into a contract in respect of certain forests in a jagir in Madhya
Pradesh. He was entitled to cut teak trees with over 12-inch girth. After the passing of
the Abolition of Proprietary Rights (Estates, Mahals. Alienated Lands) Act, 1950, a
notification was issued vesting the estate in the State. The appellant was prohibited from
cutting timber in exercise of his rights under the contract. After some negotiations, a letter
was written on 1 February 1955, to the appellant, on behalf of the State, that the
appellants claim to cut trees under the contract would be considered only if he gave up
his claim to a sum of `17,000 which he had already paid under the contract and was
willing to pay a further sum of `17,000. The appellant, by his letter dated 5 February 1955
expressed his willingness to pay the additional sum but reserved his right to claim a refund
of the first sum. The state government rejected the appellants right to cut trees. He then
filed a suit claiming specific performance of the contract on the grounds: (1) The forest
and trees did not vest in the State under the Act; (2) Even if they vested, the standing
timber, having been sold to the appellant, did not vest in the State; and (3) In any event a
new contract was completed on 5 February 1955, and the appellant was entitled to its
specific performance.
Judgement: Appeal fails and dismissed.
Reason:
The forest and trees vested in the State under the Act. The plaintiff was entitled to cut
teak trees of more than 12-inch girth. It had to be ascertained which trees fell within that
description. Till this was ascertained, they were not ascertained goods within Sec. 9 of the
Sale of Goods Act. The contract was not to sell the whole of the trees. It is extremely
doubtful whether the letter, dated 1 February 1955, is an offer. It seems to be an invitation
CASE 5.3
*Badri
Prasad vs State of Madhya Pradesh (AIR 706, 1970); for full text also see http://www.indiankanoon.org/
doc/1963535/ (14 December.2010).
Contd
Before the law about estates came into existence the above entrepreneur in the case had
had no problem in his trade. The sudden appearance of the law, which determined and
restricted his trade, made matters difficult for him. The lesson that you can learn from the
above case is that it is difficult to adapt to a new set of laws in a thus-far ongoing trade that
functioned without such legislation. In the given case, while the law has solved the problems
of proprietary rights and that of trees, it appears the trader got an additional one!
Criteria
(a) It must be an agreement to sell and not actual sale.
(b) Goods must be specific.
(c)Goods must have been damaged or perished beyond the recognition of the
contract.
(b) The destruction must take place without the fault of either party.
TEXT
5.4 PRICE
(1)The price in a contract of sale may be fixed by the contract or may be left to be fixed in manner
thereby agreed or may be determined by the course of dealing between the parties.
(2)Where the price is not determined in accordance with the foregoing provisions, the buyer shall pay
the seller a reasonable price. What is a reasonable price is a question of fact dependent on the
circumstances of each particular case.
Sec. 9, The Sale of Goods Act, 1930
Price is what you pay for the value of goods; what you have seen in the Contract Act as
consideration. It is the consideration for the transfer or agreement to transfer the property in
goods from the seller to the buyer. It is not essential that it should be fixed at the time of
sale, but you know that it is always payable.
Time stipulation
Time of payment is very important; it may be paid before, during, or after a contract; but
it is always determined when.
Mode of payment
Any of the negotiable instruments such as cash money, cheque, or draft may be utilized for
payments.
TEXT
Breach
Treatment (Sec.
13)
Express (similar
in both)
Implied (Secs
1417)
Condition
Warranty
Contd
Oxford University Press 2013. All rights reserved.
Table 5. 3 Contd
Distinction
Condition
Warranty
You can appreciate the intricacies involved in conditions and warranties after going
through Case 5.4 presented next. The judge has to meticulously scrape the differences that lie
between these two concepts and the implications of description of goods when the contract
was made. Conditions in a contract are very serious since the law demands replacement or
goes by the exact description of goods to the contract. Warranties, on the other hand, do
not always involve the manufacturer directly, and the dealer is only liable for the damages
if they are of technical kind and is not liable for the negligence of the buyer.
Indeed, complying with the description is the safest option for the seller.
CASE 5.4
Facts:
The respondent had undertaken to deliver to the appellant 125 bundles of cashew nuts
and received `4,000 in part payment of the price. The suit was for the refund of the said
sum with interest at 6 per cent per annum. The appellant rejected the goods on the
ground that the bad nuts exceeded the stipulated maximum of twenty per cent. The
question for consideration is whether he was entitled to reject the goods as he did.
Judgement: Appeal is dismissed.
Reason: The answer depends on whether the stipulation regarding the bad nuts was a
condition or a warranty. Sec. 12 of the Indian Sale of Goods Act, 1930, deals with
conditions and warranties as follows:
1.A stipulation in a contract of sale with reference to goods which are the subject thereof
may be a condition or warranty.
2.A condition is a stipulation essential to the main purpose of the contract, the breach of
which gives rise to a right to treat the contract as repudiated.
3.A warranty is a stipulation collateral to the main purpose of the contract, the breach of
which gives rise to a claim for damages but not to a right to reject the goods and treat
the contract as repudiated.
Whether a stipulation in a contract of sale is a condition of a warranty depends in each
case on the construction of the contract. A stipulation may be a condition, though it may
be called a warranty in the contract. It is clear that a condition is a more vital undertaking
than a warranty, and that the consequences that flow from its breach are different. The
*Antony
Thomas vs Ayuppuni Mani (AIR 1960 Ker 176), also for full text see http://www.indiankanoon.org/
doc/332073/ (15 December 2010).
Contd
Oxford University Press 2013. All rights reserved.
The object of Case 5.4 was primarily to determine the return of the payment made for
goodswhich did not bespeak the description of goods, i.e., being defective over a certain
limit. The case was judged on the laws governing conditions and warranties. However, if
the counsel to the respondent were to direct his arguments and made the judge to consider
it from the point of view of the principle of caveat emptor, he could have easily succeeded.
Caveat emptorbuyer bewarestands for the practical skill and judgement of the buyer
in his choice of goods for purchase. It is the business of the buyer to judge for himself that
what he buys has its use and worth for him. No one is forced to buy. He must use his freedom
to buy with prudence. Once bought, and if the buy is not up to his expectations, then he
alone is to blame and no one else.
The purchase manager of a large company has to take crucial decisions as to the purchases
required for the company. For instance, buying a manufacturing plant from a foreign country
would involve an agreement to sale for several million dollars. In order to make such a monumental
decision, he would have to rely on inputs of data from several agencies and consultancies. Upon
analysis of this data, finally, the purchase department has to come to a point where his decision
would be awaited. Once such a decision is taken the purchase mechanism sets in. Yet despite
all the hard work, the decision to buy such a plant may go awry: it may be found that the plant
machinery involves exclusive requirement of personnel from the importing country or that certain
technical specifications were not factored in when the purchase decision was made. All of these
elements may add up heavily to the costs, which were unfore seen before and therefore lead to
litigation. Unfortunately, such litigation, apart from delaying the business, would do nothing else
to mitigate the problem because the legal principle is well-annunciated: buyer beware.
The above-mentioned Sec. 16 of the Act further states five exceptions to the rule or
principle of caveat emptor.
Fitness for buyers purposeSec. 16(1) It happens when the buyer expressly or by
implication makes known to the seller the reasons for his purchase and his dependence on
the sellers skill and judgement of the goods of their quality and quantitythe description
corresponds to the goods. Thus, the seller must supply goods that are fit for the buyers
purpose.
Sale under a trade or patent nameSec. 16(1) If the goods are of trade or patent
mark there is no implied condition of the reasonableness or fitness of the product; by the
very essence of a trade mark or patent the correspondence of description to the goods is
taken for granted. The seller is bound to sell goods of merchantable quality.
Merchantable qualitySec. 16(2) There is a custom or tradition where a seller has
been dealing in goods which are according to the accepted description. For instance, a bicycle
would be one that is technically made for transport by peddling and that is in condition
corresponding to its product description. It is a reasonably good product and the buyer may
well assume it to be so.
Usage of tradeSec. 16(3) An implied warranty or condition as to its quality and
fitness for a particular purpose may be annexed by the usage of trade.
Consent by fraud It happens when the seller knowingly conceals the defects which
could not be discovered by the buyer with reasonable application of skill and judgement at
the time of purchase. The consent is obtained by fraud and, hence, the seller cannot charge
the buyer for his negligence to examine.
TEXT
Secs 1830 of the Sale of Goods Act deal with effects of contract. The essence of the effect
of sale of goods contract is transfer of property from the seller
to the buyer (Table 5.4).
MANAGERS TAKEAWAY
Integrity of goods: quality
and quantity.
Honesty in price: money
for value (seller), value for
money (customer).
Meaning
Example
Ownership
Risk
Action against
third parties
Insolvency
Passing of Property
Two things are essential for transfer of property (see Figure 5.4). These are (a) goods must
be ascertained, and (b) Intention to pass property in the goods.
Ascertained
goods
(Sec. 18)
Intention to pass
property in goods
(Sec. 19[2])
Transfer of
property
Explanation
Example
Specific goods
Secs 2022
Sale of goods
on approval
Sale of
The goods are not transferred to the buyer
unascertained until and unless they are ascertained.
goods (Sec. 23)
Appropriation
Reservation of
tight of
disposal (Sec.
25)
Transfer of
title to goods
CASE 5.5
*AIR
The municipality had not only used the tractor but also a reasonable time had elapsed.
Hence the property in the tractor had already passed to the municipality and,
therefore, could not reject it.
It pays to use common sense. If you have got goods on approval basis, and you use as
though you are going to keep them, then the approval is implied. In the above case, had
the municipality only test-used the tractor and rejected the offer within a day or two, their
claim would have been upheld if they were to prove certain defects in the tractor. It is also
beneficial if a definite approval time is fixed in the contract to avoid such problems.
TEXT
The performance of contract is a simple transaction where the seller delivers the goods and
the buyer pays. If there is something more complex, then this is stated in the contract as
special terms.
Seller Delivers goods and receives consideration.
MANAGERS TAKEAWAY
Be aware of your everchanging role as buyer and
seller.
Make sure you have the
title of the properties in
goods, both when you buy
and sell.
Delivery of Goods
Delivery of goods may be defined as voluntary transfer of
possession of goods from seller to the buyer. It is distinguished in
thre ways as presented in Figure 5.5.
Actual
delivery
Delivery
of
goods
Symbolic
delivery
Constructive
or attornment
Definition
Example
Part delivery
Contd
Table 5. 6 Contd
Rule
Time of delivery
Definition
The transfer of goods happens in time
The contract of delivery has terms, e.g.,
forthwith, as soon as possible directly,
immediately, reasonable time,* etc.
Example
Depending on your order you get the
supply of cement: as you have a particular
schedule that is agreed upon.
Delivery of wrong
quantity
Delivery to carrier or
wharfinger
Kinds of delivery
Conditions**
Contd
*A
reasonable time to deliver perishable goods will be sooner than the non perishable ones.
**Although this rule may be separately considered as types of contract in respect to delivery of goods from sellers perspective,
it is placed in this column to let the student understand it as the sellers obligation.
Table 5. 6 Contd
Rule
Definition
F.O.B.: Free on board.
F.O.R.: Free on rail.
C.I.F.: Cost,insurance, and freight.
Ex-ship contract
Risk of deterioration in transit
Example
The seller notifies the buyer that the goods
have been delivered on board.The seller
notifies the buyer that the goods have been
delivered by rail.The seller notifies the
buyer that the goods have been delivered
and insurance and freight costs have been
paid.The seller delivers the goods to the
buyers destination. Depending on the
contract, respectively, seller and buyer are
responsible for liability.
TEXT
The acceptance or rejection by the buyer creates certain rights and duties. The law
protects the buyer in terms of his rights to examine the goods and at the same time
obliges him to be a responsible buyer by limiting him to certain liabilities when he rejects
the goods (refer Table 5.7).
Case 5.6 covers not only the right to examine goods, but also considers other aspects of
delivery of goods that you would have noticed under the rights and duties of the buyer.
You have also sufficiently seen how often the principle of caveat emptor has been referred.
There also arise issues of what the seller will do if his goods are
not accepted by the buyer. The biggest problem for the seller is
MANAGERS TAKEAWAY
what to do with the goods that have been transported to distant
Use all your skills when
places. Exporters very often suffer these problems. Companies in
you buy.
the developed countries often reject goods from the companies in
Use all your knowledge
developing countries. More often than not the reasons are familiar:
when you sell.
Substandard quality, adulteration, and delayed arrival.
Table 5.7 Rights and duties of the buyer
Rights
Duties
Contd
Table 5. 7 Contd
Rights
Duties
CASE 5.6
Petitioner: Dharampal & Co., Agra vs Respondent: Firm Kila Gatla Ram
Chandra Rao & Co.,Vizianagaram*
Date of Judgement: 29 January 1980
Facts::
The suit for recovery of `1,850 as damages from the respondent firm was decreed by
the trial court and future interest at the rate of 4 per cent per annum. A contract was
entered into between the parties by means of a telegram for the purchase of 250 bags
of peas at the rate of `37 per bag, deliverable F.O.R. at Vizianagram. The buyer, namely the
respondent, indicated in the telegram that the peas should be friable at 6 1/2.** This
agreement was made on 3 February 1962. On the same day, a wagon was indented by
the plaintiff for the dispatch of goods. He received the wagon on 14 February 1962 and
loaded the peas and dispatched the same day. The wagon reached Vizianagram on 16
February 1962. Meanwhile the plaintiff had also sent a hundi to the defendant and
dispatched the R.R. (railway receipt) for collection through bank. The defendant did not
receive or accept the goods at Vizianagram and he did not also honour the hundi or take
the R.R. from the bank. The defendants stand was that the peas sent were not of the
contracted quality and therefore, he sought to repudiate the contract. The plaintiff had to
send a messenger to Vizianagram who took delivery of the consignment of the goods
after paying demurrage to the Railways and sold it to a local dealer at a lower rate with
the result that he incurred loss in the price of the goods also. He, therefore, in this suit
claimed a sum of `833 as demurrage, `142 as miscellaneous expenses, and `875 as the
difference in price, totaling a sum of `1,850. The plaintiffs stand was that the defendant
could not refuse to take delivery of the goods and was not entitled to repudiate the
contract. He was afforded an opportunity of examining the goods but he did not avail of
the same. The quality of the goods sent was according to the contract.
*Dharampal
& Co., Agra vs Firm Kila Gatla Ram Chandra Rao & Co. Vizianagaram, (AIR 1980 All 316); also see
http: //www.indiankanoon.org/doc/1980471 (22 December 2010).
**Friability technically implies that which is pulverizable, turned into powder.
Contd
TEXT
Lien
(Secs. 4749)
Stoppage in
transit
(Secs. 5052)
Re-sale
(Sec. 54)
Withhold
Delivery
Stoppage in
transit
Price
(Sec. 55)
Damages
(Sec. 56)
Repudiation
of contract
(Sec. 60)
Interest
(Sec. 61)
all transport. Finally, he has the right to resale of goods, depending on the contracted time
period and the nature of the goods, such as perishability and in cases of insolvency of the
buyer. The second category of rights which is directly against the buyer ensures that the
seller can demand redressal through the court of law for price, damages, repudiation of
contract, and interest.
Case 5.7 clearly demonstrates that the right of resale can be exercised only when the goods
being still unascertained, and no property has passed from the seller to the buyer. In the
CASE 5.7
Suit under Indian Sale of Goods Act, Secs 18 and 54(2): Sale of unascertained goods:
When property passes; repudiation of contract, vendors right of resale when arises.
On 13 November 1951, the respondent agreed to sell to the appellants a stock of
415 tonnes of newsprint in sheets then lying in the respondents godown. On 26
November, the parties varied the contract by agreeing that the appellants would buy
only 300 tons out of the stock of 415 tonnes. After taking delivery of a part of the
newsprint, the appellants refused to take delivery of the balance and repudiated the
contract on 29 March 1952. On 21 April the respondent, after notice to the appellants,
resold the balance at a lesser rate. The suit filed by the respondent claiming from the
appellants the deficiency on resale was decreed.
*AIR
As the respondent was not a pledger of the newsprint, the respondent had no right to
sell the goods under Sec. 176 of the Indian Contract Act. 1872. A seller can claim as
damages the difference between the contract price and the amount realized on resale of
the goods where he has the right of resale under Sec. 54(2) of the Indian Sale of Goods
Act, 1930. But this statutory power of resale arises only if the property in the goods has
passed to the buyer subject to the lien of the unpaid seller. Under Sec. 18 of the Sale of
Goods Act, it is a condition precedent to the passing of property under a contract of sale
that the goods are ascertained. In the present case, when the contract was originally
entered into for the sale of 415 tonnes there was an unconditional contract for the sale
of specific goods in a deliverable state and the property in those goods then passed to
the appellants.
**Bombay
above model of the unpaid seller, each category may be examined to find out the nuances
of the sections of the law regarding this important issue.
TEXT
You also must have noted how a seller may seek remedy against the goods as well as
against the person of the buyer. Just as the seller has rights to sue the buyer, so also the law
gives opportunity to the buyer where in the event of any breach of contract from the sellers
side warrants a suit against him.
For remedies against the breach of contract by the buyer see Figure 5.7.
Sellers suits
Price
Damages for non-acceptance
Damages for repudiation by the buyer
Interest
Remedies for breach
of contract of sale
Buyers suits
Damages for non-delivery
Specific performance
Breach of warranty
Repudiation of contract by the seller
Interest
Table 5.8 clearly shows the remedies or suits available for the buyer against the seller for
any breach of contract.
Table 5.8 Remedies against seller for breach of contract
Damages for nondelivery
Price
The buyer has paid but the goods are not delivered. Remedy: He can
recover the amount paid.
Specific performance
When the goods are ascertained the buyer may seek the very same
goods; just damages would be adequate.
Breach of warranty
The buyer has to accept the goods; but he may institute breach of
warranty:
(a) in extinction or diminution of the price;
(b) sue the seller for breach of warranty.
Repudiation of contract
before the due date
When the seller repudiates the contract before the delivery date:
(a) May sue the seller for rescinding the contract and claim damages for
anticipatory breach;
(b) May wait till the due date and accordingly take action by demanding
damages for the stipulated delivery.
CASE 5.8
Facts:
On 26 August 1950, Tulsiram Shaw sold 1540 value sluice water flanged and drilled to
B.S.T.C.4. specific goods for a sum of `35,200 to the partnership firm of Sitaram Srigopal.
The latter paid the entire price in cash to the former. Tulsiram Shaw further promised to
hand over the release order of the goods and/or delivery order by 28 August 1950, to
enable the firm to take delivery of these goods from Panagarh. Tulsiram neglected or
refused to deliver the said release order in spite of demands by Sitaram Srigopal. On the
preceding allegations, Sitaram Srigopal instituted a suit in the high court of Calcutta against
the original defendant, Tulsiram Shaw, on 15 January 1951, for specific performance by the
defendants to deliver the said specific goods on the ground that these goods were not
readily available in the market and were of some big value and, therefore, damages would
not afford adequate relief for the loss of the goods. In the alternative, the plaintiff claimed
refund of the price of `35,200 with interest at 6 per cent per annum and a further sum
of `1,32,559 as damages being the difference between the contract price and the market
price of the goods on the date of the breach, namely, the end of August 1950. The suit
was resisted by the original defendant, who, in his written statement, pleaded that he was,
at all material times, ready and willing to deliver the release order to the plaintiff and had,
in fact, offered to do so, but the latter requested the defendant to cancel the contract
and refund the amount of `35,200 by cheque on 21 September 1950, but the plaintiff
declined to accept it. During the pendency of the suit, the original defendant died on 15
November 1959 and his widow, Smt. Daulata Devi and heirs were impleaded as defendants
in place of the deceased.
Judgement: Appeal fails. Dismissed with costs.
Reason: It is clear from the above conspectus that the evidence produced by the plaintiff was
not cogent, convincing, and reliable to establish, either that the goods in question
comprised were in brand new condition, or the market price of goods of similar
specifications in August 1950. In view of the circumstantial evidence on the record,
the court below was not wrong in holding that the market price of the goods in
question in August 1950 was the same at which they were purchased by the plaintiff
from Tulsiram Bhagwandas and, consequently, the plaintiff was not entitled to any
damages, apart from the refund of `35,200 which was the price paid by him.
*Sitaram
Srigopal vs Smt. Daulati Devi (Dead) By Heirs, AIR 1979 SC 1225, (1979) 4 SCC 351; also see http://
www.indiankanoon.org/doc/221867 (23 December 2010).
MANAGERS TAKEAWAY
Those smart commendations
made in the course of the sale
do not bind the seller.
O ne should not buy something
in ignorance.
rights and duties most of the problems would not arise at all. It is the lack of awareness as
well as their practice puts them to go through disputes and litigation. This hampers smooth
business. Look at Figure 5.8. Play with this bilateral relationship between the seller and
the buyer, juxtapose the roles; it is a good exercise for the manager whose role frequently
changes as seller and buyer.
Sellers right
Buyers duty
Sale of goods
Sellers duty
Buyers right
TEXT
Sothebys in England is the worlds most famous auction house where articles of antiquity,
celebrity objects, highly rated paintings, and collectors items are auctioned. Closer home,
near Fort Mumbai, early hours of the morning are the most exciting as kinds of fresh flowers
are auctioned. In the similar way before the sunrise throughout the length and breadth of
the country all the lifes essentials such as vegetables, fruits, fish, and scores of other materials
are auctioned.
Auction is public sale. When you go to a shop to buy a wrist watch, it is an individual,
private sale; it is between you the buyer and the seller. At an auction an article of sale is
exhibited publicly. The auctioneer is an agent of the owner of the article who performs the
role of a salesman for the former. There are a number of prospective buyers for one and
the same article. They announce their bids or their offer, in terms of money. The auctioneer
announces the same loudly. The bids are raised until one by one gives up and finally one
is left with the highest bid. The auctioneer ceremoniously announces the last bid thrice
adding to good measure the count 1, 2, and 3. Then the last act of the ceremony: A knock
by bringing down the hammer that signals the contract is consummated. The bid can be
retracted before the fall of the hammer; once the hammer falls the bid is sealed and the
article is considered sold.
Procedure of an Auction
Figure 5.9 shows the procedure of an auction.
Advertisement of auction.
Printed catalogue of the lot of articles for auction.
Initiation
Act
Completion
Implied
warranties
Explanation
Each lot of sale is primafacie deemed to be the subject of a separate sale.
Transfer of goods: Formal conclusion at the fall of hammer or any customary sign
of closure. A bidder may revoke his bid prior to such a closure, but will forfeit the
security deposit.
Can the seller himself bid? Yes, provided such a right is expressly reserved.The bidding
can be done by the seller or his representative. However, a secret agent or
representative employed to hike the auction price is fraudulent and against the law.
Reserve price is the fixed price below which the owner is not willing to sell. If
the bids fall short of the reserve price the auctioneer can withdraw.
The bidders form a group to avoid competition with the understanding of
disposing the lot among themselves.
It consists of influencing adversely the bidders from bidding: declaring the goods
as defective, obstructing examination of goods, intimidating, etc. These actions are
contrary to the law.
There are some inherent or implied warranties in auction:
(a) Authority to sell,
(b)Without defect and clear title,
(c) Give goods against the price,
(d) Guarantees possession by the bidder.
Strict application of the procedure as well as the conduct of auctions is governed by the Sale of
Goods Act, 1930.
Chapter 7 of the Sale of Goods Act, 1930, Secs 6266, consists of miscellaneous matters
not only such as auction, but also increased or decreased taxes, reasonable time, repeal, and
savings. Case 5.9 displays some of these elements. Though you
MANAGERS TAKEAWAY
are about to complete the study of this chapter, in reality it is the
beginning of your learning in the world of sale and purchase of
A man without a smiling
goods. Whether you are a manager or not, you cannot live without
face should not open a
shop (Chinese proverb).
buying and selling. Since these twin activities are so close to life,
One who finds fault with
they also demand governance by a good law so that this important
the goods is a sure buyer.
economic activity of man is protected.
CASE 5.9
Facts:
The Coffee Board of India is a statutory corporation. Export of coffee outside India
is particularly controlled under the Act and the Rules by the Coffee Board. Coffee
can be exported either by the Coffee Board directly to parties outside India or the
Coffee Board authorizes other exporters to effect such exports. For effecting exports
through other exporters the Coffee Board periodically conducts auctions known as
export auctions and it follows a procedure in that behalf. To be able to bid at these
auctions, exporters have to get themselves registered with the Board.
The Coffee Board issued a circular dated 7 February 1977 to the registered
exporters of coffee, by which it took the view that in order to avail of the benefit of
Sec. 5(3) of the Central Sales Tax Act as amended by Amendment Act 103 of 1976,
in respect of the coffee sold by it at the export auctions the registered exporters
(bidders) should satisfy three conditions: (a) they must have an export contract (i.e.,
either agreement or order) from a foreign buyer; (b) they must have it on hand at
the time when they participate in the export auction; and (c) they should give proof
of the export of the coffee purchased at the auction.
The petitioners, who are registered exporters of coffee, therefore have filed
under Article 32 of the Constitution raising an important question of proper
construction of Sec. 5(3), of the Central Sales Tax Act as amended by Amending
Act (103 of 1976) and also challenging the constitutional validity of the circular
dated 7 February 1977, issued by the Coffee Board, whereby it required the
petitioners and other registered exporters of coffee to furnish contingency deposits
or bank guarantees equal to the amount of sales tax in respect of the exempted
sales under the said Sec. 5(3) of the Central Sales Tax Act and praying for its
cancellation or withdrawal and consequential reliefs.
*Consolidated
Coffee Ltd vs Coffee Board, Bangalore 1980 AIR 1468, 1980 SCR (3) 625; also see http://www.
indiankanoon.org/doc/1542029/ (20 December 2010).
Contd
Sec. 5(3) of the Central Sales Tax Act as amended by the Amendment Act 103 of 1976
is not ultra vires to Article 286(2) of the Constitution and the said provision neither
creates any legal Action nor is it beyond the power or authority conferred on
Parliament by Article 286(2) of the Constitution. [645A-D] It is true that the word
deemed has been used in Sec. 5(3) but the same word has been used not merely in
Sec. 5(1) but also in the other two Sec.s 3 and 4 of Chapter II of the Central Sales
Tax Act which has the heading Formulations of Principles for determining when a
sale or purchase of goods takes place in the course of inter-state trade or commerce
or outside a State or in the course of export or import.
In the penultimate sales (sales of coffee effected to registered exporters at export
auctions conducted by the Coffee Board) the property in the coffee sold there passes
to the buyer immediately upon payment of full price, weight, and setting apart of
coffee for delivery to the buyer under Cls. 19 and 20 of the Auction Conditions and
it would be at this stage, i.e., just before this stage is reached that the agreement with
or order from a foreign buyer must be available or produced in order to attract Sec.
5 (3) of the Central Sales Tax Act, 1956. [674C-D]
Exporters assessments or recoveries if made in conformity with judgement need
not be disturbed. Similarly, contingency deposits or bank guarantees already obtained
by the Coffee Board from the registered exporters, if they are contrary to judgement,
these will be refunded or released forthwith, as the case may be, by the Coffee Board.
S UM M ARY
Introduction and Interpretation
The Sale of Goods Act, 1930 was part of the Indian
Contract Act, 1872. In their function, both are com
plimentary to each other.The new law was to de ne the
new facets of the business of sale of 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.
Price is the consideration for the goods in prop
erty. It is expressed in terms of money. It may be
determined mutually, at a future date or through, an
independent source.
Conditions and warranties A stipulation in a contract
of sale with reference to goods. The conditions and
warranties may be express or implied.
Caveat emptor Let the buyer beware, puts the onus
of the sale of goods the buyer.
Effects of the Contract
Transfer of property in goods is the effect of contract
of sale.
It involves ownership, risk, action against third party,
price, and insolvency.
A contract of sale is made by offer or to buy goods
for a price and acceptance of such offer.
Property in goods is the subject matter of sale;
goods may be existing, future, or contingent.
CHAPTER EXERC IS ES
Introduction and interpretation
Make a classification of the Sale of Goods Act, 1930.
Formation of the contract (Agreement to sell)
(i) You possess some goods of which you have no
immediate knowledge or you have forgotten
about it. An acquaintance of yours lays his
hands on it and sells it to you. Eventually
Effects of contract
(i) Examine whether the property in the goods has
passed from the seller to the buyer:
(a)You offer `10 lakh to a car dealer for the car
chosen by you. You agree that the car will be
delivered to you on the 15th of the month
and you will make payment on the 30th of
the month.
(b)Your company orders a tanker to be built. The
company pays in installments on account of
price as the carrier is being built.
(c)A wholesaler agrees to sell 10 tonnes of
groundnut oil to a dealer. The wholesaler
readies the goods and gives notice to the
dealer to take the ordered stock. Hint: (a) As
soon as you get the delivery of the car; (b)
No, the property in the tanker will pass when
it is ready; (c) Property passes as soon as the
wholesaler gives the notice.
(ii) You want to purchase a second-hand machine
which is not in a proper condition. You ask the
seller to repair and give it to you. The seller says
that you take it, repair it, and pay him with the
deducted costs. In the process of repairing the
machine is destroyed without any fault of the
technician. Now the seller wants the money from
Performance of contract
(i) Your company orders 20,000 tonnes of steel to
be delivered in installments of 2,000 tonnes every
month and you paid for each such delivery. After
the delivery of 10,000 tonnes the quality of the
steel deteriorated. So you promptly refused any
further installment giving notice to the company
that it is not of the contracted quality. The steel
maker did not agree with you saying the contract
was done and you would have to accept the deliv
ery and filed a suit. What are your chances? Hint:
You have the right to contracted goods, you have
the right to reject if it is not of contracted quality;
see Sec. 38 of the Act.
(ii) Pandit Brothers Ltd, sold 100 tonnes of wheat to
Charat Ram & Co., by sample. The delivery was
through railway. In the meantime, Charat Ram
further it sold by the same sample to Shiv Ganga
Mills to be delivered by railways. Shiv Ganga
refused to accept the delivery on the charges that
the sample and the goods supplied varied vastly
in quality. Charat Ram, in turn, told his sourcing
company, Pandit Brothers that he is rejecting the
delivery. Pandit Brothers contested in the court that
the goods had been delivered and that the property
in goods had passed to Charat Ram & Co.
F URTHER READIN G
Dinesh Fardaunji Mulla, 2001, Sales of Goods Act,
6th ed., Butterworths, New Delhi.
Krishnamachari & Anita B. Gogia, 2007, A Short
Commentary on the Sale of Goods Act, 1930, 2nd ed.
Jain Book Agency, Delhi.
Web resource
http://www.vakilno1.com/bareacts/saleofgoods/
saleofgoods.htm.
CA S E ST U DY
LESS FOR MORE
There is no implied warranty or condition as to the quality or fitness for any particular
purpose of goods supplied under a contract of sale.
Sec. 16, The Sale of Goods Act, 1930
The buyer needs a hundred eyes, the seller not one.
George Herbert3
Introduction
The Indian bazaar is a battleground where the buyers
fight losing battles.The consumers are wounded and most
of them succumb to their miseries. There are only a few
who keep on fighting with the help of consumer fora
and consumer courts. From buying a home appliance to
buying an apartment, from buying stationary to buying
manufacturing machineryno buyer is saved from the
problems of defects in quality and deficiency quantity.
The image of Indian goods and services is suspect in the
international markets. They are often considered substandard, cheap, and produced illegally and unethically.
There is also a very sensitive ethical dimension to buying
and selling.The buyers are made conscious about the ethical
responsibilities as to buying goods made by child workers
3George
Contd
4M.S. Padmanabha
Iyer vs Devadasans Sylus and Others, on 31 1969; also see http://www.indiankanoon.org/doc/1590845/ (17 December October 2010).
5S.
Saroja, Caveat Emptor: How Long is too Long? http://www.thehindu.com/life-and-style/society/article952163.eceChennai, 14 December 2010. (20
December 2010).
6Gunnar Trumbull, 2006,Consumer Capitalism: Politics, Product Markets, and Firm Strategy in France and Germany, Cornell University Press. For more on
Trumbull and his writings see http://drfd.hbs.edu/fit/public/facultyInfo.do;jsessionid=KbmTDQP6s0vfM1ktdbQ3hG6h1Dsnk2WCKc5kSyCGplxzFFGT Rg7
Q!528537621!815275569?facInfo=pub&facId=140863 (20 December 2010).
Protection
Ethical buying
Retail protection
Organic products
Certification that the products are wholly and truly organic and not just partially
so.
Environmental protection
Housing
What legal documents one must have for clear title; what is expected from a
builder.
Contd
7http://ncdrc.nic.in/
Protection
Taxation
To know exactly what the direct tax collection entails, e.g., capital gains tax.
Transport
Services
What kind of services are available; whether schemes are clear and how they are
charged, e.g., excess billing.
Medicine
Discussion Questions
Going Beyond
LEGAL LUMINARY
MGPEMPOWERED CONSUMER ASSOCIATION
This luminary is a consumer activist. Law, unless it
is put into action, remains a dead letter. Waging a
lone legal battle is least romantic, but a group can
make the law to function in clockwork precision.
An individual buyer is at the mercy of the seller;
but if it is a united front of the buyerssuch an
association is definitely the king of all the markets
that it surveys. Mumbai Grahak Panchayat (MGP)* is
*See
Contd