bla seca group8 sale of goods act

8/11/2019 BLA SecA Group8 Sale of Goods Act

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Business Law

Group# 8

Sec-A

Sale of Goods Act


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Conditions &Warranties

Effects ofthe contract

Transfer ofTitle

ContractPerformance

Rights ofUnpaidSeller

Remedy forBreach

Introduction

The Act is referred to as the Sale of Goods Act, 1930 and came into force on July 1,

1930

It extends to the whole of India except the states of Jammu and Kashimir

Prior to the introduction of the Sale of Goods Act, the Sale and Purchase of Goods

were regulated by the Indian Contract Act, 1872 through its sections 76 to 123.

The Laws laid down by the Indian Contract Act apply to Contracts of Sale and

Purchase except in cases where the Sale of Goods Act indicates otherwise.

Contracts for the sale of goods are subject to the general legal principles applicable

to all contracts, such as offer and its acceptance or other essential elements of a

contract.

However it also deals with Transfer of Ownership of Goods, Delivery of Goods,

Rights and Duties of Buyer and Seller, Remedies for Breach of Contract, Conditions

and Warranties implied under the Sale of Goods.


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Transfer ofTitle

ContractPerformance


Remedy forBreach

Introduction

Buyer:A person who buys or agrees to buy goods.

Delivery: Voluntary transfer of possession from one person to another

Delivered State: A good is said to be in a delivered state if they are in such a State the buyer under

contract be bound to take delivery of them.

Document of Title to Goods:Any document used in the course of business that serves as a proof for

possession or control of goods authorising the possessor to transfer or receive goods thereby

represented. Example: Railway Receipt, Bill of Lading Dock, Warehouse keeperscertificate etc.

Fault: Wrongful Action

Future Goods:The goods are manufactured after making the contract of Sale.

Goods:Every kind of moveable property other than actionable claims and money.

Mercantile Agent: A person who has the authority to sell goods, buy goods, consign to sell goods or toraise money on the security of Goods.

Price: The money consideration for the sale of Goods.

Quality of Goods:State or Condition of the Goods

Seller:A person who agrees to sell the Goods

Specific Goods:Goods identified and agreed upon at the time of contract.

Important Definitions


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Transfer ofTitle

ContractPerformance


Remedy forBreach

Introduction

Sec 4(1) of the Indian Sale of Goods Act, 1930 defines the contract of the sale of

goods in the following manner: 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 aprice.

The term Contractof sale of goodsis a generic term and it includes:a. Sale

b. An agreement to sell

Where the seller transfers the ownership rights to the buyer immediately on

making the contract, it is the contract of sale, but where the ownership rights Are

to pass on some future date upon the fulfilment of certain conditions then it is

called an agreement to sell.


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Transfer ofTitle

ContractPerformance


Remedy forBreach

Introduction

Sale and Agreement to Sell

Sale

A sale is an executed contract

Since the ownership has passed to the

buyer, the seller can sue the buyer for the

price of the goods, if the latter makes a

default in payment

In case of loss of goods, the loss will fall on

the buyer, even though the goods are in the

possession of the seller. It is because the risk

is associated with ownership

In case the buyer pays the price and the

seller thereafter becomes insolvent, the

buyer can claim the goods from the official

receiver or assignee as the case may be

Agreement to Sell

It is an executory contract

In case of breach, the seller can

only sue for damages, unless the

price was payable at a stated date

The loss in this case shall be

borne by the seller, even though

the goods are in the possession of

the buyer

In this case, the buyer cannot

claim the goods, but only a

rateable dividend for the money

paid


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Transfer ofTitle

ContractPerformance


Remedy forBreach

Introduction

Sale and Hire Purchase Agreement1. In a sale, property in the goods is transferred to the buyer immediately at the time of

contract, whereas in hire-purchase, the property in the goods passes to the hirer upon

payment of the last instalment.

2. In a sale, theposition of the buyer is that of the owner of the goods but in hire

purchase, the position of the hirer is that of a bailee till he pays the last installment.

3. In the case of a sale, the buyer cannot terminate the contract and is bound to pay the

price of the goods. In the case of hire-purchase, the hirer may, if he so likes, terminate

the contract by returning the goods

4. In the case of a sale, the seller takes the risk of any loss resulting from the insolvency of

the buyer. In the case of hire purchase, the owner takes no such risk, for if the hirer fails

to pay an instalment, the owner has the right to take back the goods.

5. In the case of a sale, the buyer can pass a good title to a bonafide purchaser from him

but in a hire-purchase, the hirer cannot pass any title even to a bonafide purchaser.

6. In a sale, sales tax is levied at the time of the contract whereas in a hire-purchase, salestax is not leviable until it eventually ripens into a sale


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Transfer ofTitle

ContractPerformance


Remedy forBreach

Introduction

By definition, the following are essential to the contract:

1) There must be at least two parties:a sale has to be bilateral because the property

in goods has to pass from one person to another. The seller and the buyer must be

different persons

2) Transfer or agreement to transfer the ownership of goods: In a contract of sale, it is

the ownership that is transferred (in the case of sale), or agreed to be transferred (in

the case of agreement to sell), as against transfer of mere possession

3) The subject matter of the contract must necessarily be goods: the sale of

immovable property is not covered under Sale of Goods Act.

4) Price is the consideration of the contract of sale:the consideration in a contract of

sale has necessarily to be money.

5) All other essentials of a valid contract as per the Indian Contract Act, 1872 must be

present: the parties to the contract must be competent of contract, the consent of

the parties must be free, the object of the contract must be lawful.


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Transfer ofTitle

ContractPerformance


Remedy forBreach

Introduction

Effect of perishing of goods

Section 7 and 8 deal with the effect of perishing of goods on the rights and obligations of the parties to a

contract of sale.

The word perishing means not only physical destruction of the goods but it also covers:

1. Damage to goods so that the goods have ceased to exist in the commercial sense, i.e. their

merchantable character as such has been lost. Example: where cement is spoiled by water and

becomes almost stone.

2. Loss of goods by theft

3. Where the goods have been lawfully requisitioned by the government

It may also be mentioned that it is only the perishing of specific and ascertained goods that affects a

contract of sale

Where unascertained goods form the subject matter of a contract of sale, their perishing does not affect

the contract and the seller is bound to supply the goods from wherever he likes, otherwise be liable for

breach of contract


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Transfer ofTitle

ContractPerformance


Remedy forBreach

Introduction


1.Perishing of specific goods at or before making of the contract (Sec 7)

In case of the perishing of the whole of goods: Where specific goods form the

subject-matter of a contract of sale (both actual sale and agreement to sell), and they

, without the knowledge of the seller , perish at or before the time of the contract ,

the agreement is void .This provision is based either on the ground of mutual

mistake as to a matter of fact essential to the agreement , or on the ground of

impossibility of performance, both of which render an agreement void.

ILLUSTRATION: A sold to B a specific cargo of goods supposed to be on its way from

England to Bombay. It turned out, however , that before the day of the bargain, the

ship conveying the cargo had been cast away and the goods were lost. Neither

party was aware of the fact. The agreement was held to be void.

h f


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Transfer ofTitle

ContractPerformance


Remedy forBreach

Introduction


In case of perishing of only a part of the goods: Where in a contract for the sale of specific

goods, only part of the goods are destroyed or damaged, the effect of perishing will depend

upon whether the contract is entire or divisible.

If it is entire (i.e. indivisible) and part only of the goods has perished, the contract is void. If

the contract is divisible, it will not be void and the part available in good condition must be

accepted by the buyer.

Example: There was a contract for the sale of a parcel containing700 bags of Chinese

groundnuts of different qualities. Unknown to the seller 109 bags had been stolen at the

time of the contract. The seller delivered the remaining 591 bags and, on the buyersrefusal

to take them, brought an action for the price. It was held that the contract being indivisible

had become void by reason of the loss of the goods and the buyer was not bound to take

delivery of 591 bags or pay for the goods.

Note: Had there been all bags of the same weight and quality for certain price per bag, the

contract would have been divisible and the buyer could only have avoided the contract as to

those goods which had actually perished

Ri h f


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Transfer ofTitle

ContractPerformance


Remedy forBreach

Introduction


Perishing of specific goods before sale but after agreement to sell (sec.8).

Where there is an agreement to sell specific goods, and subsequently the goods , without

any fault on the part of the seller or buyer, perish before the risk passes to the buyer, the

contract of sale becomes void, and both parties are excused from performance of the

contract.

This provision is based on the ground of supervening impossibility of performance which

makes a contract void

If only part the goods agreed to be sold perish, contract becomes void if it is indivisible.

But if it is divisible then the parties are absolved from their obligations only to the extent of

the perishing of the goods (i.e., the contract remains valid as regards the part available in

goods condition ).

It must further be noted that if fault of either party causes the destruction of the goods,

then the party in default is liable for non-delivery or the pay for the goods

Ri ht f


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Transfer ofTitle

ContractPerformance


Remedy forBreach

Introduction

Effect of perishing of goods: Example

(a) A buyer took a horse on a trial for 8 days on condition that if found suitable for his

purpose the bargain would become absolute. The horse died on the 3rd day without any

fault of either party. Held, contract, which was in the from of an agreement to sell, becomes

void and the seller should bear the loss ( Elphick vs Barnes).

Effect of perishing of future goods.

As observed earlier, a present sale of future goods always operates as an agreement to sell

[sec. 6(3)]. As such there arises a question as to whether section 8 applies to a contract of

sale of future goods. (amounting to an agreement to sell) as well? The answer is found in

the leading case of Howell vs Coupland 20, where it has been held that future goods, the

destruction of which makes the contract void . The facts of the case are as follows:

Example: C agreed to sell to H 200 tons of potatoes to be grown on Cs land. C sowed

sufficient land to grow the required quantity of potatoes, but without any fault on his part, a

disease attacked the crop and he could deliver only about ten tons. The contract was held to

have become void.

Ri ht f


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Transfer ofTitle

ContractPerformance


Remedy forBreach

Introduction

The Price of the Goods

For a contract to be valid, the buyer must pay the seller a reasonable price which must in

the form of money for the contract to be a valid Sale of Good Contract.

The Sale of Goods Act allows the parties entering into the contract to:

1) Ascertain the Price of the contract at the time of Sale

2) To determine the price at a later date in a manner they may find suitable

If the price is not decided then the buyer must pay the seller a reasonable price, which may

vary from case to case

The parties may also opt to leave the valuation of the contract price to a third party. If the

third party fails to do so then the contract is avoided, but it the goods have been delivered

then a reasonable price has to be paid.

If the third party fails to perform its duties due to the mistake of one of the parties in the

contract then party not in fault can file for damages

Rights of


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IntroductionConditions &Warranties


Transfer ofTitle

ContractPerformance


Remedy forBreach

A Stipulationis a representation which forms part of the contract of sale and affects the contract.

This may be either a condition or warranty

A Conditionis a stipulated essential to the main purpose of contract and forms the hardcore

of the contract, breach of which gives rise to a right to treat the contract as repudiated.

Case: Bentsen Vs. Taylor, (1893) 2 QB 274

Court asked to test difference between condition and warranty.

As per Judge Bowen L J, There is no way to zero on whether stipulation is condition or warranty

unless the contract is looked in its entirety under surrounding circumstances.

Once done then only mind can be made, whether intention of involved parties will be best out by a

condition or warranty

Case: Baldry Vs. Marshall (1925) 1KB 260

Plaintiff Baldry consulted Marhsall, the defendants, for a car suitable for touring purpose Defendant suggested a Bugatti, which plaintiff bought.

But the car turned out unsuitable for touring purpose therefore plaintiff sued defendants

for the recovery of the payments made.

But as contract excluded defendant liability for guarantee/warranty, statutory or

otherwise, hence court ruled in favor of plaintiff as the condition behind purchase was

violated. As contract does not exclude liability for breach of condition.

Rights of


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Transfer ofTitle

ContractPerformance


Remedy forBreach

A Warranty is a stipulation collateral to the purpose of contract, breach of which gives

aggrieved party to sue only for damages only but not avoid the contract or reject goods

Case: Hartley Vs. HymansA man buys a horse which is warranted quite to ride and drive but if the horse turns out to

be vicious the buyers only remedy is to claim damages.

Essential Collateral

Treatment

Right in case of Breach

DifferencesCondition Warranty

Essential to the main

purpose of contract

Collateral to the main

purpose of contract

Contract can be

terminated

Only damages can be

claimed

Breach of condition can be

treated as breach of

warranty

Breach of warranty cannot

be treated as breach of

condition

Rights of


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Transfer ofTitle

ContractPerformance


Remedy forBreach

Condition will be treated as warranty

Voluntary waiver by buyer

Acceptance of goods by buyer

Seller has the right to sell the goods in case of a sale or in case of an agreement seller will

have right to sell when the goods is to pass

Case: Rowland Vs Divall

Claimant bought a car from defendant which he painted, put in his showroom and sold to

another customer

Later car was impounded by police on account of being stolen and was returned to original

owner

The claimant returned money to his customer and sued the defendant

Judgment: Defendant has no right to sell goods as he did not obtain title from thief and

ownership remained with original owner. Defendant used the car and claimant was notentitled for any compensation for the work carried out on car but he is entitled to get the

purchase money back

Implied warranties:

Rights of


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Transfer ofTitle

ContractPerformance


Remedy forBreach

Warranty of quiet possession: Unless there is a contrary intention, buyer shall have and

enjoy quiet possession of goods and if any way disturbed due to sellers defective title of

goods, buyer may sue seller for breach of warranty

Case: Niblett Limited Vs. Confectioners Materials Co. Ltd.

Planintiff, Niblett purchased 1000 tins of condensed milk, labelled as Nissy,

from defendant, Confectioners Materiasl Co. Ltd.

Nestle told the claimant that if they attempted to sell these on, they wouldapply for an injunction to prevent the sale as the label was very similar to

Nestle's labels for their condensed milk

The claimants agreed not to sell them and brought an action against the

sellers.

Judgement:The sellers did not have right to sell the goods and therefore the

buyers were entitled to repudiate the contract

Warranty that goods will be free from any charges or encumbrances in favor of any third party not

declared or known to the buyer before or at the time when contract is made

Rights of


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Transfer ofTitle

ContractPerformance


Remedy forBreach

Sale by Description:

Buyer has never seen and buys on the basis of decription

Case: Varley Vs Whipp Defendant agreed to buy reaping machine from plaintiff

Plaintiff described it asNew the previous year and used very little

Defendant returned machine on account of non-compliance

Judgment: Court ruled in favor of defendant and held that there was a breach

Buyer has seen the goods but buys only on basis of description Case: Nicholson and Venn Vs. Smith Marriott

Table linen was sold at an auction as being property of King Charles I but was

Georgian; main ground though was for breach of contract

Packing method has been described in contract

Sale by Description and Sample:

Sale takes place on the basis of both

Sample

Description

Rights of


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Transfer ofTitle

ContractPerformance


Remedy forBreach

Condition as to quality or Fitness:

No implied warranty or condition To the quality for particular purpose

To the fitness for particular purpose

Except:

Purpose of goods is known to seller, i.e. buyer relies on judgment of seller

Goods are brought by description from seller who deals in goods of that description

CAVEAT EMPTOR

Caveat Emptor means let buyer beware.

Buyer must be careful while purchasing goods

Must examine thoroughly while purchasing goods

Satisfy himself that the goods are not defective

As per required quality and suit the purpose Seller is not liable in case buyer relies on his own judgment and skills and if goods

turns out to be defective or of poor quality or unsuited for the purpose

d ff f f fRights of

d f


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Transfer ofTitle

ContractPerformance


Remedy forBreach

Case: Eternit Everest Ltd. Vs. Abraham, AIR 2003 KERALA 273

Plaintiff C.G. Abraham filed suit claiming damages against defendant, Eternit Everest Ltd.

Plaintiff purchase asbestos sheets for roofing which was known to the defendant Asbestos sheets also has unique usage for roofing, protecting against sun and rain

Sheets are fit for purpose only if leak proof

Plaintiff wanted Everest asbestos sheet thus trusting judgment/skill of the defendant

But goods supplied has manufacturing defect of leakage

As purpose was known beforehand to the seller Therefore there is breach of implied warranty of quality of sheet being fit for intended

use

Sale by Sample:

Sale by sample, when there is term in contract, expressed or implied

Case of contract of sale by sample: Bulk corresponds with sample in quality

Buyer have opportunity to compare bulk with sample

Goods be free from defect

Eff f T f f CRights of

R d fC diti &


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IntroductionEffects of

the contractTransfer of

TitleContract

Performance


Remedy forBreach


Goods must be ascertainedWhere there is a contract for sale of unascertained goods, no property in goods is transferred to the buyer unless goods are

ascertained

Case Study

Tej Singh Vs State, AIR 1981 ALLAHBAD 103

Tej Singh filed a suit against the U. P. State Electricity Board and SuperintendingEngineer and the Executive Engineer

Tej Singh had entered into a contract to buy 500 trucks of ash at Rs 16.25 per ft3 asand when the ash was produced

But the U.P. electricity board did not allow him to take the ash after as they said it wastheir policy to sell the ash at going market rates

Court decreed that the contract was enforceable however, permanent injunction wasnot maintainable as he could be adequately compensated in terms of money for non-performance of the contract

Key Reason

The contracted quantity of the coal ash was not in ready stock for supply to theappellant and as such the property which was to be sold to the plaintiff was notspecified

In the absence of specified goods no title could pass to the appellant in the waste coalash.

Eff t f T f f C t tRights of

R d fC diti &


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TitleContract

Performance


Remedy forBreach


In case of contract of sale of specificand ascertainedgoods, the property in them is

transferred to the buyer at such time as parties to contract intend it to be transferredIntent shall be ascertained from terms of contract, conduct of parties and circumstances of thecase

Rules contained in Section 20 to 24 will be applied for ascertaining this unless a differentintention appears

Property passes when intended to pass

Specific goods in deliverable state

In case of unconditional contract for sale of specific goods in deliverable state title passesto the buyer when contract is made, Irrespective of time of payment or delivery unless a

different intention appears

Case Study

Agricultural Market Committee vs Shalimar Chemical Works

Goods were ascertained and in deliverable state

The seller loaded goods on lorry & dispatched to Hyderabad

Contract did mention that seller will not be liable for any future losses of goods and buyer

had also obtained an insurance of the goods

Hence the intention of the buyer was that of goods to be treated as that of his own

Thus the argument that title was accepted after that payment or weighting of the goods at

Hyderabad were incorrect, title had already been transferred in Kerala

Eff t f T f f C t tRights of

R d fConditions &


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TitleContract

Performance

gUnpaidSeller

Remedy forBreach


Goods sent on approval or on sale or return

In contract for sale of specific goods in a deliverable state, but the seller is bound to weigh,

measure, test or do something with reference goods for purpose of ascertaining the price, the

property does not pass untilSuch act or something is done

Buyer has notice thereof

Goods to be put in deliverable state

Where there is a contract for sale of specific goods and the seller is bound to do something to put

it in a deliverable state the title doesnt pass untila) such thing is done

b) Buyer has notice thereof

Where seller has to Ascertain price

When goods are delivered to the buyer on approval or on sale or return the property passes to

the buyer if:

Buyer signifies approval / acceptance

Or If time fixed decided for return passes or reasonable time passes and buyer retains the goods

without giving notice of rejection

Effects of Transfer of ContractRights of

Remed forConditions &


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TitleContract

Performance

gUnpaidSeller

Remedy forBreach


Sale of Unascertained goods and appropriation

The property of the goods passes on to the buyer if there is a contract ofUnascertained goods or Future goods by description

Deliverable state

Unconditionally appropriated to the contract by either:

Seller with assent of the buyer

Or buyer with the assent of the seller

Assent may be implied or express, given before or after appropriation

Delivery to Carrier

The seller is deemed to have unconditionally appropriated goods to the contract if:

If seller delivers goods to buyer or carrier or other bailee (whether named by buyer of not)

for the purpose of transmission to buyer

Seller doesnt reserve the right of disposal

Exception 1:when the contract contemplates delivery to the buyer, the sellers act of delivery

merely is considered a step in the execution of the contract

Exception 2:Even when the above is true question whether seller intends to transfer the title

still persists

Effects of Transfer of ContractRights of

Remedy forConditions &


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TitleContract

Performance

gUnpaidSeller

Remedy forBreach


In contract for sale of specific goods or appropriated goods or appropriated subsequently

The seller may by the terms of the contract reserve the right of disposal of goods until certain

conditions are fulfilled

Goods are shipped / delivered to the railway and are deliverable to the order of the seller or

his agent

Where seller of goods draws on buyer for the price and transmits to the buyer bill of exchange

together with the bill of lading / railway receipt to secure acceptance of payment if the buyerdoes not intend to honor the payment then even if the buyer holds on to the railway receipt

wrongfully the title doesnt pass to the buyer

Reservation of right of disposal

Goods remain sellers risk until title has been transferred whether delivery has been made or

not

Exception 1: delivery has been delayed through fault of one of the parties the goods are at risk

of the party as regards to any loss which might have occurred but for such fault

Exception 2: Seller or buyer holds the goods in capacity of bailee

Risk Prima facie passes with property

Conditions & Effects of Transfer of ContractRights of

Remedy for


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Transfer ofTitle

ContractPerformance

UnpaidSeller

Remedy forBreach

Sale by person not the owner

Goods are sold by person to buyer who is not the owner

Buyer has no title to the goods

Unless owner precluded from denying sellers authority to sell

Case: Cundy Vs. Lindsay

Rogue Blenkarn impersonated the reputed firm Blenkiron and Son traded

Blenkarn ordered linen from Lindsay and Co. and sold to Cundy

Cundy has bought the items in good faith First contact was void, on account of mistake of identity

Blenkarn could not confer any title on Cundy who were liable to Lindsay and Co in

conversion

When seller obtained possession of goods under a voidable contract but at the time of

sale contract has not rescinded, then buyer acquires title of the goods if bought in goodfaith and without notice of seller defect of title


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Conditions & Effects of ContractRights of

Remedy forTransfer of


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A Ramamoorthy v. P. Satyanarayana

The plaintiff entered into contracts with the defendants to buy gunnies

Although the time and place of the delivery were fixed, the payment was stipulated

against the delivery order

At the end of the contracts, the plaintiff passed to the defendants a stop-loss letter,

under which the plaintiff agreed to accept damages in lieu of delivery

The plaintiff without applying for delivery, sued the defendants for damages for non

delivery

As the plaintiff did not apply for delivery, he had no cause of action for claiming

damages

Apart from any express contract, the seller of goods is not bound to deliver them until the

buyer applies for delivery.

Buyer to Apply for Delivery



ContractPerformance

UnpaidSeller

Remedy forBreach

Transfer ofTitle




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Whether it is for the buyer to take possession of the goods or for the seller to send them to the

buyer is a question depending in each case on the contract, express or implied, between theparties. Apart from any such contract, goods sold are to be delivered at the place at which

they are at the time of the sale, and goods agreed to be sold are to be delivered at the

place at which they are at the time of the agreement to sell, if not then in existence, atthe place at which they are manufactured or produced.

Where under the contract of sale the seller is bound to send the goods to the buyer, but no time

for sending them is fixed, the seller is bound to send them within a reasonable time.

Where the goods at the time of sale are in the possession of a third person, there is no delivery

by seller to buyer unless and until such third person acknowledges to the buyer that he

holds the goods on his behalf. Provided that nothing in this section shall affect the operation

of the issue or transfer of any document of title to goods.

Demand or tender of delivery may be treated as ineffectual unless made at a reasonable

hour. What is a reasonable hour is a question of fact.

Unless otherwise agreed, the expense of and incidental to putting the goods into a deliverable

state shall be borne by the seller.

Rules as to Delivery



ContractPerformance

UnpaidSeller

Remedy forBreach

Transfer ofTitle




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If seller delivers greater than the contracted quantity of goods Buyer may accept the contracted quantity only or reject the whole

If buyer accepts the whole, he has to pay at the contract rate.

If seller delivers lesser than the contracted quantity of goods

Buyer may reject the quantity

If buyer accepts, he has to pay at the contract rate

If seller delivers goods which include non specified ones

Buyer may accept the contracted type of goods or reject the whole

Delivery of Wrong Quantity

Unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by

instalments.

If the contract species delivery in instalments and the seller makes no or defective

delivery or the buyer neglects or refuses to take delivery of one or more instalments,

the intensity of the breach has to be decided based on the circumstance

Instalment Deliveries



ContractPerformance

UnpaidSeller

Remedy forBreach

Transfer ofTitle

d iConditions & Effects of Contract

Rights ofid



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Girija Prashad Pal v. National CoalCo. ltd.

The words f.o.r. were used,

meaning it is the sellers

responsibility to keep the goods

free on the rail as the place of

delivery. Once that is done, the risk

is with the buyer.

The seller delivered the goods in

the wagons at Jodhpur for

transmission to the buyer

The court ruled that the property of

the goods together with the risk

passed from the seller to the buyer

as soon as the goods were loaded

in the railway wagons at Jodhpur

i.e. F.O.R. Jodhpur

If the seller is required to send the goods to the buyer

Delivery of the goods to a carrier, whether namedby the buyer or not, for transmission to the buyer, is

prima facie deemed as delivery to the buyer

Delivery of goods to a wharfinger for safe custody is

prima facie deemed as delivery to the buyer

But in this case the seller has to make a reasonable

contract with the carrier or the wharfinger on behalf of

the buyer with regard to the goods and circumstances.

If the seller omits to do so and the goods are

lost/damaged,

The buyer may not treat the delivery to the carrier

or the wharfinger as delivery to himself or The buyer may hold the seller responsible in

damage

If such a transit is through the sea, the seller has to give

notice to the buyer to insure the goods during the transit.

If the seller fails to do so, the goods will be at the sellers

risk during the transit.

Delivery to carrier or wharfinger



ContractPerformance

UnpaidSeller

Remedy forBreach

Transfer ofTitle

I d iConditions & Effects of Contract

Rights ofU id



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Cost, Insurance and Freight (CIF)

A type of contract wherein the price includes cost, insurance and freight charges The seller is required to send the bill of lading and insurance policy together with

the invoice to the buyer

Buyer pays on the receipt of the documents.

Free on Board (FOB)

The seller has to deliver the goods on board a vessel designated by the buyer The seller fulfills his obligation when the goods pass over the ships rail

All freight, insurance costs etc. are borne by the buyer

A flexible instrumentobligations can be changed by either of the parties

CIF and FOB

B designates a carrier for transit. S puts the goods on board and forwards the bill of

lading to Bclassic FOB

S undertakes additional dutiesarranges for carriage and insurance. The lading bill is

forwarded to B. Similar to CIF but contract price excludes carriage costs.

B takes the contract of carriage in advance. S puts goods on board in exchange for a

mates receipt which is forwarded to B.

FOB Varieties: Examples


Effects ofthe contract Performance

UnpaidSeller

Remedy forBreachTitle

I t d tiConditions & Effects of Contract

Rights ofU id



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Generally, risk passes to the buyer when the goods are put across the shipsrail.

Even when the property does not pass to the buyer on loading, risk normally will pass.

If the contract varies the sellersduties, the point at which the risk passes may vary. Eg. Freeon

Board Stowed.

Risk could also pass to the buyer prior to shipment. Eg. If the goods deteriorate because of delay by

the buyer in giving shipping instructions to the seller.

Buyer bears the risk of fluctuations in freight rates and insurance premiums

A Note on FOB

Most widely and frequently used contract for sea borne commerce

An essential feature is that performance of the contract is satisfied by the delivery of the

documents and not by the actual physical delivery of the goods

The buyer cannot refuse the documents and ask for the goods, neither can the vendor withhold the

documents and tender the goods.

Advantages

The buyer knows from the date of the contract the exact price he must pay as it includes

freight and insurance

The use of documents to represent goods allow the buyer to resell the goods before they

arrive

The use of documents facilitate the involvement of financial institutions they can be

transferred to the buyersbank as security for the advance of the price by the buyer.

The seller is assured of payment even of the goods are damaged or they never arrive. Thebuyer is protected by the lading bill and insurance policy against such losses.

A Note on CIF

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Will always be an export contract

Exception to the general rule of passage of risks and passage of goods

The property passes at the time the buyer pays and takes up the documents But the goods are at the buyers risk from the time of shipment

If seller ships the goods for the buyer

Risk passes at the time of shipment

If the contract is made after the shipment,

Risk passes at the time of the contract retrospectively, so that goods are deemed to have been

at the buyers risk since the time of shipment

A few stages at which loss/damage may occur during a CIF transaction

Loss/deterioration after the buyer has paid the pricebuyers loss

Loss/deterioration after the tender of documentsbuyers loss (unless other conditions are

prescribed)

A Note on CIF

Seller has to deliver the goods to the buyer at the port of destination

Property does not pass until actual delivery

The goods are at the sellers risk during voyage. Thus, the seller has to insure

The seller has to pay the freight as well

Ex-Ship Contract

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Services FOB CIF ES

Warehouse Storage Seller Seller Seller

Warehouse Labour Seller Seller Seller

Export Packing Seller Seller Seller

Loading Charges Seller Seller SellerInland Freight Seller Seller Seller

Terminal Charges Seller Seller Seller

Forwarders Fees Buyer Seller Seller

Loading on Vessel Seller Seller SellerOcean/Air Freight Buyer Seller Seller

Charges on Arrival at Destination Buyer Buyer Buyer

Duty, Taxes and Customs Clearance Buyer Buyer Buyer

Delivery to Destination Buyer Buyer Buyer

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Where the seller of goods agrees to deliver them at his own risk at place other

than that where they are when sold, the buyer shall, nevertheless, unlessotherwise agreed, take any risk of deterioration in the goods necessarily

incident to the course of transit.

Delivery at a Distant Place

Buyer is not deemed to have accepted goods unless he has had a reasonable

opportunity to examine them for conformity

The seller is bound to afford the buyer this reasonable opportunity

This is only a right to examine the goods not repudiate the contract

If the seller affords the opportunity to the buyer and the latter does not accept

the opportunity, the buyer cannot subsequently say that the goods were ofinferior quality and sue the seller

If the buyer sells and delivers a part of the goods to sub purchasers, the buyer is

deemed to have accepted the goods and he forfeits the right to examine the

goods and reject them for non-conformity

Buyers Right of Examining the Goods


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The buyer is deemed to have accepted the goods when he intimates to the

seller that he has accepted them, or when the goods have been delivered to

him and he does any act in relation to them which is inconsistent with the

ownership of the seller, or when, after the lapse of a reasonable time, he

retains the goods without intimating to the seller that he has rejected them.

Acceptance

In a contract for supply of software, the defendant buyer had made substantial

payments for the initial supply and later raised grievances that the subsequentsupply was defective.

But the defect was not detected within a reasonable time. (One Year)

Such goods are deemed to have been accepted.

Case in Point


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Unless otherwise agreed, where goods are delivered to the buyer and he

refuses to accept them, having the right so to do, he is not bound to return

them to the seller, but it is sufficient if he intimates to the seller that he refuses

to accept them.

Buyer not bound to return rejected goods

When the seller is ready and willing to deliver the goods and requests the buyer

to take delivery, and the buyer does not within a reasonable time after such

request take delivery of the goods, he is liable to the seller for any lossoccasioned by his neglect or refusal to take delivery and also for a reasonable

charge for the care and custody of the goods:

Liability of buyer for neglecting or refusing delivery of goods


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IntroductionWarranties the contract Title Performance

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A seller is deemed as an Unpaid Seller when:

When the whole of the price has not been paid or tendered

When a bill of exchange or other negotiable instrument has been received as conditional payment,and the conditions on which it was received has not been fulfilled by reason of the dishonor of the

instrument or otherwise

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Sellers Lien: Entitlement of retaining possession

Applicable when:

Goods sold without any stipulation as to credit

Goods sold on credit & credit-term expires Buyer becomes insolvent

Incase of part delivery of goods:

Right of lien is applicable to remainder unless an agreement to waive lien has been made

Delivery of the part does not constitute the delivery of the whole

Lien Terminates when:

Seller delivers goods to carrier/bailee for transmission to buyer without reserving

right of disposal of goods

Buyer lawfully obtains possession of goods

Seller waives his right of lien

Prerequisites for Right of stoppage in transit:

Seller must be partially/wholly unpaid

Buyer must have become insolvent

Goods must be in transit

Eg: Seller has parted with possession of goods and buyer has not received the goods

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Duration of Transit:

Transit ends when

Buyer takes delivery of goods Buyer/his agent takes deliver of goods before appointed destination i.e. in anticipation

Carrier/bailee at appointed destination acknowledges possession of goods

Carrier/bailee wrongfully refuses to deliver goods to buyer/his agent

Transit continues in effect when:

Buyer refuses to accept delivery and seller refuses to take it back, bailee is still in

possession

How Right of Stoppage in transit is effected by the seller:

Taking actual possession of goods

Giving notice of his claim to carrier/bailee who possesses goods or to redirect goods

to seller or according to his directions

Sale generally not rescinded by lien or stoppage in transit

Effect of Sub-sale or pledge by buyer:

In case of transfer of goods by buyer, the unpaid sellers right of lien or stoppage in transit

can be exercised subject to rights of transferee.

When pledgee sells goods, the unpaid seller is entitled to receive the surplus sale proceeds.

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UnpaidSeller

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Unpaid sellers right of re-sale can be exercised when:

Goods are perishable

After executing his Right of Lien on retaining his goods or,

After exercising his Right to Stoppage in Transit upon insolvency of the buyer

Seller gives notice to buyer of his intention to resell and buyer does not pay the price

within a reasonable time after the notice

Seller has expressly reserved his right of resale in case of default

If the seller has given notice to the buyer:

He can hold the buyer responsible for loss suffered due to breach of contract

Profits earned on resale are retained by the unpaid seller.

If notice has not been given to the buyer:

Seller cannot recover damages from buyerSeller has to pay the profits if any to the buyer

Seller can claim difference between the contract price and the market price at the date of

the breach

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Part -1 : To protect Seller

Suit for PriceGoods been passed but buyer

wrongfully neglects or refuses to pay

Or

Although goods not been passed

but price is payable on certain day

irrespective of delivery which buyerhas wrongfully neglected or has

refused to pay

Seller may sue buyer

for the price of the

goods

Damages for Non-

Acceptance

Buyer wrongfully neglects or refuses

to accept and pay for the goods

Seller may sue buyer

for damages of non

acceptance


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Part -2 : To protect Buyer

Damages for Non-Delivery

Seller wrongfully neglects or

refuses to deliver the goods to

the buyer

Buyer may sue seller for damages for

non-delivery

Remedy for breach of

Warranty

If breach of warranty by seller

- He may not only reject the

goods but

Set up against seller breach of warranty

in diminution/extinction of price

Sue the seller for damages for breach

of warranty

Or do both in case he suffers from

further damage

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Part -3 : To protect both

Repudiation of contract

before due date

Either party to contract of sake

repudiates the contract before the date

of delivery

Other may treat contract as

subsisting and wait till delivery

Interest by way of damages &

special damages

In the absence of specific contract to

not allow any party to get paid for

interest or special damages court may

award interest as it thinks fit on the

amount of price :

Treat contract as rescinded and

sue for damages for the breach

Or

To seller from the date of the

tender of the goods or from the

date on which price was payable

Or

To buyer for the refund of the

price from the date on which

payment was made


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Miscellaneous

Exclusion of implied terms and conditions

It is open to parties to the contract to agree to themselves to any special rights and

obligations as they may please.

Such as providing for measure of damages and specially exclude any of the terms and

conditions which law automatically attaches to the contract of SOG

Reasonable time a question of fact

Where any reference is made to a reasonable time, the question what is reasonable time

is a question of fact.


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Auction SaleWhere goods are put up for sale in lots, each lot is prima facie subject of separate

contract of sale

Sale is complete when auctioneer announces its completion of the hammer or in

customary manner.

If the seller Makes use of pretended bidding to raise the price, the sale is voidable at the

option of the buyer

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In contracts of sale, amount of increased or decreased taxes to be

added or deductedUnless a different intention appears from the terms of the contract, in the event of anytax being imposed/increased/decreased

A) If the Tax is being increased seller may add so much to the contract price equivalent

to amount of tax being added. He shall be entitled to be paid and to sue for and

recover such addition

B) If the Tax is being decreased buyer may deduct so much from the contract price

equivalent to amount of tax being decreased. He shall not be liable to be pay or be

sued for in respect of such deduction.

Warranties the contract Title PerformanceSeller

Breach

bla seca group8 sale of goods act

Documents