CA Foundation

CA Foundation Business Laws Study Material Chapter 15 Auction Sale

A sale by auction is a public sale where various intending buyers offer bids for the goods and try to outbid each other. Ultimately, the goods are sold to the highest bidder. A bid by the buyer is an offer and it is said to be accepted when the auctioneer announces its completion by the fall of the hammer or in any other customary manner. The words ‘any other customary manner’, takes into account all the manners which may be prevalent to denote acceptance in an auction sale. It may be by shouting one, two, three; or shouting going, going, gone, etc.
A person may himself sell his own goods by auction, or he may appoint an agent, known as auc¬tioneer, to conduct the sale on his behalf.

MULTIPLE CHOICE QUESTIONS:

1. An auction sale is complete on the –
(a) delivery of goods
(b) payment of price
(c) fall of hammer
(d) None of the above

2. In the case of sale by auction, where goods are put for sale in lots, each lot is prima facie the subject of—
(a) a single contract of sale
(b) a separate contract of sale
(c) either (a) or (b)
(d) both (a) and (b)

3. Where a right to bid at the auction has been expressly reserved by the seller, the seller can depute —
(a) not more than one agent to bid on his behalf
(b) not more than two agents to bid on his behalf
(c) not more than three agents to bid on his behalf
(d) any number of agents to bid on his behalf

4. Where the sale is not notified to be subject to a right to bid on behalf of seller, it shall not be lawful for the seller—
(a) to bid for himself
(b) to employ any person to bid at such sale
(c) either (a) or (b)
(d) neither (a) nor (b)

5. X purchased a VCD at a public auction. Neither Auctioneer nor X knew at that time that the VCD was a stolen property. In such case, the true owner can —
(a) recover the goods from X
(b) sue the Auctioneer for fraud
(c) both (a) and (b)
(d) either (a) or (b)

6. At an auction sale, the bidder can withdraw his bid –
(a) before fall of hammer
(b) at any time during auction
(c) before payment of price
(d) cannot withdraw bid

7. An act by which an intending bidder is discour¬aged or dissuaded from bidding in the auction sale is called
(a) Puffer
(b) Damping
(c) Dumping
(d) knockout

8. is a form of combination of buyers to prevent competition among themselves at an auction sale.
(a) Knock-out agreement
(.b) monopoly agreement
(c) oligopoly agreement
(d) puffing agreement

9. In pretended bidding, sale is
(a) voidable at the option of the seller
(b) valid
(c) voidable at the option of the buyer
(d) illegal

10. Unless excluded by an agreement to the contrary, where after a contract has been made but before it has been performed, excise duty is increased:—
(a) The buyer would have to pay increased price
(b) The seller cannot charge increased price
(c) The seller can charge increased price
(d) Both ‘a’ and ‘c’

11. Any imposition, increase, decrease or remission of (z) Customs or Excise Duty on Goods and (z’z) Tax on the Sale or Purchase of Goods, subsequent to the sale, in case of decrease of tax, shall be deducted from the contract price by the Buyer and he shall not be liable to pay or be sued for such deduction.
(a) True
(b) Depends on the contract
(c) False
(d) Both ‘a’ and ‘b’

Answers:

IS STATE WHETHER THE FOLLOWING ARE TRUE OR FALSE

1. In case of sale by auction, a bid can be recalled at any time before the fall of hammer.
2. An auctioneer shall be liable for damages if the auctioneer had no authority to sell the goods.
3. If the buyer’s possession is disturbed by the auctioneer or the seller then buyer has a right to claim compensation.

Answers:

CA Foundation Business Laws Study Material Chapter 14 Rights of Buyer & Rights of Unpaid Seller

RIGHTS OF BUYER

A. GENERAL RIGHTS

1. Right to have delivery as per contracts (Secs. 31 & 32).
2. Right to reject the goods if they are delivered in wrong quantities (Sec. 37).
3. Right to refuse delivery of goods by instalments (Sec. 38)
4. Right to notice of shipment in case the goods are sent by sea so that he may get the goods insured (Sec. 39).
5. Right to examine goods for the purpose of ascertaining whether they are in conformity with the contract (Sec. 41)

B. RIGHTS OF A BUYER AGAINST THE SELLER FOR BREACH OF CONTRACT
A seller may breach the contract in any of the following ways:

1. He fails to deliver the goods at the time or in the manner called for in the contract
2. He repudiates the contract.
3. He delivers non-conforming goods and the buyer rightfully rejects the goods or properly revokes acceptance.

A buyer has the following rights against the seller for breach of contract under the Sale of Goods Act.
1. Suit for non-delivery [Sec. 57]
Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sure the seller for damages for non-delivery. This remedy would be available even if the property has passed to the buyer.

2. Specific performance [Sec. 58]
Where property has passed to the buyer, he also can exercise another right, viz., a right to sue for specific performance and its limits are regulated by the Specific Relief Act. In such cases the court may in its discretion grant a decree ordering the seller to deliver those specific or ascertained goods which formed the subject-matter of the contract. It should be noted that the remedy is discretionary and will only be granted if the damages are not an adequate remedy or the goods are unique, e.g., rare book, a picture or a rare piece of jewellery.

3. Breach of Warranty [Sec. 59]
Where there is a breach of warranty by the seller (Le. defects in the goods delivered) or where the buyer elects or is compelled to treat any breach of condition on the part of the seller as a breach of warranty, the buyer has the following remedies:

1. He may claim a deduction from the price.
2. He may refuse to pay the price altogether, if the loss equals the price.
3. If the loss exceeds the price, he may not only refuse to pay the price, but also claim the excess, or
4. He may sue the seller for damages for the breach of warranty in addition to the right to claim diminution or extinction of the price.

4. Suit for Anticipatory breach [Sec. 60]
The buyer has the right to sue the seller for damages for anticipatory breach of contract Section 60 lays down that where the seller repudiates the contracts before the date of delivery, the buyer may either treat the contract has subsisting and wait till the date of delivery or he may treat the contract as rescinded and sue for damages for the breach.

5. Suit for interest and recovery of the price [Sec. 61]
If the buyer has already paid the price and the seller fails to deliver the goods, the buyer is entitled to file a suit for the refund of the price. In such a suit, the buyer may also claim interest or special damages from the defaulting seller. In the absence of any other contract to the contrary, the court may award interest at such rate as it thinks fit on the amount of price from the date on which the payment was made.

RIGHTS OF THE UNPAID SELLER

1. Unpaid seller defined [Sec. 45]
2. Unpaid sellers’ rights [Sec. 46]
   1. Unpaid sellers ’ lien [Secs. 47 to 49]
   2. Stoppage in transit [Secs. 50 to 52]
   3. Transfer by buyer and seller [Secs. 53 & 54]
3. Suit for breach of the contract [Secs. 55 to 61 ]

A. Who is an unpaid seller?
The seller is deemed to be an unpaid seller under any of the following circumstances:
(a) If the whole of the purchase price is not paid on the due date.
(b) If payment is made in the form of a negotiable instrument. (Bill of exchange or cheque) and the instrument is dishonoured.

B. Unpaid Sellers’ Rights [Sec. 46] 
Rights of an unpaid seller can be listed as follows:

1. Against the goods
   1. Right of Lien,
   2. Right of Stoppage in Transit, and
   3. Right of Resale
2. Against the buyer personally
   1. Suit for price,
   2. Suit for damages for non-acceptance of delivery,
   3. Suit for damages for repudiation of the contract, and
   4. Suit for interest or special damages

B(a). Right of Unpaid Seller against the Goods
(I) Right of Lien or Vendor’s Lien [Secs. 47-49]
The ‘unpaid seller’ has a lien on the goods for the price while he is in possession, until the payment or tender of the price. A lien is a right to retain possession of goods until payment of the price. He is entitled to lien in the following three cases, namely;

1. where goods have been sold without any stipulation as to credit; Le. cash sale.
2. where goods have been sold on credit but the term of credit has expired; or
3. where the buyer becomes insolvent.

Rules:

1. The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the buyer.
2. If the goods have been sold on credit, the seller cannot refuse to part with possession unless the term of credit has expired.
3. Lien can be exercised for non-payment of the price, not for any other charges.
4. Effect of part delivery (Sec. 48): When an unpaid seller has made a part delivery of the goods he can exercise lien on the balance of the goods not delivered unless the part delivery was made under such circumstances as to show an intention to waive the lien.
5. The seller can abandon or waive the lien if he so desires.
6. Termination of lien (Sec. 49): If possession is lost, lien is lost. The unpaid seller of goods loses his lien thereon in the following cases:
   1. When he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the right of disposal of the goods;
   2. when the buyer or his agent lawfully obtains possession of the goods; and
   3. where the seller has waived the right of lien. The unpaid seller does not lose his lien by reason only that he has obtained a decree for the price of the goods.
7. Sale not rescinded by lien (Sec. 54): A contract of sale is not rescinded by the mere exercise of the right of lien. The contract still remains live and the buyer can claim delivery of the goods by tendering the price. However, if the buyer defaults, the sellers remedy is to resell the goods and claim damages.

(II) The Right of Stoppage in Transit [Secs. 50-52]
When the buyer of goods becomes insolvent, and the goods are in course of transit to the buyer, the seller can resume possession of the goods from the carrier. This is known as the right of stoppage in transit. The right is exercisable by the seller only if the following conditions are fulfilled:
The seller must be unpaid.

1. He must have parted with the possession of goods.
2. The goods must be in transit.
3. The buyer must have become insolvent.
4. The right is subject to provisions of the Act.

The right of stoppage means the right to stop further transit of the goods to resume possession and to retain the same till the price is paid.
Who is an insolvent?
The term insolvent is used here to denote a person who is financially embarrassed. It is not necessary that the buyer should be declared insolvent by a court of law before the right of stoppage in transit can be exercised. According to section 2(8). The buyer is said to be ‘insolvent’ when he has ceased to pay his debts in the ordinary course of business, or cannot pay his debts as they become due whether he has committed an act of insolvency or not.

Rules:
The following points are to be noted in connection with the right of stoppage in transit:
1. Duration of transit [Sec. 51]
The goods are deemed to be in course of transit from the time they are delivered to a carrier or other bailee for the purpose of transmission to the buyer, until the buyer or his agent takes delivery of them.

2. When does transit end?

1. Delivery before destination:If the buyer or his agent obtains delivery of the goods before their arrival at the appointed destination, the transit is at an end. [Sec. 51(2)]
2. Attornment by carrier to buyer: if after the arrival of the goods at the appointed destination, the carrier expressly or by implication enters into a new agreement to hold the goods for the buyer (for purpose of custody), the original transit comes to an end. [Sec. 51(3)]
3. Goods rejected by biiyer.Af the goods are rejected by the buyer and they continue to be in possession of the carrier or other bailee, then the transit continues even if the seller has refused to receive them back. [Sec. 51(4)]
4. Delivery on ship chartered by buyer: When the goods are delivered to a carrier who is acting as agent of the buyer, e.g. when goods are delivered to a ship chartered by the buyer, the transit comes to an end as soon as the goods are loaded on board the ship. [Sec. 51(5)]
5. Wrongful refusal by carrier to deliver: If the carrier wrongfully refuses to deliver the goods to the buyer, the transit is at an end. [Sec. 51(6)]
6. Part delivery. Where the part delivery of the goods has been made to the buyer the remainder of the goods may be stopped in transit, unless such part delivery has been given in such circumstances as to show an agreement to give up possession of the whole of the goods. [Sec. gi 51(7)]

3. How stoppage in transit is effected [Sec. 52]
There two modes of stoppage in transit are—

1. By taking actual possession of the goods or
2. By giving notice to the carrier not to deliver the goods to the buyer or his agent.

When notice of stoppage in transit is given by the seller to the carrier or other bailee in possession of the goods, he shall re-deliver the goods to, or according to the directions of, the seller. The expenses of such re-delivery shall be borne by the seller.
Effect of Stoppage: Contract not rescinded- The contract of sale is not rescinded when the seller exercises his right of stoppage in transit. The contract still remains in force and the buyer can ask for delivery of goods on payment of price. [Sec. 54]

Effect of sub-sale or pledge by the buyer [Section 53]
The unpaid seller’s right of lien or stoppage in transit is not affected by any sale or pledge of the goods made by the buyer.
Exceptions: In the following two cases the unpaid seller’s right of lien or stoppage in transit is affected by any sale or pledge of the goods made by the buyer: (i.e., Unpaid seller cannot exercise right of lien or stoppage in transit.)

1. when the seller assents to such sale or pledge; or
2. when the seller has transferred a document of title to the goods, who transfers it by way of a sale, pledge or other disposition for value, to a person who takes it in good faith and for consideration.

Where (i) the seller has issued or lawfully transferred a document of title to goods, e.g. a bill of lading or a railway receipt to a person as buyer and (ii) the buyer transfers the document by way of sale or pledge to a person who takes the document in good faith and for consideration. In such a case if the transfer is by way of sale the unpaid sellers right of lien or stoppage is defeated, and if it was by way of pledge, his right of lien or stoppage can only be exercised subject to the rights of the pledgee.
Thus the effect of the rule is that the seller may still exercise his rights by paying off the pledgee.

DISTINCTION BETWEEN LIEN AND STOPPAGE IN TRANSIT:

1. The essence of lien is to retain possession while the essence of the stoppage in transit is to regain possession.
2. The right of lien is applicable to goods, which are in the possession of the seller. The right of stoppage in transit is applicable to the goods, which are in possession of the carrier.
3. The right of stoppage in transit is applicable to the insolvent buyer. But the right of lien is applicable to all persons, solvent or insolvent.
4. The right of stoppage in transit is applied to the buyer through the carrier. Therefore stoppage means the seller’s right to ‘regain’ the goods. But lien means the right to ‘retain’ the goods. Of course both the rights are applicable to goods only.
5. When the right of lien ends the right to stop in transit begins.

(Ill) The Right of Resale [Sec. 54]
The unpaid seller who has retained possession of the goods in exercise of his right of lien or who has resumed possession from the carrier upon insolvency of the buyer, can resell the goods:

1. If the goods are of a perishable nature, without any notice to the buyer, and
2. In other cases after notice to the buyer, calling upon him to pay or tender the price within reasonable time, and upon failure of the buyer to do so.

If the money realised upon such resale is not sufficient to compensate the seller, he can sue the buyer for the balance. But if he receives more than what is due to him, he can retain the excess. A resale does not absolve the buyer from his liabilities to compensate the seller for damages he may 2 have suffered.

B(b). Right of Unpaid seller against the buyer personally
1. Suit for the Price [Sec. 55]
Where under a contract of sale the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may sue him for the price of the goods.
Where the property in goods has not passed to the buyer, the seller as a rule cannot file a suit for the price and his remedy is to claim damages.
According to section 55(2), where under a contract of sale the price is payable on a certain day irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price, the seller may sue him for the price although the property in the goods has not passed and the goods have not been appropriated to the contract.

2. Suit for damages for non-acceptance [Sec. 56]
Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for damages for non-acceptance.

3. Suit for damages for repudiation of the contract [Sec. 60]
Where the buyer repudiates the contract before the date of delivery, the seller may either treat the contract as subsisting and wait till the date of delivery, or he may treat the contract as rescinded i and sue for damages for the breach.

4. Claim for interest and special damages [Sec. 61]
The seller may recover interest or special damages in any case where by law interest or special damages may be recoverable. He may also recover the money paid where the consideration for the payment of it has failed.

MULTIPLE CHOICE QUESTIONS:

1. The Seller of Goods is deemed to be an Unpaid Seller —
(a) when the whole of the price has not been paid or tendered.
(b) when a bill of exchange or other negotiable instrument has been received as conditional payment and the condition has not been fulfilled by reason of the dishonour of the instrument or otherwise.
(c) both (a) and (b).
(d) either (a) or (b).

2. The term “Unpaid Seller” includes —
(a) Agent of the Buyer
(b) Agent of the Seller
(c) Agent of the Carrier/Transporter
(d) All of the above

3. The right of lien is available to the Unpaid Seller, only when —
(a) he is not in possession of the goods
(b) he is in possession of the goods
(c) he has delivered the goods to the Carrier/ Transporter
(d) he has delivered the goods to the Buyer

4. The right of lien is available to the Unpaid Seller, u/s 47 of the Sale of Goods Act, when he is in possession of goods —
(a) as an agent of the Buyer
(b) as a Bailee for the buyer
(c) in his own right.
(d) all of the above

5. In which of the following situations, the right of lien available to the Unpaid Seller is lost?
(a) Where the Goods have been sold without any stipulation as to credit;
( b) Where the Goods have been sold on credit, but the credit period has expired;
(c) Where the Buyer becomes insolvent;
(d) Where the Unpaid Seller has parted with the possession of the goods.

6. Where the goods have been delivered to Railways for carriage and the R/R is taken in the name of the seller or his agent :
(a) the seller is prima facie deemed to reserve the right of disposal
( b) the seller did not retain the right of disposal
(c) the seller cannot retain right of disposal
(d) none of the above.

7. When the goods have been sold on credit and the credit period lien can he exercised
(a) has not expired
(b) has expired
(c) has not been extended
(d) has been extended

8. The right of lien can be exercised by the Unpaid Seller in respect of—
(a) Price
(b) Any other expenses, e.g. Godown Charges, Interest, etc.
(c) Both (a) and (b)
(d) Either (a) or (b)

9. The Unpaid Seller to deliver a part of the Goods on payment of a proportionate part of the price by the Buyer.
(a) shall be bound
(b) may refuse
(c) must honour his commitment
(d) shall request the carrier

10. Generally, where an Unpaid Seller has made part delivery of the Goods, he —
(a) may exercise his right of lien on the remainder
(b) has to honour the entire contract
(c) loses his lien on the remainder of the goods
(d) can supply defective goods in respect of the remainder

11. Where the Unpaid Seller has parted with the goods by handing it over to a carrier for transmission, and the goods are in transit, he can reclaim possession thereof. This right is called —
(a) Right of Lien
(b) Right of Stoppage of goods in transit
(c) Right of withholding delivery of goods
(d) Right of Re-sale

12. Right of Stoppage in transit can be exercised by the Unpaid Seller, where he —
(a) has lost his right of lien
(b) still enjoys his right of lien
(c) either (a) or (b)
(d) neither (a) nor (b)

13. Right of Stoppage in transit can be exercised by the Unpaid Seller, where the Buyer—
(a) is solvent
(b) becomes insolvent
(c) acts fraudulently
(d) acts smartly

14. The right of stoppage in transit may be exercised by the Unpaid Seller till—
(a) payment or tender of the price
(b) Buyer becomes solvent
(c) such time as the Carrier may think fit
(d) such time as the Court may think fit

15. Goods are deemed to be in transit from the time they are delivered to the Carrier or other bailee for transmission to the buyer, until —
(a) Buyer becomes solvent
(b) Buyer or his agent takes delivery of the goods
(c) Seller becomes solvent
(d) Seller or his agent takes delivery of the goods

16. If, after the arrival of goods at their destination, Carrier or other Bailee acknowledges to Buyer or his agent that he holds goods on his behalf, and continues possession of the goods, the transit —
(a) is at an end
(b) is deemed to continue
(c) is not at an end
(d) is not affected at all

17. If goods are rejected by the buyer and the Carrier or other Bailee continues in possession of them, and the seller has refused to receive them back, then transit —
(a) is at an end
( b) is deemed to be at an end
(c) is not deemed to be at an end
(d) is dependent on the Court’s decision.

18. If the Carrier/Bailee wrongfully refuses to deliver the goods to the buyer or his agent, the transit —
(a) is at an end
(b) is deemed to be at an end
(c) is not deemed to be at an end
(d) is dependent on the Court’s decision

19. Right of Stoppage in Transit may be exercised by the Unpaid Seller, by —
(a) taking actual possession of Goods
(b) giving notice of his claim to the Carrier/ Bailee who holds the Goods.
(c) either (a) or (b)
(d) Both (a) and (b)

20. The Unpaid Seller’s right of lien is to —
(a) re-organize possession of goods
(b) re-sell the goods
(c) regain possession of goods
(d) retain possession of goods

21. The word “perishable” in respect of goods, u/s 54 of the Sale of Goods Act, means —
(a) physically perishable
(b) commercially perishable
(c) both (a) and (b)
(d) either (a) or (b)

22. Where under a contract of sale, the price is payable on a certain day irrespective of delivery and Buyer wrongfully neglects or refuses to pay the price, the Seller can sue the Buyer for the price of goods. For this purpose, goods —
(a) should be appropriated to the contract
(b) need not be appropriated to the contract
(c) should be delivered to the buyer
(d) need not be delivered to the buyer

23. The unpaid seller who has retained possession of the goods in exercise of his right of lien or who has resumed possession from the carrier upon insolvency of the buyer, can resell the goods :
(a) If the goods are of perishable nature, without any notice to the buyer
(b) If the goods are non-perishable, by giving notice to the buyer
(c) Either ‘a’ or ‘b’
(d) Neither ‘a’ nor ‘b’

24. In case of interest by way of damages and special damages in a suit by the seller u/s 61, the interest may be calculated from —
(a) date of tender of goods
(b) date on which the price was payable
(c) either (a) or (b)
(d) both (a) and (b)

25. When under a contract of sale, buyer has paid the price, but seller neglects to deliver goods, buyer has a right to claim interest on the amount of price. The buyer can claim interest —
(a) only when he can recover the price
(b) only when he is entitled to claim damages
(c) either (a) or (b)
(d) both (a) and (b)

Answers:

STATE WHETHER THE FOLLOWING ARE TRUE OR FALSE:

1. The term unpaid seller includes buyer’s agent to whom bill of lading is endorsed.
2. Unpaid seller can exercise his right of lien even when property in goods has been passed to the buyer.
3. Once possession is lost, right of lien of the unpaid seller is also lost.
4. Unpaid seller can exercise his right of resale of goods only when property in goods has not passed to the buyer.
5. Where the unpaid seller has obtained a decree for the price of the goods the right of lien cannot be exercised.
6. Nemo dat quad non habet means let the buyer beware.
7. Sub-sale by the buyer with seller’s consent leads to loss of right of stoppage in transit.
8. Unpaid seller’s right of stoppage in transit can be exercised only when the buyer is insolvent.

Answers:

CA Foundation Business Laws Study Material Chapter 13 Performance of Contract: Delivery and Payment

After the conclusion of contract of sale, the next stage is of performance of that contract. The buyer & seller must perform their respective duties and obligations Sec. 31 lays down that it is the duty of the seller to deliver the goods and of the buyer to accept and pay for them in accordance with the terms of the contract of sale.

DELIVERY OF GOODS
Delivery means voluntary transfer of possession of goods from the seller to the buyer. It may be

1. actual,
2. symbolic, or
3. constructive.

Section 33 lays down that delivery of goods sold may be made by doing anything which the parties agree shall be treated as delivery or the delivery may be made by doing anything which has the effect of putting the goods in possession of the buyer.
Delivery is said to be actual when the seller hands over the goods physically, to the buyer or his agent, authorised to take possession of the goods.

A symbolic delivery
A symbolic delivery takes place when the ‘means of obtaining possession’ is handed over to the buyer. This happens where the goods are bulky and incapable of actual delivery, e.g. a truck is delivered” (symbolically) by handling over its keys to the buyer or the transfer of bill of lading/RR in the name of the buyer entitles him to obtain the goods. Delivery of the key of a godown is symbolic delivery of the goods therein.

A constructive delivery
A constructive delivery takes place when goods are delivered to another person on behalf of buyer, instead of buyer himself. A third party is authorized by buyer to take delivery on his behalf. Such third party may be seller himself or carrier or godown keeper.
Constructive delivery is a delivery by attornment i. e. by formal acknowledgement. It involves change in the possession of goods without any change in,their actual and visible custody. It takes place when the person in possession of the goods acknowledges that he holds.the goods on behalf of and at the disposal of the buyer. Constructive delivery takes place in the following cases:

1. when the seller, who is in possession of the goods, agrees to hold them on behalf of the buyer;
2. when the buyer is already in possession of the goods and the seller agrees to the buyer’s holding the goods as owner;
3. when the goods are in possession of a third person (e.g. a warehouseman, a carrier or any other bailee) who acknowledges to hold them on behalf of the buyer. For instance, A sells 100 bags of sugar to B, A’s stock of sugar-bags is lying in X’s godown. A issues a delivery order to X, asking him to deliver to B or his order 100 bags. X acknowledges the delivery order and agrees to hold 100 bags of sugar on B’s behalf. This is a constructive delivery, even though the goods still continue to be in X’s possession.

Rules as to delivery
1. Duty to deliver [Sec. 31]
It is the duty of the seller to deliver the goods. It is duty of the buyer to accept the goods and to pay for them in accordance with the terms of the contract of sale.

2. Payment and delivery are concurrent conditions [Sec. 32]
Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions.

3. Mode of delivery [Sec. 33]
Mode of delivery may be actual, symbolic or constructive.

4. Part delivery [Sec. 34]
HOW MUCH GOODS MUST BE DELIVERED? (SECTION 34):
The quantity of goods to be delivered is specified in the contract. If the parties have not agreed otherwise, the seller must deliver all the goods in a single delivery. However, where part of the goods have been delivered, and rest of the goods are yet to be delivered, there may be two possibilities:

1. where the part delivery is made in progress of the whole delivery, then it is treated as a delivery of the whole. And the ownership of the whole quantity is transferred to the buyer.
2. Where the part delivery is made with the intention of separating it from the whole, then in is not treated as delivery of the whole, (since each part of delivery is intended to be treated as separate delivery) In such a case the ownership of the whole quantity is not passed to the buyer.

Example: Goods were sold in a lot and the seller instructed the wharfinger to deliver them to the buyer who had paid for them. The buyer thereafter weighed all the goods, accepted them and took away a part. The court held this constituted delivery of the whole – Hommond v. Anderson (1803) 1 Bank P.N.S. 69.

5. Buyer to apply for delivery [Sec. 35]
Apart from any express contract, the seller of goods is not bound to deliver them until the buyer applies for delivery. The buyer has no cause of action against the seller if he has not applied for delivery. It may be noted here that this provision is intended for the benefit of the seller. The seller may, if he chooses, deliver the goods without any application in that behalf of the buyer. But he is also entitled to wait until the buyer applies for delivery.

6. Place of delivery [Sec. 36(1)]
Whether it is for the buyer to take possession of the goods or for the seller to send them to the buyer is a question depending in each case on the terms of the contract. When nothing is agreed upon, the following rules apply — a) the goods are to be delivered at the place where they were lying, at the time of the sale or at the time of the agreement to sell; b) if the goods are future goods, they should be delivered at the place of manufacture or production thereof.

7. Time for delivery [Sec. 36(2) & 36(4)]
If time is fixed, and the seller is bound to send the goods to the buyer, he must send them within the fixed time. If no time is fixed, then the seller must send them within a reasonable time 36(2). The demand or tender of delivery must be at a reasonable hour 36(4).

8. Goods in possession of third person [Sec. 36(3)]
If the goods are in possession of a third party, there is no delivery until such third party acknowledges to the buyer that he holds the goods on his behalf.

9. Expenses of delivery [Sec. 36(5)]
Unless otherwise agreed, expenses of making delivery are borne by the seller and expenses of obtaining delivery by the buyer.

10. Delivery of wrong quantity [Sec. 37]
Subject to any usage of trade, special agreement or course of dealing between parties, the following rules shall apply when delivery of wrong quantity is made—

1. Short delivery : If the seller delivers to the buyer a quantity less than he contracted to sell, the buyer may:
   1. reject the goods, or
   2. accept the goods, if he accepts, he shall pay for the accepted quantity at the rates contracted for.
2. Excess delivery: If the seller delivers to the buyer a quantity larger than he contracted to sell, the buyer may:
   1. reject the whole, or
   2. accept the whole, or
   3. accept the quantity he ordered and reject the rest.
3. Delivery of goods mixed with other goods:Ii the seller delivers to the buyer goods ordered mixed with goods of a different description, the buyer may:
   1. reject the whole, or
   2. accept the agreed goods and reject the remaining goods.

11. Instalment deliveries [Sec. 38]
Unless otherwise agreed, the goods are not to be delivered by instalments. There might be an agreement for delivery by instalments but the price may be payable either on complete delivery or on delivery of each instalment. There will be a breach of such contract in the following cases:
(a) If the seller makes no delivery or makes defective delivery, in respect of one or more instalments; or
(b) If the buyer neglects or refuses to take delivery of or pay for, one or more instalments.
In each of the above breach, it will depend upon the terms of the contract and the circumstances of each individual case whether

1. the whole contract is repudiated, or
2. it is a severable (separable) breach giving rise to a claim for compensation but not to right to treat the whole contract as repudiated [Sec. 38(2)].

12. Delivery to a carrier or wharfinger [Sec. 39]
The delivery of goods to a carrier or a wharfinger in pursuance of a contract of sale, is prima facie deemed to be delivery of goods to buyer. If the contract of sale specifies the name of the carrier, the seller must deliver the goods to such named carrier. If the instructions of the buyer are carried out properly, the risk is with the buyer. If the instructions of the buyer are not carried out properly, the goods remain at the risk of the seller during transit.

While delivering goods to the carrier, it is the sellers duty to do whatever is necessary to secure the carrier’s responsibility for the safe delivery of goods to the buyer so that in the event of the loss, the buyer can claim compensation against the carrier.
Where the goods are sent by sea it is usual fçr the buyer himself to insure. In such a case it is the duty of the seller to give such notice of the shipment to the buyer as may enable him to insure the goods. If he does not, the risk does not pass to the buyer.

13. Buyer’s risk for deterioration of goods in transit [Sec. 40]
Where the seller agrees to deliver the goods to the buyer at a place other than that where they are when sold, the merchantable quality of the goods may be affected due to transit. In such a case any risk of deterioration in the goods necessarily incident to the course of transit shall be borne by the buyer, unless otherwise agreed. e.g. A sold to B a certain quantity of hoop iron which was to be sent by canal at the request of B. It was rusted before it reached the buyer. The sting, however, was not more than what was necessarily incidental to its transmission. It was held that B was bound to accept the goods.

“Force majeure”: Force majeure is a situation in which either of the parties to a contract is prevented from performing its obligations due to circumstances beyond its control. The clause on force majeure usually starts with a description of the events which are considered as events of force majeure. Such events are acts of God, acts of nature (earthquakes, floods, epidemics and fires etc.), acts of governments, wars, riots and civil disturbances, strikes and lockouts etc.
The party who is affected by it, has to notify the other party of the occurrence of the event and the cessation of the event, supported by documentary evidence. If it is a strike or a lockout, the labour departments certificate/statement would act as the evidence.

The force majeure may be short term or long term or prolonged force majeure. For short term force majeure, the normal remedy is to allow extension of the delivery date(s) to the extent the performance is affected by the event. Examples of long-term or prolonged force majeure are natural calamities such as earthquakes, typhoons, severe cyclones, devastating fire/explosion in chemical factories, which may ravage the facilities and prevent the performance of the obligations. The general remedy is to provide for a discussion between the two parties within a time-frame already specified in the clause to explore ways to fulfil all or some obligations and to find a solution. If is not feasible to perform the contract, it may be terminated.

14. Buyers Right of Examining the Goods
A buyer cannot be said to have accepted the goods unless he had an opportunity to examine the goods and ascertain that they are in conformity with the contract, (sec. 41).

15. ‘Delivery of the goods to the buyer does not mean acceptance of the goods’
Delivery of goods to the buyer does not amount to acceptance thereof by the buyer. According to sec. 42 a buyer is deemed to have accepted the goods—

1. When he intimates to the seller that he has accepted them, or
2. When he does an act in relation to such goods which is inconsistent with the ownership of the seller. e.g. pledges or resells, or
3. When, after the lapse of a reasonable time, he retains the goods without intimating the seller that he has rejected the goods.

16. Buyer not bound to return rejected goods [Sec. 43]
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. It is sufficient if he intimates to the seller that he refuses to accept them. This rule applies when the rejection is rightful and there is no agreement to the contrary.

17. Liability of buyer for neglecting or refusing delivery of good [Sec. 44]
When the property in the goods has passed to the buyer and the seller is ready and willing to deliver the goods and requests the buyer to take delivery, but the buyer fails to take delivery within reasonable time, he is liable to the seller for any loss occasioned by his neglect or refusal to take delivery, and also for reasonable charge for the care and custody of the goods.

FORMS OF CONTRACT AS REGARDS CARRIAGE BY SEA

The three common forms of contract as regards carriage by sea are –

1. F.O.B. (Free on board),
2. C.I.F. (Cost Insurance & Freight)
3. Ex-ship.

1. Free On Board (FOB):
Transportation term meaning that the invoice price includes delivery at the seller’s expense to a specified point and no further. In other words the seller has to place the goods on board a ship at his own expense. He has only to bear the expenses of loading the goods. The seller must notify the buyer immediately that the goods have been delivered on board, so that the buyer may insure them. If he fails to do so the goods shall be deemed to be at seller’s risk during such sea transit. Thereafter the goods are at the buyer’s risk and he is responsible for freight, insurance and subsequent expenses thus the price is exclusive of freight and insurance.
For example, “FOB our Nagpur warehouse” means that the buyer must pay all shipping and other charges associated with transporting the merchandise from the seller’s warehouse in Nagpur to the buyer’s receiving point.
In a F.O.B. (Free on Board) shipment, the risk passes to buyer at the F.O.B. point. The F.O.B. point can be the seller’s factory or warehouse. In that case, the sale price quoted does not include freight which is the responsibility of the buyer as is the risk from the warehouse onward. If, however, the term is F.O.B. point of destination, seller bears the risk during transit and is responsible for payment of the freight.

FAS (free alongside): The term F.A.S. (Free Alongside) followed by “vessel” at some specific port is a variation of F.O.B. The sale of consummated when the seller delivers the goods alongside the vessel. The difference between the terms “F.O.B. vessel” and “F.A.S. vessel” is that in the F.O.B. the seller bears the risk until the loading has been completed.
FAS means that the seller fulfils his obligation to deliver when the goods have been placed alongside | he vessel on the quay or in lighters at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that moment. The FAS term requires the buyer to clear the goods for export. It should not be used when the buyer cannot carry out either directly or indirectly all of the export formalities. This term can only be used for sea freight or inland waterway transport.

2. C.I.F. Contracts:
‘C.I.F.’ stands for cost, insurance and freight. A CIF contract is a type of contract where in the price includes cost, insurance and freight charges. “C.I.F. London”, for example, would mean that the quoted price would include the price of the goods plus freight up to London and insurance.
A CIF contract is performed by delivery of the shipping documents relating to the goods and not by actual delivery of goods. Documents of title to the goods (bill of lading) are delivered so as to symbolise the delivery of goods. Under a CIF contract the seller is required to insure the goods, deliver them to the shipping company, arrange for their affreightment and send the bill of lading and insurance policy together with the invoice and a certificate of origin to a bank. The documents are usually delivered by the bank against payment of the price, or against acceptance of the bill. This method protects the seller since he continues to be the owner of goods until the buyer pays for them and obtains the documents. The buyer is equally protected as he is called upon to pay only against the documents and the moment he pays, he obtains the documents, which enable him to get delivery of the goods.

3. Ex-ship Contracts:
“Ex Ship” means that the seller fulfils his obligation to deliver when the goods have been made available to the buyer on board the ship uncleared for import at the named port of destination. The seller has to bear all costs and risks involved in bringing the goods to the named
port of destination.

MULTIPLE CHOICE QUESTIONS:

1. Voluntary transfer of possession from one person to another is called as
(a) Ownership
(b) Delivery
(c) Gift
(d) License

2. Delivery of goods means
(a) Voluntary transfer of possession
(b) Compulsory transfer of possession
(c) Exchange of goods
(d) Voluntary transfer of ownership

3. For a valid contract of sale, delivery may be:
(a) Actual delivery
(b) Symbolic delivery
(c) Constructive delivery
(d) All of these

4. Delivery of the keys of a godown where goods are kept amounts to:
(a) Actual delivery
(b) Symbolic delivery
(c) Constructive delivery
(d) All of these

5. delivery involves change in the possession of goods without any change in their actual custody.
(a) Actual delivery
(b) Symbolic delivery
(c) Constructive delivery
(d) None of these

6. Which of the following is not a form of delivery
(a) Actual delivery
(b) Symbolic delivery
(c) Constructive delivery
(d) Systematic delivery

7. When goods are in possession of third person, delivery is complete:
(a) When such third party acknowledges to the buyer that he holds the goods on his behalf
(b) Even though such third party does not acknowledge
(c) When the physical possession of the goods is given
(d) None of the above

8. Where the part delivery is made in progress of the whole delivery, then:
(a) It is treated as delivery of the whole
(b) It is treated as delivery of the part
(c) It is not treated as delivery at all
(d) None of these

9. Unless otherwise agreed, the expenses of making delivery are borne by:
(a) The carrier
(b) The buyer
(c) The seller
(d) The agent

10. Unless otherwise agreed, the expenses of obtaining delivery are borne by:
(a) The carrier
(b) The buyer
(c) The seller
(d) The agent

11. If the seller delivers to the buyer a quantity less than he contracted to sell, the buyer may
(a) reject the goods,
(b) accept the goods,
(c) either ‘a’ or ‘b’
(d) neither ‘a’ nor ‘b’

12. If the seller delivers to the buyer a quantity larger than he contracted to sell, the buyer may
(a) reject the whole
( b) accept the whole
(c) accept the quantity he ordered and reject the rest X
(d) either ‘a’, ‘b’ or ‘c’

13. If the seller delivers to the buyer goods ordered mixed with goods of a different description, the | buyer may—
(a) reject the whole
(b) accept the agreed goods and reject the remaining goods
(c) either ‘a’ or ‘b’
(d) neither ‘a’ nor ‘b’

14. In case of carriage of goods by sea, where the seller has to put the goods on board a ship at his own expenses, the contract is known as
(a) F.O.B. Contract
(b) C.I.F. Contract
(c) Ex-ship Contract
(d) FAS Contract

15. In case of carriage of goods by sea, where the seller has to deliver the goods to the buyer at the port of destination, the contract is known as
(a) F.O.B. Contract
(b) C.I.F. Contract
(c) Ex-ship Contract
(d) FAS Contract

16. Under a contract the seller is required to insure the goods, deliver them to the shipping company, and arrange for their affreightment.
(a) F.O.B. Contract
(b) C.I.F. Contract
(c) Ex-ship Contract
(d) FAS Contract

17. The general principle regarding transfer of title in case of sale of goods is that—
(a) The seller cannot transfer to the buyer a better title than he himself has
(b) The seller can transfer to the buyer a better title than he himself has
( c) The buyer can transfer to the seller a better title than he himself has
(d) The seller’s representative can transfer to the buyer no title

18. Diamond necklace valued Rs. 10 lacs was sent by S to B on sale or return basis. B pledged the diamond necklace with money lender M for Rs. 6 lacs. Discuss the rights and liability of the parties.
(a) B is not bound to pay the price to S
(b) B is bound to pay the price to S and M will remain as pawnee
(c) B is bound to pay the price to S and M will not have rights as pawnee
(d) B is not bound to pay anything to M

Answers:

IS STATE WHETHER THE FOLLOWING ARE TRUE OR FALSE:

1. It is not the duty of the seller to deliver the goods.
2. Delivery by acknowledgement is an actual delivery.
3. There are three modes of delivery.
4. Unless otherwise agreed, goods shall be delivered before payment of price.
5. Unless otherwise agreed, the buyer must apply for the delivery.
6. The place of delivery can be the place where the goods are lying at the time of sale.
7. When means of obtaining possession are handed over to the buyer, it amounts to symbolic delivery.
8. When goods are delivered to the buyer and the buyer refuses to accept them, having a right to do so, then the buyer is bound to return them to the seller.
9. It is the duty of seller to take back the goods in case where buyer rightfully refuses to accept the goods.
10. Any risk of deterioration in the goods necessarily incident to the course of transit shall be borne by the „ seller.
11. The delivery of goods to a carrier in pursuance of a contract of sale, is prima facie deemed to be the
delivery of goods to the buyer.

Answers:

CA Foundation Business Laws Study Material Chapter 12 Transfer of Ownership

TRANSFER OF OWNERSHIP:TIME OF TRANSFER

Sale of goods involves transfer of ownership of property from the seller to the buyer. It is necessary to determine the precise moment of time at which the ownership of the goods passes from the seller to the buyer, because of the following reasons:
(a) Risk passes with property
The general rule is that risk prima facie passes with the property. If the goods are lost or damaged by accident or otherwise, then, subject to certain exceptions, the loss falls on the person who is the owner at the time when the goods are lost or damaged.
(b) Action against third parties.
If the goods are damaged by the action of third parties it is the owner who can take action.
(c) What is the effect of insolvency?
In case of insolvency of either the buyer or the seller it is necessary to know’ whether the goods will be taken over by the Official Assignee. The answer depends upon whether the ownership of the goods is with the party who has become insolvent.
(d) Suit for price.
Unless the contract provides otherwise, a suit for price by the seller does not lie unless the
property has passed to the buyer.

LAW RELATING TO PASSING OF RISK IN CASE OF THE SALE OF GOODS
The basic principle is the risk prima facie passes with the ownership. According to section 26—
Unless otherwise agreed, the goods remains at the seller’s risk until the property therein is transferred to the buyer. But when the property therein is transferred to the buyer, the goods are at the buyer’s \ risk whether delivery has been made or not.
Thus risk and ‘property’ (ownership) go together. But it is open to the parties to separate the risk from ownership. For example, the parties may agree that risk will pass sometime after or before the property has passed. The separation of risk from property can be made in the following ways. Firstly, where delivery has been delayed due to fault of seller or the buyer, the goods are at the risk of the party in fault. Secondly, risk and property may be separated by a trade custom. Thirdly, risk and property can be separated by the agreement of the parties.

WHEN DOES PROPERTY IN THE GOODS PASS UNDER THE SALE OF GOODS ACT?

Sections 18 to 25 of Sale of Goods Act lay down the rules which determine when ownership of property passes from the seller to the buyer. These rules may be summarised as follow:

• A. TRANSFER OF PROPERTY IN UNASCERTAINED GOODS
• B. TRANSFER OF PROPERTY IN ASCERTAINED GOODS
• C. TRANSFER OF PROPERTY IN SALE BY APPROVAL
• D. TRANSFER OF PROPERTY WHEN RIGHT OF DISPOSAL IS RESERVED

A. TRANSFER OF PROPERTY IN UNASCERTAINED GOODS
1. When there is a contract for the sale of unascertained goods, property in the goods is not transferred to the buyer unless and until the goods are ascertained. (Sec. 18).
2. How goods are ascertained?
By valid appropriation: Under Section 23(1), in a contract for the sale of unascertained or future goods by description, the property in the goods passes to the buyer when the goods of that description are in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller. The goods are ascertained by appropriation. Until appropriation there is merely an agreement to sell. Appropriation means selection of goods with the mutual consent of the parties.
The following are the essentials of appropriation:

1. The goods should confirm to the description and quality stated in the contract.
2. The goods must be in a deliverable state.
3. The goods must be unconditionally (as distinguished from an intention to appropriate) appropriated to the contract either by delivery to buyer or his agent or the carrier.
4. The appropriation must be
   1. by seller with the assent of buyer or.
   2. by buyer with the assent of seller.
5. The assent may be expressed or implied.
6. The assent may be given either before or after appropriation.

Thus, if A agrees to sell to B 20 tonnes of oil of a certain description in his cisterns and he has more than 20 tonnes of oil of description in his cisterns, then no property will pass to B unless the 20 tonnes are separated from the rest and they are appropriated to the contract.
Delivery to the carrier [Sec. 23(2)] – When the seller delivers the goods, to a carrier for being taken to the buyer, and does not reserve the right of disposal, the property passes to the buyer. The carrier becomes the agent of the buyer and such a delivery amounts to a delivery to the buyer and the risk is, after the delivery of the buyer. The essentials of delivery to a carrier are—

• Delivery must be in pursuance of the contract Le. the goods must be of the de-scription and quality of the goods contracted.
• Seller delivers goods to the buyer or to a carrier or a bailee for transmission to the buyer. This must be pursuant to the contract,
• Seller does not reserve right of disposal.

B. TRANSFER OF PROPERTY IN ASCERTAINED GOODS
Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred [Sec. 19(1)]. For the purpose of ascertaining the intention of the parties regard shall be had to—

• the terms of the contract,
• the conduct of the parties, and
• the circumstances of the case. [Sec. 19(2)]

It is only when the intention of the parties cannot be judged from their contract or conduct or other circumstances that the rules laid dowh in Sections 20 to 24 apply. [Sec. 19(3)]. These rules are as follows:
(a) Specific goods in a deliverable state: [Section 20]

• in case of an unconditional contract for the sale of specific goods in a deliverable state,
• the property in the goods passes to the buyer on making the contract, and
• it is immaterial whether the time of payment of the price or the time of delivery of the goods or both is postponed.

(b) Specific goods to be put in deliverable state: [Section 21]

• where there is a contract for the sale of specific goods and
• the seller is bound to do something to the goods for the purpose of putting them into a deliverable state,
• the property in the goods does not pass until such thing is done and the buyer has the notice thereof.

(c) Specific goods to be Weighed or Measured: [Section 22]

• in a contract for the sale of specific goods in a deliverable state,
• where the seller is bound to weigh, measure, test or do some other act or thing
• with reference to the goods for the purpose of ascertaining the price,
• the property does not pass until such act or thing is done and the buyer has the notice of the same.

C. TRANSFER OF PROPERTY IN SALE BY APPROVAL
When goods are delivered on approval (Sec. 24): When goods are delivered to the buyer on approval or ‘on sale or return,’ or on other similar terms, the property therein passes to the buyer :

1. When he signifies his approval or acceptance to the seller, or
2. When the buyer does any other act adopting the transaction, e.g., pledges the goods or resells them.
3. When the buyer retains the goods, without giving notice of rejection, beyond the time fixed for the return of goods, or if no time has been fixed, beyond a reasonable time. In short, the property passes either by acceptance or by failure to return the goods within specified or reasonable time.

D. TRANSFER OF PROPERTY WHEN RIGHT OF DISPOSAL IS RESERVED
The object of reserving the right of disposal of goods is to secure that the price is paid before the property passes to the buyer. For example, under the VPP (Value Pre Paid) system the ownership passes to the buyer when the price is paid against the delivery of goods, till then the seller retains control over the goods
Section 25(1) lays down that—
in a contract for the sale of specific goods or where goods are subsequently appropriated to the contract,

• the seller may reserve the right of disposal of the goods until certain conditions are fulfilled.
• In such a case, even if the goods are delivered to the buyer himself, or to a carrier or other bailee for transmission to the buyer, the buyer does not acquire ownership until the conditions imposed by the seller are satisfied.
• For example, X sends certain goods by lorry to Y and instructs the lorry driver not to deliver the goods until the price is paid by Y to the lorry driver. The property passes only when the price is paid.

In the following circumstances, the seller is presumed to have reserved the right of disposal:—
(a) By taking a document of title in his own name or his agent’s name. [Sec. 25(2)].
When goods are shipped or delivered to railways for carriage but the document of title le. the bill of lading (in case of carriage of sea) or the railway receipts (in case of carriage by railways) are taken by the seller in his own name or in his agent’s name, the seller is presumed to have reserved the right of disposal. The property passes over to the buyer only when the buyer pays the price in exchange of bill of lading or the railway receipt.
Example : A sold certain bales of paper to B which were to be sent to him by railway. A took the railway receipt in the name of B, and sent them to his own banker to be delivered to B on the payment of the price. Before B paid the price, and received railway receipts, the goods were destroyed by fire. The court held that the seller should suffer the loss as he has reserved the right of disposal and at the time of destruction of bales, their ownership has not been transferred to the buyer – [General Papers Ltd. v. V.P. Mohideen & Bros. AIR 1958 Madras 482.]

(b) When the bills of exchange along with the RR/bill of lading is sent to the buyer. [Sec. 25(3)].
If the goods are delivered to a carrier {Le. the shipping company or railways) and the bill of lading or RR are taken in the name of the buyer. But the seller draws a bill of exchange on the buyer for the price of the goods, and sends the same to the buyer along with the bill of lading or railway receipts to secure the payment of the price. The property in goods does not pass to the buyer until he accepts the bill of exchange or pays the price of the goods. If he retains the goods without accepting the bill of exchange or payment of price the property does not pass.

TRANSFER OF TITLE BY NON-OWNER OR NO ONE CAN GIVE A BETTER TITLE THAN HE HIMSELF HAS

A sale is a contract plus a conveyance. As a conveyance it involves transfer of title of goods from the seller to the buyer. If the seller’s title is defective, the buyer’s title will also be defective. A person can only transfer what he has. No one can transfer a better title to the goods than he himself possesses. This principle is expressed by the Latin phrase, “Nemo dat quad non habet”, which means “none can give who does not himself possess”.
Exceptions
– In each of the following cases, a person who is not an owner, can give to the transferee a valid title to the goods:
1. Transfer of title by estoppel [(Sec. 27)]
When the true owner of the goods by his conduct or words or by any act or omission leads the buyer to believe that the seller is the ownfer of the goods or has the authority to sell them, he cannot afterwards deny the seller’s authority to sell. The buyer in such a case gets a better title than that of the seller.
Example:

1. ‘O’ who is the true owner of the goods, causes the buyer ‘B’ to believe that ‘S’ has the authority to sell the goods. ‘O’ cannot afterwards question the seller’s want of title on the goods.
2. ‘A’ was the true owner of goods. ‘B’ the seller told the buyer ‘C’ that the goods belonged to him. ‘A’ was present but remained silent. ‘C’ purchased the goods from ‘B’. Can ‘A’ question the title of ‘C’ over the goods?

2. Sale by a mercantile agent [Proviso to Sec. 27]
Sale of goods by a mercantile agent gives a good title to the purchaser even in cases where the agent acts beyond his authority, provided the following conditions are satisfied—

1. The agent is in possession of the goods or of a document of title to the goods.
2. Such possession is with the consent of the owner.
3. The agent sells the goods in the ordinary course business. :
4. The purchaser acts in good faith and has no notice that the agent had no authority to sell.

“Mercantile Agent”- ‘Mercantile agent’ means an agent having in the customary course of his business as such agent authority either (1) to sell goods, or (2) to consign goods for the purpose of sale, or (3) to buy goods, or (4) to raise money on the security of goods. [Sec. 2(9)]
Good faith means honestly, whether done negligently or not.

Document of Title to Goods. [Sec. 2(4)]
A document of title to goods is a document representing goods and is used—

• in the ordinary course of business
• as proof of the ownership, possession or control of goods.

It authorises the possessor of such document to receive or transfer the goods represented thereby.
According Sec. 2(4), documents of title to goods includes

1. bill of lading
2. dock warrant
3. warehouse keeper’s certificate
4. wharfinger’s certificate
5. railway receipt (R/R), lorry receipt (L/R)
6. multimodal transport document and
7. delivery order.

Thus, document of title is a document, which is the evidence of full ownership of goods represented by the document. Delivery of document of title is as good as giving delivery of goods. Transfer of document of title is a symbolic delivery of goods to the purchaser. The document of title to goods is transferred by endorsement or by mere ’ delivery and it confers a good title to the transferee if he receives it in good faith. E.g. , Delivery of railway receipt is enough to constitute delivery of goods represented by railway receipt.
Document of title shall be distinguished from document showing title to the goods. In case of document showing title to the goods, ownership cannot be transferred by endorsement or mere delivery unlike as in document of title to the goods.

What is bill of lading?
When the goods are carried by sea, the carrier of goods issues to the shipper a bill of lading. It is a document of title. Transfer of goods can be effected by transfer of bill of lading. The buyer may demand delivery of goods at the destination on the basis of the bill of lading.

Wharfingers certificate. A Wharf is a platform alongside the water for loading and unloading a ship. A wharfingers certificate is a document issued by a wharfingers. It certifies that the j goods specified in it are in the wharf. ,

3. Sale by one of several joint owners [Sec. 28]
This section enables a co-owner to sell not only his own share but also of his other co-owners. If one of several joint owners of goods has the sole possession of them by permission of the co-owners, the property in the goods is transferred to any person who buys them from such joint owner provided the buyer acts in good faith and without notice that the seller had no authority to sell.
Section 28 lays down three conditions for validating a sale by one of co-owners :—

1. He must be in sole possession by permission of his co-owners.
2. The purchaser acts in good faith Le. with honesty.
3. The purchaser had no notice at the time of the contract of sale that the seller had no authority to sell.

X, Y & Z own certain truck in common. X is in possession of the truck by permission of his co-owners. X sells the truck to A. A purchases bona fide. The property in the truck is transferred to A.

4. Sale of goods obtained under a voidable agreement [Sec. 29]
When the seller of goods has obtained possession thereof under a voidable agreement but the agreement has not been rescinded at the time of sale, the buyer obtains a good title to the goods, provided he buys them in good faith and without notice of the seller’s defect of title.
It is to be noted that the above section applies when the goods have been obtained under a voidable agreement, not when the goods have been obtained under a void or illegal agreement. If the original agreement is of no legal effect (void ab-initio) the title to the goods remains with the true owner and cannot be passed on to anybody else.

5. Sale by the seller in possession of goods after sale [Sec. 30(1)]
Under this exception, a second sale by the seller remaining in possession of the goods will give a good title to the buyer acting in good faith and without notice. Three conditions should be fulfilled under this exception :

1. The seller must continue in possession of the goods or of the documents of title to the goods as seller. Possession as a hirer or bailee of the goods from the buyer after delivery of the goods to him will not do.
2. The goods must have been delivered or transferred to the buyer or the documents of title must have been transferred to him.
3. Good faith and absence of notice of the previous sale on the part of the second buyer.

6. Sale by buyer in possession of goods over which the seller has some rights [Sec. 30(2)]
This exception deals with the case of a sale by the buyer of goods in which the property has not yet passed to him. When goods are sold subject to some lien or right of the seller (for example for unpaid price) the buyer may pledge, or otherwise dispose of the goods to a third party and give him a good title, provided the following conditions for sell, are satisfied:

1. The first buyer is in possession of the goods or of the documents of title to the goods . with the consent of the seller.
2. Transfer is by the buyer or by a mercantile agent acting for him.
3. The person receiving the same acts in goods faith and without notice of any lien or other right of the original seller.

7. Sale by an unpaid seller [Sec. 54]
An unpaid seller of goods can, under certain circumstances, re-sell the goods. The purchaser of such goods gets a valid title of the goods.

8. Sale under the Contract Act

1. A pawnee may sell the goods of pawher if the latter makes a default of his dues. The purchaser under such a sale gets a good title. [Sec. 176 of Contract Act]
2. A finder of goods can sell the goods under certain circumstances. The purchaser gets a good title. [Sec. 169 of Contract Act]
3. Sale by an Official Receiver of Liquidator of the company will give the purchaser a valid title.

MULTIPLE CHOICE QUESTIONS:

1. Property in the goods ‘in the Sale of Goods Act means’
(a) ownership of goods
(b) possession of goods
(c) asset in the goods
(d) custody of goods

2. It is necessary to determine the precise moment of time at which the ownership of goods passes from seller to the buyer because
(a) risk passes with property
(b) action can be taken only by the owner
( c) suit for price by the seller does not lie unless the property has passed to the buyer
(d) all the above

3. The ownership in specific goods to be put in deliverable state passes—
(a) When the seller has brought the goods into a deliverable state and the buyer has notice thereof
( b) When the goods are brought in deliverable state by the seller
(c) The contract is made
(d) When the intention is clear

4. For passing of property in goods, the goods must be in
(a) deliverable state
(b) manufacturing stage
(c) consumable state
(d) marketing state

5. When the goods are sent on sale or return basis, the property in the goods passes to the buyer:
(a) When the buyer signifies his approval or acceptance to the seller
(b) When the buyer pledges the goods
(c) When the buyer resells the goods
(d) All the above

6. A seller sends the goods and takes the railway receipt in his own name at the buyer’s place the seller has—
(a) Reserved the right of disposal of goods
(b) Not reserved the right of disposal of goods
(c) May reserve the right of disposal of goods
(d) The question of reserving the right of dis-posal does not arise

7. “Nemo dat quad non habet”, means:
(a) no one is greater than god
( b) none can give who does not himself possess
(c) every one can give everything he has
(d) everyone is bound by is habit

8. Sale of goods by a mercantile agent gives a good title to the purchaser even in cases where the agent acts beyond his authority, provided the following conditions are satisfied—
(a) The agent is in possession of the goods or of a document of title to the goods.
(b) The agent sells the goods in the ordinary course business.
(c) The purchaser acts in good faith and has no notice that the agent had no authority to sell.
(d) All the above.

9. For passing of property in respect of specific or ascertained goods, the intention of the parties can be ascertained from —
(a) Terms of the contract
(b) Conduct of the parties
(c) Circumstances of the case
(d) All of the above

10. Under the Sale of Goods Act, 1930, the term “Mercantile Agent” means a mercantile agent, having as such agent, authority to —
(a) sell goods or consign goods for the purposes of sale
( b) buy goods
(c) raise money on the security of goods
(d) do all of the above.

11. Transfer of documents of title to the goods sold to the buyer, amounts to
(a) actual delivery
(b) symbolic delivery
(c) constructive delivery
(d) none of these.

12. A Share Certificate is a —
(a) Document of Title to Goods
(b) Bill of Exchange
(c) Document Showing Title to Goods
(d) Instrument of Transfer

13. A Bill of Lading is a —
(a) Bill of Exchange
(b) Promissory Note
(c) Cheque
(d) Document of Title to Goods.

14. When a bill of exchange in sent together with documents of title, the property in goods passes when the buyer.
(a) Receives the Bill of Exchange
(b) Returns the Bill of Exchange
(c) Accepts the Bill of Exchange
(d) None of these

15. Under the Sale of Goods Act, 1930, “Wharfinger’s Certificate” is a —
(a) Document of Title
(b) Document showing Title
(c) Certificate equivalent to a Negotiable Instrument
(d) Delivery Order

16. Which of these is NOT a Document of Title to Goods?
(a) Bill of Lading
(b) Railway Receipt
(c) Dock Warrant
(d) Bearer Cheque

17. Which of these is NOT a Document of Title to Goods?
(a) Warehouse Keeper’s Certificate
(b) Wharfinger’s Certificate
(c) Bill of Exchange
(d) Dock Warrant

18. Dock Warrant is a—
(a) Document showing title to Goods.
(b) Document of Title to Goods
(c) Bill of Exchange
(d) Warrant for Arrest of a Person

19. For transfer of property in un-ascertained goods, the basic condition is that —
(a) Goods must be ascertained and appropriated.
(b) Goods must be defined by description.
(c) Buyer must receive a sample of the goods
(d) Seller must have produced/purchased the goods

20. The property, in case of sale of un-ascertained goods, passes when—
(a) Delivery Order is entered
(b) Goods are identified and appropriated to the contract
( c) Goods are so far ascertained that the parties have agreed that they shall be taken from some specific larger stock.
(d) Transfer is made in the books of the warehouse man.

21. In case of sale of unascertained goods, the property in goods passes —
(a) when the contract provides that the property in goods shall pass
(b) when the goods are ascertained
(c) when the contract is made
(d) all of the above

22. There was a contract to supply “waste coal and ash for the next six months, as and when the waste is generated by the Seller’s Factory”. The Buyer paid the lumpsum price for the next six months in advance. When does the property in the goods pass to the Buyer?
(a) After the lapse of six months period
(b) At the time of entering into the contract
(c) At the time of paying advance money
(d) As and when the Factory discharges the waste

23. The process of identifying the goods and setting apart as per the intended quality or description is called —
(a) Identification
(b) Procurement
(c) Ascertainment
(d) Allocation

24. In a sale of specific or ascertained goods, the property therein is transferred to the buyer —
(a) upon delivery of goods
(b) upon payment of price
(c) at such time as the parties intend it to he transferred
(d) at such time as decided by the Court.

Answers:

STATE WHETHER THE FOLLOWING ARE TRUE OR FALSE:

1. The general rule of Sale of Goods Act is, risk prima facie passes with the delivery of goods.
2. Risk and ownership cannot be separated.
3. Parties may agree that risk will pass sometimes before the property has passed.
4. Promissory note is a document of title to goods.
5. Pledging of goods obtained under a “sale or return” contract completes the contract of sale.
6. A contract of sale of future goods will always be an agreement to sell.
7. When there is a contract for the sale of un-ascertained goods, the property in the goods is not transferred to the buyer unless and until the goods are ascertained.
8. The seller in possession of the goods after sale can make a valid second sale even if he is not in the possession of the goods or document of title to the goods.
9. A agrees to sell to B 20 tonnes of oil of a certain description in his cisterns and he has more than 20 tonnes of oil of description in his cisterns, then no property will pass to B unless the 20 tonnes are separated from the rest and they are appropriated to the contract.

Answers:

CA Foundation Business Laws Study Material Chapter 11 Conditions and Warranties

Sec. 12 of the Sale of Goods Act states that a stipulation (or term) in a contract of sale with reference to goods may be a condition or a warranty.

CONDITION

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. [Sec. 12(2)]
For example, A wants to buy a car which can give a mileage of 20 kms/litre. B, the car dealer, points out at a particular car and says “this car will suit you”. A buys the car. But later on he finds that the car is giving a mileage of only 10 kms/litre. THERE IS A BREACH OF CONDITION, because the stipulation made by B forms the very basis of the contract.

WARRANTY

A warranty is stipulation collateral to the main purpose of the contract, the breach of which gives rise to claim for damages but not a right to reject the goods and treat the contract as repudiated- I [Sec. 12(3)]
For example : A goes to B, a car dealer, and says, “I want a good car” The car dealer shows him a car and says, “it can give you a mileage of 20 kms/litre”. A buys the car. Later on, A finds that the car is giving a mileage of 10 kms/litre only. THERE IS A BREACH OF WARRANTY, because the stipulation made by the seller was only collateral one.
Whether a stipulation in a contract of sale is a condition or a warranty depends in each case on the construction of the contract. A stipulation may the a condition, though called a warranty in the contract – [Sec. 12(4)]
Conditions and warranties may be expressly stated or may be implied by law. Implied conditions and warranties are enumerated in sections 14 to 17. They are deemed to be incorporated in every contract of sale unless the terms of the contract show a contrary intention.

When a condition can be treated as a warranty:
Voluntary waiver of a condition [Sec. 13(1)]
1. Where a contract of sale is subject to a condition to be fulfilled by the seller, the buyer may—

1. waive the condition, for example a buyer may accept defective goods or accept goods
   beyond stipulated time.
2. elect to treat a breach of condition as a breach of warranty, i.e. instead of repudiating the contract he may accept performance and sue for damages, if he has suffered any.

Once a buyer decides to waive, he cannot afterwards insist on its fulfilment.

Compulsory waiver of a condition [Sec. 13(2)]
Where a contract of sale is not severable (Le. indivisible) and the buyer has accepted the goods or a part thereof, he cannot repudiate the contract but can only sue for damages. In such a case, the breach of condition can only be treated as a breach of war ranty, unless there is a contract to the contrary. [Sec. 13(2)]
E.g: W bought laptops from M and resold it to C without examining the laptops. The laptops were defective. It was held that W must be deemed to have accepted the goods and therefore he could not repudiate the contract but could claim only damages.

• However, there may be an agreement between the parties which may be contrary to section 13(2). In that case the parties may agree between themselves that the provision of section 13(2) will not apply in their case and the buyer shall have a right to reject the goods even though he has accepted the indivisible goods.
• If the contract of sale is divisible and the buyer has accepted a part of the goods, he can still exercise the right to reject the remaining goods.
• Impossibility [Sec.13(3)] : The above provisions of Section 13(1) and 13(2) do not affect the cases where the fulfilment of any condition or warranty is excused by law by reason of impossibility or otherwise. This means that under section 13(3) the seller has the right to rely upon impossibility as an excused in appropriate cases, if sued by the buyer.
  

  CONDITION	WARRANTY
  Condition is a term, which is essential to the main purpose of the contract.	Warranty is only a collateral term. It is subsidiary to the main purpose of the contract.
  Breach of a condition gives the aggrieved party a right to repudiate the contract and also to claim damages.	Breach of warranty entitles the aggrieved party to claim damages only. He cannot repudiate the contract.
  A breach of condition may under certain circumstances, be treated as breach of warranty	But a warranty cannot become a condition.

IMPLIED CONDITIONS AND WARRANTIES
A stipulation (or term) in a contract of sale of goods may be express or implied. Express terms are those which have been expressly agreed upon by the parties. Implied terms are those which have been enacted in the Sale of Goods Act. Sections 14 to 17 of the Act contain a list of conditions and warranties which are implied in a contract for the sale of goods, unless the circumstances of the contract are such as to show a different intention. The implied conditions and warrants are stated below:
(a) Implied conditions
1. Implied condition as to title. – [Sec. 14]
There is an implied condition on the part of the seller that, in the case of a sale he has the right to sell the goods, and in the case of an agreement to sell, he will have the right to sell the goods at the time when the property is to pass. If the seller’s title turns out to be defective, the buyer is entitled to reject the goods and claim refund of the price plus damages.

• A bought a motor car from B. He used it for 3 months and thereafter the car was detected to have been stolen. A was compelled to return it to the true owner. Could A recover the sale price from B?
  (Ans: Yes)
• A sells to B tins of condensed milk labelled “Nissly Brand” and this is proved to be an infringement of Nestle Company’s trade mark. Is it a breach of implied condition as to title?
  (Ans: When a person sell the goods by infringing a copyrights or trademark of the others, he is considered as not having right to sell such goods.)

2. Implied condition in a sale by description. – [Sec. 14]
Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description. “Correspond with the description” means that the buyer must get the goods that he has asked for. The description may be given—

1. by mentioning qualities or characteristics of the goods e.g. Basmati rice.
2. by mentioning the trademark or brand name e.g. Videocon TV.
3. by the type of packing e.g. 1 kg. packing of tea in plastic jar.

If the buyer does not get the goods he has described he can reject the goods. The rule is “If you contract to sell peas, you cannot oblige a party to take beans. If the description of the article tendered is different in any respect, it is not the article bargained for, and the other party is not bound to take it”. E.g. A car is sold as a “new maruti car”. The buyer finds it to be a used one. The buyer may reject the car or retain the car and claim damages.

3. Implied condition in a sale by sample as well as by description. – [Sec. 15]
When goods are sold by sample as well as by description, the goods shall correspond both with the sample and with the description.

4. Implied condition as to fitness or quality. – [Sec. 16(1)]
The general rule is, there is no implied condition as to quality or fitness for the purpose of the buyer. This is based on the doctrine of “caveat emptor” that is, let the buyer beware. It means that while buying the goods, it is the responsibility of the buyer to check that the goods he is buying would suit his purpose or not. However, in the following situation, the responsibility as to fitness of goods falls upon the seller:
a. where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required,
b. so as to show that the buyer relies on the seller’s skill, or judgment, and
c. the goods are of a description which it is in the course of the seller’s business to supply (whether he is the manufacturer or not), there is an implied condition that the goods shall be reasonably fit for such purpose.

• A contracts to make and deliver a set of false teeth to B. The false teeth do not fit in the mouth of B. B is entitled to reject the goods.
• X places order for lorries to be used for ‘heavy traffic in a hilly country’. The lorries were unfit for this purpose and broke down. It was held that there was breach of condition as to fitness.

Sale under patent or trade name. Proviso to section 16(1) lays down that in the case of a contract for the sale of a specified article under its patent or other trade name, there is no implied condition as to its fitness for any particular purpose. It is so because in such a case the buyer is not relying on the skill and judgment of the seller but relies on the patent name. For example, a hotelier orders ‘Sujeet’ juicer and mixer (patent product) for his business. The juicer and mixer supplied was found to be unsuitable for commercial use. The buyer has no cause of action against the seller, since he purchased the juicer by its patent name.

5. Implied condition as to merchantability. – [Sec. 16(2)]
Where goods are brought by description from a seller who deals in goods of that description, there is an implied condition that goods shall be of merchantable quality. Merchantable means that the goods are commercially saleable and that they are hit for the purpose for which they are generally used.
Where the buyer examines the goods prior to sale, there is no implied condition as to merchantability as regards defects which such examination ought to have revealed. However, inspite of exil amination, if the goods have certain latent defects which no examination could reveal, the implied condition remains.

• X bought a colour TV from M/s Concord Electronics. The TV was defective right from the beginning and it did not work inspite of repairs by expert technicians. There is a breach of implied condition as to merchantability and the dealer will have to take back the defective TV and refund the amount.
• X orders motor horns from a manufacturer. The horns supplied are defective. X is entitled to reject them as unmerchantable.

6. Implied condition in a sale by sample. – [Sec. 17]
When goods are to be supplied according to a sample agreed upon, the following conditions are implied:

1. The bulk shall correspond with the sample in quality.
2. The buyer shall have a reasonable opportunity of comparing the goods with the sample.
3. The goods shall be free from any latent defect ( hidden defect) rendering them unmerchantable. Latent defects are the defects which would not be apparent on reasonable examination of the sample and they can be discovered only when the goods are put to use. If the defect is easily discoverable on inspection and the buyer takes delivery after inspection, he has no remedy.

A sale is by sample where there is a term in contract, express or implied to that effect. The effect of the section is that where goods are sold by sample, there should not be any latent defect therein which renders them unmerchantable.

7. Implied condition as to wholesomeness
In case of food stuff and eatables, in addition to the implied condition as to merchantability, there is another implied condition that the goods shall be wholesome that is fit for human consumption.
X bought milk from Y, a dairy owner. The milk was contaminated with germs of typhoid fever. X’s
wrfe, on taking the milk, became infected and died of it. Y was held liable in damages.

(b) Implied warranties
In the absence of an agreement to the contrary, the following warranties are implied in every con-tract of sale:
1. The buyer must get quiet possession [Sec. 14(b)]
The buyer shall have and enjoy quiet possession of the goods. For e.g.: X has given his car on hire for a period of one month to Y. Thereafter, X sold it to Z without disclosing to him that Y was en-titled to use the car on account of the hire agreement. Z claims the car from Y. Y’s possession is disturbed. He can claim damages from X.

2. The goods must be free from encumbrance [Sec. 14(c)]
There is an implied warranty that the goods shall be free from any charge or encumbrance in favour of a third party not declared or known to the buyer before or at the time when the contract iis made. The effect of this clause is that if the buyer pays off the charge of encumbrance, he will be entitled to recover the money from the seller.

3. Warranty for quality or use by usage of trade [Sec. 16(3)]
A warranty as to fitness for a particular purpose may be annexed to a contract of sale by a custom usage of trade.

4. Disclosure of dangerous nature of goods
Where the goods are dangerous in nature and the buyer is ignorant of the danger, the seller must warn the buyer of the probable danger. If there is a breach of this warranty, the seller may be liable i in damages.
Note:

1. Express terms – [Sec. 16(4)]: An express warranty or condition does not negate a warranty or condition implied by the Act. (Unless the express terms are inconsistent with the implied conditions). This means that implied warranty or condition may co-exist with express warranty or condition. Thus, for example, where sleepers supplied to a railway company were required to be approved by its experts, it was held that it did not exclude the implied condition of merchantableness.
2. Exclusion of implied terms – [Sec. 62]: These implied conditions and warranties may be ex- eluded or modified by the parties to the contract by express contract, by course of dealing i and by usage of trade.

THE DOCTRINE OF CAVEAT EMPTOR

Caveat Emptor is a Latin expression, which means, “Buyers Beware”. The doctrine of caveat emptor means that, ordinarily, a buyer must buy goods after satisfying himself of their quality and fitness. If he makes a bad choice he cannot blame the seller or recover damages from him. This doctrine is stated in the opening words of section 16: Subject to the provisions of this Act and of any other law for the time being in force, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale.

• It is buyer’s duty to examine goods thoroughly.
• The buyer should ensure at the time of purchase that the goods conform to his requirements.
• If the goods turn out to be defective, buyer cannot hold the seller responsible.

EXCEPTIONS:
The doctrine of caveat emptor does not apply in the following situations:
1. Fitness as to quality or use. [Sec. 16(1)]

1. Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required,
2. soas to show that the buyer relies on the seller’s skill, or judgment, and
3. the goods are of a description which it is in the course of the seller’s business to supply (whether he is the manufacturer or not, there is an implied condition that the goods shall be reasonably fit for such purpose.)

In Priest Vs. Last, P purchased a hot water bottle from a chemist. The chemist informed him that the bottle was specially meant for holding hot water. At the time of use, the bottle burst as soon as hot water was poured into it and injured P’s wife. Chemist was held liable to pay damages to P’.
However, this rule does not apply when the goods are sold under a patent or a brand name.

2. Sale of goods by description. [Sec. 16(2)]
Where there is a sale of goods by description, there is an implied condition that the goods are merchantable that is, fit for particular purpose.

3. Trade usage. [Sec. 16(3)]
An implied condition of fitness may be annexed to a contract of sale by usage of trade.
E.g. In readymade garment business, there is an implied condition by usage of trade that the garments shall be reasonably fit on the buyer.

4. Where the seller is guilty of fraud.
Where the seller makes a false representation and buyer relies on that representation, the doctrine of caveat emptor will not apply. In such a case the buyer will be entitled to the goods according to that representation.

5. Where seller actively conceals a defect
Where the seller actively conceals a defect in the goods so that the same could not be discovered on a reasonable examination, the doctrine of caveat emptor will not apply. Such a contract will be voidable.

6. Sale by sample
When goods are purchased by sample, the bulk must correspond with the sample and the buyer must have reasonable opportunity of inspecting the goods.

7. Sale by sample as well as description
The doctrine of Caveat Emptor is not applicable if the goods do not correspond to both, sample as well as description.

MULTIPLE CHOICE QUESTIONS:

1. Conditions are stipulations
(a) essential to the main purpose of the contract
(b) collateral to the main purpose of the contract
(c) either ‘a’ or ‘b’
(d) neither ‘a’ nor ‘b’

2. A warranty is stipulation
(a) essential to the main purpose of the contract
(b) collateral to the main purpose of the contract
(c) very important to the seller
(d) very important to the buyer

3. Breach of a condition gives rise to
(a) claim for damages
(b) a right to treat the contract as repudiated
(c) both ‘a’ and ‘b’
(d) either ‘a’ or ‘b’

4. Breach of a warranty gives rise to
(a) claim for damages
( b) a right to treat the contract as repudiated
(c) both ‘a’ and ‘b’
(d) either ‘a’ or ‘b’

5. What are implied stipulations of a contract?
(a) agreed by the parties.
(b) incorporated by law unless specifically agreed otherwise.
(c) implied by the circumstances
(d) implied by trade customs

6. If the condition as to the title of goods is not fulfilled, the buyer
(a) may reject the goods
(b) has no alternative but to buy the goods
(c) may reject the goods and claim damages
(d) all the above

7. In a sale by sample and description, there is an implied condition
(a) that bulk of the goods correspond with the sample
(b) that bulk of goods must correspond to the j description as well as the sample thereof
(c) the bulk of goods must correspond either to the description or to the sample
(d) the bulk of goods must correspond to the description only

8. “If you contract to sell peas, you cannot oblige a party to have beans”: this statement applies to
(a) a implied condition as to be description of goods
(b) the implied condition as to fitness of goods
for a particular purpose
(c) implied condition as to sample
(d) implied condition as to title

9. Under section 11 of the Sale of Goods Act, 1930, the time of payment can be of the essence of the contract —
(a) by agreement between the parties
(b) by operation of law
(c) both (a) and (b)
(d) either (a) or (b)

10. Whether or not any stipulation other than time of payment is of the essence of the contract depends upon —
(a) application of section 11
(b) operation of law
(c) terms of the contract
(d) all of the above

11. A stipulation in a contract of sale which is collateral to the main purpose of contract is called as
(a) guarantee
(b) warranty
(c) condition
(d) term

12. Merchantable quality of goods means
(a) that the goods are commercially saleable
(b) they are fit for the purpose for which they are generally used
(c) both ‘a’ and ‘b’
(d) the quality should be of high standard

Answers:

STATE WHETHER THE FOLLOWING ARE TRUE OR FALSE:

1. Where the buyer is deprived to goods by their true owner then the buyer may recover the price for breach of the condition as to title.
2. A stipulation essential to the main purpose of the contract is called as guarantee.
3. There is an implied condition that the goods shall be free from all encumbrances.
4. If a contract of sale contains a stipulation which has become impossible to perform the law excuses such a stipulation by reason of impossibility.
5. Breach of implied warranties leads to the repudiation of a contract.
6. Once the buyer decides to waive the condition he cannot insist on its fulfilment later on.
7. Implied condition as to description can be given by the type of packing.

Answers: