Law Notes - Sales of Goods Act

9/10/2016
LawNotes:SalesofGoodsAct
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FRI D A Y, JA N U A RY 2 6 , 2 007
PublicInternationalLaw
SalesofGoodsAct
TransferofProperty
Sale&AgreementtoSale
EvidenceAct
FamilyLawII
CriminalLawII
Section4oftheSalesofGoodsActdefinesthetermSaleandAgreementto
Sale.FirstlytheSectionstatesthatacontractofsaleofgoodsisacontract
wherebythesellertransfersoragreestotransferthepropertyingoodsto
thebuyerforaprice.Theaboveexplanationpertainswithitsomecertain
featuresofasalethoseare:
1.BilateralContract:Asalehastobebilateralbecausethepropertyin
goodshastopassfromonepersontoanother.Itsfirstessential,therefore,
isthatthesellerandthebuyermustbedifferentpersons.Asaleissaidtobe
consensualbecauseitisnecessarythatthepartiesshouldagreewiththeir
freeconsent.
InGraffV.Evans,theaccusedwasthemanagerofaclub.Theclubwasnot
licensedforthesaleofintoxicatingliquors,buttheseweresuppliedbythe
managertothemembersatfixedprices.Thiswasheldtobenotasale
withinthemeaningoflicensingActs.Itwasmerelyadistributionofthe
liquorsamongthemembers,theybeingthejointownersoftheclub.Butif
theclubwereanincorporatedbody,theresultwouldperhapshavebeen
different.
Sometimesacontractmaynotbeenteredintobythenormalprocessof
negotiation,butunderastatutorycompulsion.Whenthegoodsare
suppliedunderastatutorycompulsionwhetherthatresultsinsaleornot.
InVishnuAgenciesV.CommercialTaxOfficer,itwasheldthatthe
transactionofsupplyofcementbyadistributortoapermitholder,interms
oftheprovisionsofWestBengalCementControlActandcontrolOrder,
amountstosaleandthuseligibletosalestax.Theappellantcontended
thatnovolitionorfreewillorbargainingpowerwaslefttoit,andsince
therewasnoelementofmutualconsentoragreementbetweenitandthe
allottees,thetransactionswerenotsaleswithinthemeaningofSalesTax
Act.
Thecourtobservedthattheofferandacceptanceneednotalwaysbeinan
elementaryform,norindeeddoestheLawofContractorofSaleofgoods
requirethattheconsenttoacontractmustbeexpress,itmaybeimplied
andcanbespeltoutfromtheconductoftheparties.Inthefirstplace,itis
notobligatoryonatradertodealincementnoronanyonetoacquireit.The
decisionoftradertodealinanessentialcommodityisvolitional.Such
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volitioncarrieswithitthewillingnesstotradeinthecommoditystrictlyon
thetermsofControlOrder.Theconsumertoo,whoisundernolegal
compulsiontoacquireorpossesscement,decidedasamatterofhisvolition
toobtainitonthetermsofpermitortheorderofallotmentissuedinhis
favour.Thus,thoughbothpartiesareboundtocomplywiththelegal
requirementsgoverningthetransactiontheyagreeasbetweenthemselves
toenterintotransactiononagreeingtosupplyonstatutorytermsandother
agreeingtoacceptitontheveryterms.Thus,transactionbetweenthem,is
consensualorwiththeirfreeconsent
Also,thereissomescopeforthepartiestobargain.TheCementControl
Orderprovidesthatnopersonshallsellcementatahigherthannotified
price,leavingitopentopartiestochargeandpayapricewhichisless
thanthenotifiedprice.
InanothercaseofCoffeeBoard,KarnatakaV.Commissionerof
CommercialTaxes,itwasheldthatthecompulsorydeliveryofcoffeebythe
coffeegrowerstotheCoffeeBoardconstitutesasaleandnotcompulsory
acquisition,andtheStatecanimposePurchasetaxonthesame.
2.MoneyConsideration:Theconsiderationforasaleofgoodsmustbe
money,calledtheprice.Wherethepropertyingoodsistransferredforany
considerationotherthanmoneythatwillnotbesale,butanexchangeor
barter.Butwheregoodsaresoldforadefinitesumandthepriceispaid
partlyintermsofvaluedupgoodsandpartlyincash,thatissale.For
exampleif52bullocks,valued6apiece,wereexchangedfor100quarters
ofbarleyat2perquarter,thedifferencetobemadeupincash,the
contractwastreatedasoneofsale.Similarly,wherecornwasdeliveredon
termsthatondemandeitherthepricewouldbepaidoranequalquantityof
cornwouldbereturned,thatwasheldtobeasale.
3.Goods:Thesubjectmatterofthecontractmustbegoods.Goodsmeans
everykindofmovablepropertyotherthanactionableclaimsandmoney
andincludesstockandshares,growingcrops,grassandthingsattachedto
orformingpartofthatlandwhichareagreedtobeseveredbeforesaleor
underthecontractofsale.
Thus,goodsincludeeverykindofmovablepropertyotherthanactionable
claimormoney.Thingslikegoodwill,copyright,trademark,patents,
water,gas,electricityandshipsareallgoodsandmaybethesubjectofthe
contractofsale.Humanorgansandtissueshavebecomeanobjectofsale
subjecttostatutoryrestrictions.
TheGoodswhichformthesubjectmatterofanycontractofsalecanbe
classifiedintovariouscategories.Thisclassificationhelpindetermining
astowhendoesthepropertyinthegoodspassfromthesellertothebuyer.
Thegoodsmaybeeitherexistinggoodsorfuturegoods.Existinggoods
maybefurtherclassifiedintospecificgoodsandunascertainedgoods.
Specificgoodsarethosegoodswhichhavebeenidentifiedandagreedupon
atthetimeofthecontractofsale.Ifthegoodsarenotidentifiedandagreed
uponatthetimeofmakingofthecontract,theyareknownasascertained
goods.Incaseofspecificgoods,thereisapossibilityofthepropertyinthe
goodspassingtothebuyeratthetimeofmakingofthecontract,whereasin
thecaseofunascertainedgoods,thepropertyinthegoodsdoesnotpassto
thebuyerunlessanduntilthegoodsareascertained.
Thepartiesarefreetoprovideastowhentheperformanceofthecontractby
eachsidewillbemade.Theymayprovidethatthedeliveryofthegoodswill
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bemadeeitherimmediatelyorbyinstalmentsoronsomefuturedate.
Similarlyregardingthepaymentofpricetoothecontractmayrequireeither
immediatepayment,orpaymentbyinstalmentsorthepaymentonsome
futuredate.
4.Transferofownershipinthegoods:Transferofpropertyi.e.the
ownershipinthegoodsfromthesellertothebuyer,istheessenceofthe
contract.Asaleissaidtobeconsensualbecauseitisnecessarythatthe
partiesshouldagreewiththeirfreeconsent.
SaleandAgreementtoSell:
FurtherSection4distinguishesbetweenSaleandAgreementtoSell.It
stateswhereunderacontractofsalethepropertyinthegoodsistransferred
fromthesellertothebuyer,thecontractiscalledasale,butwherethe
transferofthepropertyinthegoodsistotakeplaceatafuturetimeor
subjecttosomeconditionthereaftertobefulfilled,thecontractiscalledan
agreementtosell.
AContractofSaleisagenerictermandincludesbothanactualsale,
wheretheownershipinthegoodspassestothebuyerimmediatelywhen
thecontractismade,andanagreementtosell,wheretheownershipin
goodsistopasssubsequenttothemakingofthecontract.
Inordertoconstituteasalethereshouldbeanagreementbetweenthe
partiesforthepurposeoftransferringtitletogoods,whichofcourse
presupposedcapacitytocontract,thatitmustbesupportedbymoney
consideration,thatasaresultatransaction,thepropertymustactually
passingoods.
Asalehastheimmediateeffectoftransferringproperty,whereasinan
agreementtosellthepropertyistopassatsomefuturetimeorsubjectto
somecondition.Thesaleofthewholeofthehaystackonthesellersfarm,
thebuyerhavingthelibertytotakeawaywhenhelikes,isanimmediate
sale.
Theessentialobjectofthecontractofsaleistheexchangeofpropertyfora
moneyprice.Theremustbeatransferofproperty,oranagreementto
transferit,fromoneparty,theseller,totheother,thebuyer,in
considerationofamoneypaymentorapromisethereofbythebuyer.
Acontractofsalebecomesasaleonlywhenthepropertyinthegoodsis
transferredtothebuyerunderthetermsofthecontractitself.Astheremust
beacompleteexchangeofpropertytoconstituteasale,itfollowsthatthe
sellerandbuyermustbedifferentpersons.Onecoownermaysellto
anotherandthereforeapartnermayselltohisfirmandthefirmmaysellto
apartner,butinthecaseofamemberofanordinaryclubpayingforameal
attheclub,orevenforprovisionswhichhemaycarryaway,thereisno
salethetransactionisareleaseofjointinterestoftheothermembersof
theclub,andtheonlycontractinvolvedisthecontractmadeonceandfor
allbythememberonhisadmissiontousethepropertyoftheclubonlyon
theconditionslaiddownorauthorisedinitsrulesandusages.Membersof
acluborvoluntarysocietyareundividedjointowners,notpartowners.
InGhasiramV.State,theaccused,aretailer,madeanagreementwithState
Governmentandagreedtosellwhetduringshophourstoconsumers
withinhiszoneataretailratefixedbygovernment.Thewheatwas
deliveredbygovernmenttotheretaileronhisdepositofpriceofwheatat
theagreedwholesalerate.Atonestage,bynighttime,retailerremoved
somebagsofwheatfromshopandthereafter,possiblyapprehensiveof
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adverseconsequencesbroughtthembacktohisshop.
Thequestioninthecasewaswhethertherewasanagreementofsaleor
thatofanagency.Thecourtheldthatretailerbyvirtueofagreementcould
notberegardedasanagentofgovernmentinrespectofwheatreceivedby
himunderagreement.Thepropertyinwheatreceivedbyretailer,underthe
agreement,didpasstohim.Therewasnocriminalbreachoftrustbyhim,
ashewasnotagentofgovernment.
Ifanagreementtosellcontemplatespassingofpropertyatafuturedate,it
becomesasalewhenthatdatearrives.Ifitcontemplatescertainconditions
subjecttowhichthepropertyistopass,itbecomesasalewhenthose
conditionsarefulfilled.
SaleandAgreementtoSellcanbedistinguishedonthefollowing
grounds:
1.Inasalethebuyerbecomestheownerofthegoodsatthetimeofmaking
ofcontractbutinanagreementtosellbuyerbecomesownerofgoodsata
latertime.
2.Asalemakesthebuyertheownerofthegoods.Hecanexercisealthe
proprietaryrightsinrespectofthem,suchasanactionforconversionor
detenue.Heacquiresajusinrem,thatis,arightagainstthegoods.The
effectisthatifthesellerrefusestodeliverthegoods,thebuyermaysuefor
recoveryofthegoodsbyspecificperformance.Ifthesellerhasresoldthe
goodstoanotherperson,thebuyermayfollowthegoodsinhishands,
unlessthatotherhadboughtthemingoodfaithandwithoutnotice.Onthe
otherhand,anagreementtosellisacontractpureandsimple.Itisnota
conveyance.Thebuyersrightareonlypersonalagainsttheseller,thatis,a
jusinpersonam.Hecansueonlyfordamagesforbreachandnotfor
recoveryofgoods.
3.Inasale,sincetheownershipinthegoodshaspassedtothebuyer,the
riskofloss,ifany,ofthegoodsisonthebuyer.Butinanagreementtosell,
thesellerremainstheownerofthegoodsand,therefore,herunsallthe
risks.
4.Inasale,ifthebuyercommitsdefault,thesellermaysuehimforthe
price,thatis,forspecificenforcementofthecontract.Inanagreementto
sell,thesellersonlyremedyistosuefordamagesforbreach.
5.Saleisanexecutedcontracted,wherethereisacontractplusa
conveyance,whereasanagreementtosellistermedasexecutorycontract
pureandsimple.
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Sales&HirePurchase
TheHirePurchaseagreementcanbedescribedasahiringagreement
coupledwithanoptiontopurchase,thatistosay,theownerletsoutthe
chattelonhireandundertakestosellittothehirerhismakingacertain
numberofpayments.Ifthatistherealeffectoftheagreementthereisno
contractofsaleuntilthehirerhasmadetherequisitenumberofpayment,
andheremainsabaileeuntilthen.Butsomesocalledhirepurchase
agreementsareinrealitycontractstopurchase,thepricetobepaidby
instalments,andinthosecasesthecontractisacontractofsaleandnotof
hiring.
Ahirepurchaseagreementpartakesofthenatureofacontractofbailment
withanelementofsaleaddedtoit.Ahirermaynotbeboundtopurchase
thethinghiredbutwherethereisanobligationoranoptiontobuyonthe
termsthatthehireronpaymentofapremiumasalsothenumberof
instalments,shallenjoythegoodswhichultimatelymaybecomehis
property,thetransactionamountstooneofhirepurchase,thoughthetitle
tothegoodswouldremainwiththeownertillalltheinstalmentsarepaid
orthehirerhasexercisedhisoptiontofinalisethepurchaseonpaymentof
asumnominalorotherwise.
Underahiringagreementthehirerhasarighttoreturnthegoodsatany
time,andtherebyrelievehimselffromanyfurtherobligation.Ifthe
intentionofthefinancingpartyinobtainingthehirepurchaseandthe
alliedagreementwastosecurethereturnofloansadvancedtotheir
customersthetransactionswouldmerelybefinancialtransaction.
Anagreementtosellandasalehavetobedistinguishedfromacontractof
hirepurchase.Theycanbedistinguishedonthebasis,firstlyahire
purchaseagreemententitlesthehireronlytopossessionofthegoods.He
cannotpassagoodtitletoanybuyerfromhim.Butapersonwhoreceives
possessionunderanagreementtobuyisabletopassagoodtitletoabona
fidepurchaserfromhim.Secondly,ahirercannotclaimthebenefitof
impliedconditionsandwarrantiescreatedbytheActunlessitbecomesa
sale.Thirdly,theHirePurchaseActisapplicableonlytohirepurchase
contracts.Lastly,salestaxisnotleviableonahirepurchaseuntilit
becomessale.
Inahirepurchaseagreementthehirerhastwooptions:(i)hirerhasan
optiontobuy,butnoobligationtobuyand(ii)righttoterminatethe
agreementassuch.
ThebasisofdistinctionbetweenthetwowasexplainedbyHouseofLords
inHelbyV.Matthews.Helbyletapianoonhireonthefollowingterms:(i)
Hirershouldpayacertainamountpermonth(ii)shouldhepunctuallypay
36monthlyinstalments,thepianoshouldbecomehisproperty,untilthenit
shouldcontinuetobethepropertyofHelbyand(iii)Hirerhadtherightto
terminatethehireatanytimebyreturningtheinstrumenttoHelby.
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Afterpayingafewinstalmentshirerpledgedtheinstrumentwiththe
defendant,whoactedingoodfaith.Helbysueddefendanttorecoverthe
instrument.Itwasheldthathecoulddoso.Hirerwasnotinpossession
havingagreedtobuythepiano,butunderahirepurchaseagreementand
therefore,hadnorighttopledge.
Anagreementtobuyimportsalegalobligationtobuy.Iftherewasnosuch
obligation,therecannotproperlybesaidtohavebeenanagreement.Hirer
mightbuy,ornot,justashepleased.Hedidnotagreetopay36orany
numberofmonthlypayments.Allthatheundertookwastomakethe
monthlypaymentsolongashekeptthepiano.Hehadanoptionnodoubt
tobuyitbycontinuingthestipulatedpayments.Ifhehadexercisedthat
optionhewouldhavebecomethepurchaser.Underthesecircumstances
howhirercanbesaideithertohaveboughtoragreedtobuythepiano.
Thus,itisthepresenceoftheoptiononthepartofthehirertobuyorto
terminatethehiringthatmakesthedistinction.Theownershippassesto
himwhenheexercisesthatoption.Thehirercannotbecompelledtobuy.
TheSupremeCourtofIndiahascitedthisstatementinKLJohar&Co.V.
DeputyCommercialTaxOfficer.Thecourtsaidthattheessenceofsaleis
thatthepropertyistransferredfromthesellertothebuyerforaprice,
whetherpaidatonceorpaidlaterininstalments.Ontheotherhand,ahire
purchaseagreementhastwoaspects.Thereisfirstanaspectofbailmentof
goodssubjecttothehirepurchaseagreement,andthereisnext,anelement
ofsalewhichfructifieswhentheoptiontopurchaseisexercisedbythe
intendingpurchaser.
Wherethehirerdoesnothavetheoptiontoreturn,itwillbeanagreement
tobuyandnotahirepurchase,evenifthepriceispayableininstalments
andthesellerhasthepowertoseizethegoodsondefault.Thiswas
establishedinLeeV.Butler.Herealadyhiredcertainfurniturefrom
plaintiff,thepricetobepaidintwoinstalments,andtheplaintiffhaving
therighttotakebackthefurnitureifaninstalmentwasnotpaid.Beforethe
lastinstalmentwaspaid,theladysoldthefurnituretothedefendant.Itwas
heldthatthedefendanthadacquiredagoodtitle,theladybeingin
possessionofthefurnitureunderanagreementtobuy.Shedidnothavethe
optiontoreturnbutwascompellabletobuy.
InSundramFinanceLtd.V.StateofKerala,theappellantcarriedonthe
businessoffinancingpurchaseofmotorvehiclesonthesecurityofthese
vehicles.TheStateimposedsalestaxonthetransactionbetweenthe
appellantsandtheircustomers.Appellantcontendedthattheyweremere
financiersandthattheydidnotenterintoanytransactionofsaleofgoods
withpartiesandtheywerenotdealerwithinthemeaningoftheAct.
Thecourtobservedthatahirepurchaseagreementbroadlytakesoneorthe
otheroftwoforms.INthefirst,thegoodsarepurchasedbyfinancier
dealer,andheobtainsahirepurchaseagreementfromcustomer,under
whichthelatterbecomeownerofgoodsonpaymentofallinstallmentsby
exercisinghisoptiontopurchasethegoods.IntheSecond,goodsare
purchasedbythecustomerwhichremaininhispossession,subjectto
liabilitytoanyamountpaidbyfinancieronhisbehalftodealer,andthe
financierobtainsahirepurchaseagreementwhichgivenhimalicenceto
seizethegoodsineventoffailurebycustomertofulfilagreements
conditions.
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ContractforWork&Material
Sometimesacontractmayinvolvesupplyofsomearticlewhichalso
involvesrenderingofsomeworkorserviceinrespectofthesame.Insucha
case,theremaybedifficultyindecidingwhetheritisacontractofsaleof
goodsoracontractforworkandlabouroracontractofservice.The
problemofascertainingthenatureofthecontractinsuchcasesgenerally
arisesinthecontextoftheliabilityforsalestax,whichcouldbeleviedin
caseofsaleofgoodsandnotwhenthecontractisoneforworkandlabour.
Acontractofsalehastobedistinguishedfromacontractinvolvingthe
exerciseofskillorlabouronsomematerial.Apartfromthequestionof
liabilitytosalestax,thedistinctionisimportantbecauseitisonlyasale
thatcarriesanumberofimpliedconditionsandwarranties.
InLeeV.Griffin,aladyengagedadentisttomaketwosetsoffalseteethto
befittedintohermouth.Beforetheworkcouldbecompletedtheladydied.
Inthedoctorsactiontorecoverhischargesthecontractwasheldtobeone
ofsale.Thecourtemphasizedthatweshouldseetheendofthetransaction.
Iftheresultofatransactionisthepassingofanarticleforapriceitisa
sale.
Whetherthecontractisoneofsaleorofworkandlabourdependsonthe
circumstancesofeachcase.Iftheobjectofthecontractistotransferthe
propertyinsomechattelandthedeliveryofthesametothebuyer,itisa
contractofsale,irrespectiveofthefactthatthecostofthematerialsused
bearaverysmallproportiontothepricecharged.Ontheotherhand,ifthe
objectisnottotransferpropertyinthechattelbuttorenderskilland
labour,thecontractisoneforworkandlabour.
InRobinsonV.Graves,thetestlaiddowninabovecasewasnotapproved
bytheCourt.Inthiscasethedefendantorallycommissionedtheplaintiff,
anartist,topainttheportraitofalady,andsubsequentlyrepudiatedthe
contractbeforetheportraitwascompleted.Inanactionbytheplaintifffor
theagreedprice,itwasheldtobeacontractofworkandlabour.The
painterrecovered.
InAsstt.SalesTaxOfficerV.B.C.Kame,ithasbeenheldbytheSupreme
Courtthatwhenaphotographerundertakestotakeaphotograph,to
developthenegative,ortodootherphotographicworkandthereafter
supplytheprintstohisclient,thecontractisoneofskillsandlabourand
notthatofsaleofgoods.
Theprimarydifferencebetweenacontractforworkorserviceanda
contractforsaleofgoodsisthatintheformerthereisintheperson
performingworkorrenderingservicenoproperty,inthethingsproduced
asawholenotwithstandingthatapartoreventhewholeofthematerial
usedhimmayhavebeenhisproperty.Inthecaseofcontractofsale,the
thingproducedasawholehasindividualexistenceasthesoleproperty,
andofthepartywhoproducedit,atsometimebeforedelivery,andthe
propertythereinpassesonlyunderthecontractrelatingtheretoingoods
usedintheperformanceofthecontractisnotsufficienttoconstituteasale
theremustbeanagreementexpressorimpliedrelatingtothesaleofgoods
andcompletionoftheagreementbypassingoftitleintheverygoods
contractedtobesold.
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Ineverycasethecourtwillhavetofindoutwhatwastheprimaryobjectof
thetransactionandtheintentionofthepartieswhileenteringintoit.
Generallyacontracttomakeachattelanddeliverit,whenmade,isa
contractofsale,butnotalways.Thetestwouldseemstobewhetherthe
thingtobedeliveredhasanyindividualexistencebeforedeliveryasthesole
propertyofthepartywhoistodeliverit.
ForexampleAisemployedbyBtodrawaconveyanceonpaperandwith
inkfurnishedbyA.Thisisacontractforworkandnotforthesaleof
goods.
InNorthernIndiaCaterersV.Lt.GovernorofDelhi,theappellant,whoran
ahotelinwhichnotonlylodgingandmealswereprovidedtotheresidents
onanallinclusivebasis,butmealswerealsoservedtononresidentsin
therestaurantlocatedinthehotel.Regardingthenatureofthecontractin
thetwokindsofservicesrenderedbytheappellantitwasheldbythe
SupremeCourtthatnotonlytheserviceofmealstothevisitorsinthehotel
onanallinclusivebasis,butalsoserviceofmealsintherestauranttothe
casualvisitorswasinthenatureofaserviceprovidedtothecustomersand
thesamecouldnotbeconsideredtobeatransactionofsale,andtherefore,
thetransactionswerenotsubjecttotheimpositionofsalestax.
TheSupremeCourtreviewingitsowndecisioninNorthernIndiaCaterers
V.Lt.Governor,Delhi,heldthatwherefoodissuppliedinaneatinghouse
orrestaurant,anditisestablisheduponthefactsthatthesubstanceofthe
transaction,evidencedbyitsdominantobject,isasaleoffoodandthe
renderingofservicesismerely,incidental,thetransactionwould
undoubtedlybeeligibletosalestax.
Whenthereissaleofanarticlewithanadditionalandsubsidiarycontract
toaffixit,itisconsideredtobeacontractofsale.Insuchacase,themain
contractistodeliverthegoodsinwhichthepropertypassesandthe
servicesputintheprocessisonlyancillarytothat.When,ontheother
hand,theobjectistocompleteacertainstipulatedwork.
InStateofRajasthanV.NenuRam,theSupremeCourtheldacontractto
supplyandfixwoodendoorandwindowframesandshuttertobea
contractforworkandnotasale.
Acontractofsaleisacontractwhosemainobjectisthetransferofthe
propertyin,andthedeliveryofthepossessionofachattelasachatteltothe
buyer.Wherethemainobjectofworkundertakenbythepayeeoftheprice
isnotthetransferofachattelquachattel,thecontractisoneforworkand
labour.Thetestiswhetherornottheworkandlabourbestowedandin
anythingthatcanproperlybecomethesubjectofsaleneitherthe
ownershipofthematerials,northevalueoftheskillandlabouras
comparedwiththevalueofthematerials,isconclusive,althoughsuch
mattersmaybetakenintoconsiderationisdetermining,inthe
circumstancesofaparticularcase,whetherthecontractisinsubstanceone
forworkandlabouroroneforthesaleofchattel.
Theprimarytestiswhetherthecontractisonewhosemainobjectis
transferofpropertyinchattelasachatteltothebuyer,thoughsomework
mayberequiredtobedoneunderthecontractasancillaryorincidentalto
thesaleoriscarryingoutofworkbybestowaloflabourandserviceand
materialsareusedinexecutionofsuchwork.Thetesthasbeenrecognized
andapprovedinanumberofdecisionsofthiscourtanditmaynowbe
regardedasbeyondcontroversy,buttherealdifficultyarisesinits
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applicationastherearealargenumberofcaseswhichareontheborder
lineandfallwithinwhatmaybecalledgreyarea.Toresolvethisdifficulty,
thecourtshaveevolvedsomesubsidiarytests.
Theprimarydifferencebetweenacontractforworkorserviceanda
contractforsaleofgoodsisthatintheformerthereisintheperson
performingworkrenderingservicenopropertyinthethingsproducedasa
whole.Inthecaseofacontractforsale,thethingproducedasawholehas
individualexistenceasthesolepropertyofthepartywhoproducedit,at
sometimebeforedelivery,andthepropertythereinpassesonlyunderthe
contractrelatingtheretotheotherparty.thiswasthetestappliedbythis
courtintheStateofRajasthanV.ManIndustrialCorporation,forholding
thatacontractforprovidingandfixingfourdifferenttypesofwindowsof
certainsizeaccordingtospecifications,designs,drawingsandinstructions
setoutinthecontractwasacontractforworkandlabourandnota
contractforsale.
ThesametestwasappliedbythecourtinSentinelRollingShuttersV.CST.
Therethequestionwaswhetheracontractforfabrication,supplyand
erectionofcertaintypesofrollingshutters,wasacontractofsaleora
contractforworkandlabour,thiscourtanalysedthenatureofthecontract
andpointedoutthatnotonlyaretheRollingshutterstobemanufactured
accordingtothespecificationsdrawlingsandinstructionsprovidedinthe
contract,buttheyarealsotobeerectedandinstalledatthepremisesofthe
company.Thepricestipulatedinthecontractisinclusiveoferectionand
installationchargesandthecontractdoesnotrecogniseanydichotomy
betweenthefabricationandsupplyoftheRollingShuttersandtheir
erectionandinstallationsofarinstallationofRollingshuttersisasmuch
anessentialpartofthecontractasthefabricationandsupplyanditisonly
ontheerectionandinstallationofRollingshuttersthatourcontractwould
befullyexecuted.
Thiscourtthenproceededtoexaminewhatisarollingshutterandhowitis
erectedandinstalledinthepremisesandobservedthatarollingshutter
consistsofseveralcomponentpartsandthecomponentpartsdonot
constitutearollingshutteruntiltheyarefoxedanderectedonthepremises.
Itisonlywhenthecomponentpartsarefixedonthepremisesandfittedin
theoneanotherthattheyconstitutearollingshutterasacommercial
articleandtillthentheyaremerelycomponentpartsandcannotbesaidto
constitutearollingshutter.Theerectionandinstallationoftherolling
shuttercannottherefore,besaidtobeincidentaltoitsmanufactureand
supply.Itisafundamentalandintegralpartofthecontract,because
withoutittherollingshutterdoesnotcomeintobeing.Themanufacturer
wouldundoubtedlybetheownerofthecomponentpartwhenhefabricates
thembutatnostagedoesastotransferherollingshuttercomesinto
existenceasaunitwhenthecomponentpartsarefixedinpositiononthe
premisesandit,thereforebecomesthepropertyothecustomerassoonasit
comesintobeing.Thereisnotransferofpropertyintherollingshutterby
themanufacturertothecustomerasachattel.Itisessentiallyatransaction
forfabricatingcomponentpartsandfixingthemonthepremisessoasto
constitutearollingshutter.Thecontractforfabricationsupplyanderection
oftherollingshutterswas,onthisreasoningheldbythecourttobea
contractforworkandlabourandnotacontractforsale.
TheprincipleestablishedintheabovecaseisappliedinRamSingh&Sons
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EngineeringWorksV.TheCommissionerofSalesTax,U.P.Therewasa
contractforfabricationanderectionof3motionelectricaloverhead
travelingcranes.Thefabricationanderectionwasonesingleindivisible
processandsuchacranecameintoexistenceonlywhentheerectionwas
complete.Thefabricationanderectionofa3motionelectricaloverhead
travelingcraneishighlyskilledandspecializedjobandthecomponent
partshavetobetakentothesiteandtheyareassembledanderectedthere
andtheyareassembledanditisonlywhenthisprocessiscompletethena
3motionelectricaloverheadtravelingcranecomesintobeing.Theprocess
ofassemblyanderectionrequiresahighdegreeofskillanditisnot
possibletosaythattheerectionofa3motionelectricaloverheadtraveling
cranecomesintoexistenceonlywhentheerectioniscomplete.The
erectionisthusafundamentalandintegralpartofthecontractbecause
withoutitthe3motionelectricaloverheadtravelingcranedoesnotcomes
intobeing.Themanufacturerwouldundoubtedlybetheownerofthe
componentpartswhenhefabricatedthem,butatnostagedoeshebecome
theownerofthe3motionelectricaloverheadtravelingcraneasaunitsoas
totransferthepropertyintothecustomer.The3motionelectricaloverhead
travelingcranecomesintoexistenceasaunitonlywhencomponentparts
arefixedinpositionanderectedatthesite,butatthatstageitbecomesthe
propertyofthecustomerbecauseitispermanentlyembeddedintheland
belongingtothecustomer.Theresultisthatassoonas3motionelectrical
overheadtravelingcranecomesintobeingitisthepropertyofthecustomer
andthereis,therefore,notransferofpropertyinitbythemanufacturerto
theCustomerAsAChattel.Itisessentiallyatransactionforfabricating
componentpartsandputtingthemtogetheranderectingthematthesiteso
astoconstitutea3motionelectricaloverheadtravelingcrane.The
transactionisnodifferentthanoneforfabricationanderectionofanopen
godownorshedwithasbestosortinsheetsfixedoncolumns.Therecan,
thereforebenodoubtthatthecontractinthepresentcasewasacontract
forworkandlabourandnotcontractforsale.
Conditions&Warranties
Sometermsofthecontractofsaleconstitutethehardcoreofthecontract
andtheirnonfulfilmentmayseemtoupsettheverybasisofthecontract.
Theymaybesovitaltothecontractthattheirbreachmayseemtobea
breachofthecontractasawhole.Suchtermsareknownasconditionsof
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thecontractandtheirbreachentitlestheinnocentpartytorepudiatethe
contract.Atermwhichisnotofsuchvitalimportanceisknownasa
warranty.Itsbreachdoesnotleadtorepudiation,butonlytodamagesfor
breach.
Section12(1)providesthatstipulationsinacontractofsalewithreference
togoodsmaybeconditionsorwarranties.Thesectionthengoesonto
explainthedistinctionbetweenthetwo.Itsaysaconditionisastipulation
essentialtothemainpurposeofthecontract,thebreachofwhichgivesrise
toarighttotreatthecontractasrepudiated.Whereasawarrantyisa
stipulationcollateraltothemainpurposeofthecontract,thebreachof
whichgivesrisetoaclaimfordamagesbutnottoarighttorejectthegoods
andtreatthecontractasrepudiated.Whetherastipulationinacontractof
saleisaconditionorawarrantydependsineachcaseontheconstruction
ofthecontract.Astipulationmaybeacondition,thoughcalledawarranty
inthecontract.
Thecourtisnotboundbytheterminologyemployedbytheparties.The
conceptofaconditioniswellillustratedbythecaseofBaldryV.Marshall.
Theplaintiffconsultedthedefendants,motorcardealers,foracarsuitable
fortouringpurposes.ThedefendantssuggestedthataBugatticarwould
beappropriateandtheplaintiffaccordinglyboughtone.Thecarturnedout
tobeunfitfortouringpurposeandtheplaintiffoughttorejectit.The
defendantsrelieduponaterminthecontractwhichguaranteedthecarfor
twelvemonthsagainstmechanicaldefectsandexcludedeveryother
guaranteeorwarranty.
Butitwasheldthatthesuitabilityofthecarfortouringpurposeswasnota
guaranteeorwarranty,butaconditionofthecontract.Thetermwasso
vitalthatitsnonfulfilmentdefeatedtheverypurposeforwhichtheplaintiff
boughtthecar.Hewas,therefore,entitledtorejectandhaverefundofthe
price.
ConsequencesofBreach:Sinceaconditionisastipulationessentialtothe
mainpurposeofthecontractitsbreachbyonepartyentitlestheotherto
treatcontractasrepudiated.Forexample,ifthesellermakesabreachof
condition,thebuyermayrejectthegoods.Similarly,ifthebreachismade
bythebuyer,thesellermaytreatitasabreachofcontractandnotperform
hisownpartoftheobligation.
Optiontothebuyeronbreachofconditionsbytheseller:Whenthereisa
breachofconditionbytheseller,thebuyermay:
(i)treatthecontractasrepudiated,or
(ii)waivethecondition,or
(iii)treatthebreachofconditionasabreachofwarranty.
Thelawimpliesintoeverysaleofgoodsanumberofconditionsand
warranties.Theyarereadintoeverycontractofsaleunlesstheyare
excludedandareknownasimpliedconditionsandwarranties.
1.Conditionsastotitle:Theessenceofsalebeingthetransferof
ownership,itisoneofthedutiesofthesellertoensurethathehastheright
tosellwhathepurportstosell.Ifthesellerstitleturnsouttobedefective
thebuyermayrejectthegoods.Therecanbenosaleatallofthegoods
whichthesellerhasnorighttosell.Thewholeobjectofsaleistotransfer
propertyfromonepersontoanother.Infactthebuyerhasnotreceivedany
partofthatwhichhecontractedtoreceivenamely,thepropertyandrightto
possessionandthatbeingso,therehasbeenatotalfailureof
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consideration.
InNiblettV.ConfectionersMaterialCo,thedefendantsoldtheplaintiffs
3,000tinsofcondensedmilk.OntheirarrivalinEnglandfromNewYorkit
wasfoundthat1,000tinswerelabeledNissleyBrand.Another
manufacturerofcondensedmilksunderthenameofNestleBrandclaimed
thatthiswasaninfringementofhistrademark.Theplaintiffhadto
removeallthelabelsinordertoobtainthegoodsandsubsequentlysold
thematareducedvalue.Hesuedthesellersforthebreachofthecondition
astotitle.Itwasheldthattheplaintiffhadtherighttorejectthegoodsorto
recoverasdamagesthelosscausedbythesaleatareducedprice.
Explainingthemeaningofrighttosellitwassaidthatthesellerhadnot
therighttosellthesegoods.Havingadmittedthattheywerean
infringementoftheNestleCompanystrademarktheywereliabletoan
injunctionrestrainingthesale.Thereforetheyhadnorighttosellthese
goodsatthetimewhenthepropertywastopass.Ifavendorcanbe
estoppedbyprocessoflawfromsellinghehasnottherighttosell.
2.Salebydescription:Section15oftheActlaysdowntheconditionswhich
isimpliedbylawinasalebydescription.Itsaysthatwherethereisa
contractforthesaleofgoodsbydescription,thereisanimpliedcondition
thatthegoodsshallcorrespondwiththedescription.
Twothingsarenecessarytoenableabuyertoinvoketheprotectionofthis
section.First,thereshouldbeasalebydescriptionand,secondly,the
goodsdonotcorrespondwiththedescription.Theexpressionsale
descriptionincludesmanysituations.Firstly,itreferstoacasewherethe
buyerhasneverseenthegoodsandbuysthemonthebasisofthe
descriptiongivenbytheseller.ThishappenedinVarleyV.Whipp.
Therewasasaleofreapingmachinewhichthebuyerhadneverseenand
whichthesellerstatedtohavebeennewthepreviousyearandusedtocut
only50to60acres.Ondeliverythebuyerfoundthemachinerytobe
extremelyoldand,therefore,returnedit.Thesellersactionagainstthe
buyerforthepricefailed.Itwasasalebydescriptionandthemachinedid
notcorrespondwiththedescription.
Evenwherethebuyerhasseenthegoods,itmaybeasalebydescriptionif
hereliesnotonwhathehasseenbutwhatwasstatedtohimandthe
deviationofthegoodsfromthedescriptionisnotapparent.Thisis
illustratedinNicholsonandVennV.SmithMarriott.
Itwasanauctionsaleofasetoflinennapkinsandtablecloths,described
asdatingfromtheseventeenthcentury.Theplaintiff,whoweredealersin
antiquities,sawthesetandboughtit.Theysubsequentlyfoundittobean
eighteenthcenturysetandsoughttorejectit.Itwasheldthattheycoulddo
so.Theyhadreliedonthedescriptionandthediscrepancybetweenthe
descriptionandthequalitycouldnothavebeendiscoveredbythecasual
examination.
Thirdly,packingofgoodsmaysometimesbeapartofthedescription.
Thus,inMoore&Co.V.Landuer&Co.,therewasacontractforthe
purchaseof3,000tinsofcannedfruitfromAustralia,tobepackedincases
eachcontaining30tins.Thesellerstenderedasubstantialportionincases
containing24tins.Themethodofpackingwasheldtobeapartofthe
descriptionand,therefore,thepurchaserswereentitledtorejectthewhole
consignment.
Onceitisprovedthatthesaleisbydescription,thelawimpliesthe
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conditionthatthegoodsmustcorrespondwiththedescription.Iftheydo
notdosothebuyermayrejectthemanditwillbenodefencetosaythatthey
willservethebuyerspurpose.Whereisasaleofcopracake,thegoodswere
foundadulteratedwithcastorbeans.Itwasheldthatthegoodsdidnot
correspondwithdescriptionandtheconditionwasbroken.
3.SalebydescriptionaswellasbySample:Thesection15furtherprovides
thatifthesaleisbysampleaswellasbydescription,itisnotsufficientthat
thebulkofthegoodscorrespondwiththesampleifthegoodsdonotalso
correspondwiththedescription.Inotherwords,theimpliedconditionin
suchcasesisthatthegoodsshallnotmerelyagreewiththesample,but
mustalsocorrespondwiththedescription.Thebasicinsistenceofthe
sectioniscorrespondencewithdescription.
4.Salebysample:ThisisdefinedinSection17oftheAct.Acontractofsale
isacontractforsalebysamplewherethereisaterminthecontract,
expressorimplied,tothateffect.Asalebysampleisindistinguishablefrom
asalebydescription.Thelawimpliesthreeconditionsintoeverycontract
ofsalebysample:
(i)Thatthebulkshallcorrespondwiththesampleinquality.
(ii)Thatthebuyershallhaveareasonableopportunityofcomparingthe
bulkwiththesample.
(iii)Thatthegoodsshallbefreefromanydefect,renderingthemun
merchantable,whichwouldnotbeapparentonreasonableexaminationof
thesample.
InGodleyV.Perry,aretailertestedtoycatapultsbypullingattheelastic
andfoundnodefect,butoneofthemsubsequentlyexplodedinthehandsof
achildwhohadboughtitfromtheretailer.Itwasheldthatthegoodswere
unmerchantablebyreasonofthelatentdefect.Thecourtpointedoutthat
reasonableexaminationmeansasthatphraseisunderstoodbythe
commonsensestandardsofeverydaylife.Itobviouslydoesnotmean
completeorthroughexamination.
Therearecertaintypesofwarrantieswhichareimpliedbylawinasaleof
goodscontract.
1.QuitePossession:Animpliedwarrantythatthebuyershallhaveand
enjoyquietpossessionofthegoods.Itisawarrantythatthevendorshall
not,norshallanybodyclaimingunderasuperiortitle,orunderhis
authority,interferewiththequietenjoymentofthevendee.
2.FreefromEncumbrance:Thegoodsshallbefreefromanychargeor
encumbranceinfavourofanythirdpartynotdeclaredorknowntothe
buyerbeforeoratthetimewhenthecontractismade.
Conditionsreducedtowarranty:
Incertaincircumstancesaconditionisreducedtothestatusofawarranty.
Theeffectisthatthebuyerlosseshisrighttorejectthegoods.Hehastobe
contentwiththeremedyfordamagesforthebreachoftheconditions.This
happensinthefollowingcases:
1.WaiverbyBuyer:Whereacontractofsaleissubjecttoanyconditionto
befulfilledbytheseller,thebuyermaywaivetheconditionorelecttotreat
thebreachoftheconditionasabreachofwarranty.Theconditions,
expressorimplied,areforthebenefitofthebuyer.Hehas,therefore,the
optiontowaivethebreachofacondition.Inthatcaseheremainsliablefor
theprice,butmayrecoverdamagesforthebreach.Thebuyerselectionmay
beexpressorimplied.
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2.Acceptanceofgoodsbybuyer:Whereacontractofsaleisnotseverable
andthebuyerhasacceptedthegoodsorpartthereof,thebreachofthe
conditiontobefulfilledbythesellercanonlybetreatedasabreachof
warrantyandnotasagroundforrejectingthegoods,unlessthereisaterm
ofthecontractofthateffect.Thus,wherethebuyerhasacceptedthegoods
andthereafterdiscoversthatsomeconditionswasnotfulfilled,hecannot
reject.
AnillustrationinpointisHardy&Co.V.Hillerns&Fowler.Wheatsold
underacontractarrivedattheportofdestination.Thebuyerstookupthe
shippingdocuments.Thedayonwhichthewheatwasunloadedthey
resoldanddispatchedaportionofittosubpurchasers.Theysubsequently
discoveredthatthewheatwasnotofthecontractqualityandgavethe
sellersanoticeofrejection.Allthishappenedwithinthreedaysand,
therefore,reasonabletimefortheexaminationofthegoodshadnot
expired.Itwasheldthatthetransferofthepossessiontothesub
purchaserswasanactinconsistentwiththeownershipofthesellersand,
therefore,thatputanendtothebuyersrightofrejection.Notwithstanding
thatittookplacebeforetheexpiryofreasonabletimeforinspection.The
actofresaleisinconsistentwiththesellersownershipbecausethebuyer
hastoplacetherejectedgoodsatthedisposalofthesellerimmediatelyon
rejection,whereasifhehasresoldthem,hecannotdothattillhereceives
thembackfromthesubbuyers.
Whenaconditionisreducedtothestatusofawarranty,theeffectisnot
thattheconditionbecomesawarranty,butthattheconditionremainsa
condition,itisonlytheremedywhichchanges.Whenthecontractofsale
isnotseverableandthebuyerhasacceptedthegoodsorpartthereof,the
breachofconditionhasgottobetreatedasabreachofwarranty.Theidea
behindtheprovisionisthatwhenthebuyerhasachoiceofeitheraccepting
orrejectingthegoodsandhechoosestoacceptthem,hisrightofrejection
cannomorebeexercised.Merelytakingdeliveryofthegoodsbythebuyer
doesnotnecessarilymeantheacceptanceofthem.Thisisdemonstratedby
thedecisionoftheHouseofLordsinWallis,Son&WellsV.Pratt.The
defendantssoldseedtotheplaintiffs,asCommonEnglishSanfoinonthe
conditionthatthesellergivenowarrantyexpressorimpliedastogrowth,
descriptionoranyothermatter.Theseeddeliveredtothebuyerswasnot
CommonEnglishSanfoin,butGiantSanfoin,adifferentandinferior
seed.ThebuyeracceptedtheseedbelievingittobeCommonEnglish
Sanfoinandresolditassuchtootherparties,towhomtheywereobliged
topaydamagesforthemistake.
Thetimeforrejectionhavingbeenlost,theonlycourseopentothebuyers
wastosuefordamages.Thesellerscontendedthattheconditionwas
reducedtowarrantyandtheyhadexcludedliabilityforwarranties.The
HouseofLordsrejectedthiscontentionandallowedthebuyerstorecover
damagesfortheirloss.Aconditionisconvertedintowarrantyonlyfor
remedialpurposes.Theresultmaybesummedupasitwasabsurdto
suggestthat,becausesubsequenteventshadpreventedthebuyersfrom
repudiatingthecontract,theyhadalsoconvertedamoreintoaless
importantterm.Onceaconditionalwaysacondition,whetherornotthe
remediesremainedthesame.
Wheregoodsnotansweringtothedescriptioncontractedforaredelivered
toabuyer,thebuyerhasarighttooneoftwoalternativeremedies:
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(a)rejectthegoodsandobtainarefundofthepriceinadvanceandsuefor
damagesfornondelivery.Insuchaneventthedamageshewouldobtain
wouldbethedifferencebetweenthecontractpriceandthemarketpriceof
thegoodsonthedateofthebreachifthelatterwerehigher
(b)waiveconditionandacceptthegoodsandsuefordamagesforabreach
ofwarranty.Whenheacceptsthegoods,hehastopaythecontractprice
lessanyclaimforsetoffforbreachofwarranty.
Section62oftheActenablesthepartiestoasaletoexcludeliabilityfor
impliedterms.Thesectionrecognizesthreemodesbywhichliabilityfor
impliedtermsmaybenegatived:
(i)ByexpressContract
(ii)Bycourseofdealingand
(iii)Bytradeusage.
CaveatEmptor
Section16oftheActprescribesthatsubjecttotheprovisionsofthisActor
anyotherlawforthetimebeingintheforce,thereisnoimpliedwarranty
orconditionastothequalityorfitnessforanyparticularpurposeofgoods
suppliedunderacontractofsale.Thisisarestatementoftheprincipleof
caveatemptor(buyerbeware).Itmeansthatsubjecttotheimplied
conditionswhichhavebeenseenaboveandtheexceptioncreatedby
Section16,thesellerisnotboundtosupplygoodswhichshouldbefitfor
anyparticularpurposeorwhichshouldpossessanyparticularquantity.It
isthebuyersdutytoselectgoodsofhisrequirement.Itwasforthebuyerto
makehimselfacquaintedwithqualitiesanddefectsofthegoodswhichhe
contemplatedpurchasing.
Theprincipleisthatitisforthebuyertosatisfyhimselfthatthegoods
whichheispurchasingareofthequalitywhichherequiresor,ifheis
buyingthemforaspecificpurpose,thattheyarefitforthepurpose.This
principleissummedupinthemaximCaveatemptorandisbasedupon
thepresumptionthatthebuyerisrelyingonhisownskillandjudgment,
whenheeffectsapurchase.
OneillustrationoftheapplicationofthisprincipleisWardV.Hobbs.
Certainpigsweresoldbyauctionandnowarrantywasgivenbytheseller
inrespectofanyfaultorerrorordescription.Thebuyerpaidfairpricefor
healthypigs,buttheywereillandallbutonediedoftyphoidfever.They
alsoinfectedafewofthebuyersownpigs.TheHouseofLordsheldthat
sendinginfectedpigstothemarketwasanoffence,buttherewasno
impliedconditionorwarrantythattheyweresound.Itwassaidhat
althoughavenderisboundtoemploynoartificeordisguiseforthepurpose
ofconcealingdefectsinthearticlesold,sincethatwouldamounttoa
positivefraudonthevendeeyetunderthegeneraldoctrineofcaveat
emptor,heisnotordinarilyboundtodiscloseeverydefectofwhichhemay
becognizant,althoughhissilencemayoperatevirtuallytodeceivethe
vendee.
AnothercaseofthesamekindisBurnbyV.Bollet.A,afarmer,bought
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fromBabutcher,thecarcassofadeadpigforconsumptionandleftit
hangingup,intendingtoreturnaftercompletingotherbusiness,andtakeit
away.InhisabsenceC,afarmer,onseeingandwishingtobuyit,was
referredtoA,andboughtitofA.Itturnedoutunsoundandunfitfor
humanconsumption.Itwasheldthatnowarrantyofsoundnesswas
impliedbylawbetweenthefarmersAandC.Theresultwouldhavebeen
differentiftheplaintiffhadboughtthepigfromadealerinpork.Inthat
casetherewouldhavebeenanobligationtosupplygoodsofmerchantable
quality.
CaveatEmptordoesnotmeanthatthebuyermusttakechance,itmeans
hemusttakecare.Itappliestothepurchaseofspecificthingsuponwhich
thebuyercan,andusuallydoes,exercisehisownjudgmentitappliesalso
wheneverthebuyervoluntarilychooseswhathebuysitappliesalsowhere
byusageorotherwiseitisatermofthecontract,thatthebuyershallnot
relyontheskillorjudgmentoftheseller.
Exceptions:
Theexceptionstotheruleofcaveatemptorhavenowbecomemore
prominentthantheruleitself.Theruleowesitsorigintothetimeswhen
nearlyallsalestookplaceintheopenmarket.Thebuyerandtheseller
camefacetoface,thesellerexhibitedhiswares,thebuyerexaminedthem
andboughtthemifheliked.Butastradegrewandassumedglobal
dimensions,itbecamedifficultforbuyerstoexaminegoodsbeforehand,
mosttransactionsbeingconcludedbycorrespondence.Furtheronaccount
ofthecomplexstructureofmoderngoods,itisonlythesellerswhocan
assurethecontentsandqualityofthegoods.Forthesereasonsitbecame
necessarytorestricttheruleofcaveatemptorbygraftingafewexception
uponitsscope.
Theessenceoftheseexceptionsitthusexplainedasitisthedutyofthe
courtinadministeringthelawtolaydownrulescalculatedtopreventfraud,
toprotectpersonswhoarenecessarilyignorantofthequalitiesofa
commoditytheypurchase,andtomakeittheinterestofmanufacturesand
thosewhosell,tofurnishthebestarticlethatcanbesupplied.Section16
providesforthefollowingexceptions:
(a)Fitnessforbuyerspurpose:S.16(1)requiresthesellerincertain
circumstancestosupplygoodswhichshallbefitforthebuyerspurpose.
Forthisexceptiontoapply,thefollowingpointshavetobeproved:
(1)Thebuyershouldmakeknowntothesellertheparticularpurposefor
whichthegoodsarerequired.
(2)Thebuyershouldrelyonthesellersskillorjudgment.
(3)Thegoodsmustbeofadescriptionwhichitisthecourseofthesellers
businesstosupply.
Atfirstglancetheexceptionseemstorequiretoomanyconditionstobe
satisfied.Butallofthemareimplicitlysatisfiedintheroutinecourseofthe
actofpurchasinganarticle.ThisisshowninGrantV.AustralianKnitting
Mills.Theplaintiff,adoctor,purchasedfromaretailertwowoolen
underpantsmanufacturedbythedefendants.Nextdayafterwearingoneof
themhebecameill.Hisillnesswasdiagnosedasdermatitiscausedbya
chemicalirritantwhichthedefendantshadnegligentlyomittedtoremove
intheprocessofmanufacture.Itwasheldthatthesalewaswithinthe
exceptionandtheimpliedconditionoffitnessforthebuyerspurposewas
broken.Itwassaidthatitisnodoubtessentialthatthebuyermustrely
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uponthesellersskillorjudgment.Butthereliancewillseldombeexpress,
itwillusuallyarisebyimplicationfromthecircumstances.Wheretheseller
dealsincertaingoods,thebuyergoestotheshopintheconfidencethatthe
tradesmanhasselectedhisstockwithskillandjudgment.
Thisshouldbecontrastedwithacasewheretheplaintiffcontacted
dermatitisfromHarristweedcoatandtheillnessbeingduetoher
sensitivenessthesellerswereheldnotliable,theclothbeingfitfora
normalperson.
Wherethegoodsarecapableofmorethanoneuse,thebuyershouldinform
hispurposetothesellerandonlythenmaydependuponhimtosupply
goodsforthatpurpose.Wherethisisnotdone,theconditionastofitness
willnotbeimplied.
Forexample,inReAndrewYuleandCo.,Hessiancloth,whichisgenerally
usedforpackingpurpose,wassuppliedtothebuyerwhofoundit,because
ofanunusualsmell,unfitforpackingfoodstuffs,thoughitwasgoodasa
packingcloth,thebuyercouldnotrejectit,becausehehadneverdisclosed
hisparticularpurposetotheseller.Wheretheparticularpurposeis
disclosed,theconditionimmediatelyattaches.Thesellerisentitledto
assumethatthegoodsarerequiredfortheirnormalpurposes,oroneof
theirnormalpurposes,unlessotherwiseindicatedbythebuyer.
SaleunderTradeName:TheprovisotoSection16(1)providesthat
sometimesabuyermayrelymoreonthetradenameofacommoditythan
ontheskillandjudgmentoftheseller.Ifapersongoesinashopandasks
forabottleofRWhitesLemonade,orsomebodysparticularbrandofbeer,
heisnotrelyingontheskillandjudgmentofthepersonwhoservesitto
him.Insuchcasesitwouldbemanifestlyunjusttoburdenthesellerwith
responsibilityforfitness.
Themerementionofthenameofaproduct,orpatentdoesnotexcludethe
condition,foreventhenthebuyermayrelyonthesellersskilland
judgment.InBaldryV.Marshall,acarhadtobeselectedfortouring
purposeandthesellerrecommendedBugatticar,atradename.Thisdid
notexcludetheimpliedconditionoffitness.
Statingthetrueeffectoftheprovisoitwassaidthatthemerefactthatan
articlesoldisdescribedinthecontractbyitstradenamedoesnot
necessarilymakethesale,asaleunderatradename.wemayillustrate
meaningbyreferencetothreedifferentcases.First,whereabuyerasksa
sellerforanarticlewhichwillfulfilsomeparticularpurposeandinanswer
tothatrequestthesellersellshimanarticlebyawellknowntradename
thereitisclearthatprovisodoesnotapply.Secondly,wherethebuyersays
tothesellerIhavebeenrecommendedsuchandsuchanarticle
mentioningitbyitstradenamewillitsuitmypurpose,namingthe
purposeandthereuponthesellersellsitwithoutmorethereagainIthink
theprovisohasnoapplication.Butthereisathirdcasewherethebuyer
saystoaseller,Ihavebeenrecommendedsoandso,givingitstradename
assuitablefortheparticularpurposeforwhichIwantit.Pleasesellitto
me.Inthatcaseitisequallyclearthattheprovisowouldapplyandthatthe
impliedconditionofthingsfitnessforthepurposenamedwouldnotarise.
Theconditionoffitnessremainsapplicableevenwhengoodsaresoldbyan
agentwhodoesnotdisclosethatheissellingonbehalfofhisprincipaland
thebuyerdoesnotknowthatheisbuyingfromanagent.
(b)MerchantableQuality[S.16(2)]:Thesecondleadingexceptionofthe
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principleofcaveatemptoristhatadealerwhosellsgoodsbydescriptionis
boundtodelivergoodsofmerchantablequality.Theonlyrequirementfor
thisconditiontoariseisthatthegoodsmustbepurchasedbydescription
fromasellerwhodealsingoodsofthatdescription.Whenthisrequirement
isfulfilleditbecomestheresponsibilityofthesellertosupplygoodswhich
shallbeofmerchantablequality.
Forinstance,inGodleyV.Perry,atoydealerdisplayedinhisshopwindow
sometoycatapults.Achildofsixwasattractedbythemandboughtone.
Whilehewasusingit,itbrokeoffanenteredhislefteyewhichhadtobe
removed.Thesellercontendedthattherewasnoconditionofmerchantable
qualityasthetoywasnotboughtfromhimbydescription.Rejectingthis
andholdinghimliable,thecourtsaidthatasaleoverthecountercanbe
salebydescriptionisclear,andwhere,ashere,achildasksforacatapult
andoneissoldtohimoverthecounter,thatisnolessasaleby
descriptionthanonewhereanorderisplacedonthestrengthofa
catalogue.
Thetermmerchantablequalityincludesthefollowingpropositions:
(i)Marketability:Merchantabilitydoesnotmerelymeanthatthegoods
shallbemarketable,butthattheyshallbemarketableattheirfullvalue.
Merchantabilitydoesnotmeanthatthethingissaleableinthemarket
becauseitlooksallrightitisnotmerchantableinthateventifithas
defectsunfittingitforitsonlyproperusebutnotapparentonordinary
examination.
(ii)Reasonablefitnessforgeneralpurpose:Merchantablequalitymeans,
inthesecondplace,thatifthegoodsarepurchasedforselfuse,theymust
bereasonablyfitforthepurposeforwhichtheyaregenerallyused.Ithas
longbeenrecognizedthatmerchantablequalityreflectedinusevalue,as
wellaexchangevalue,andthatthetwoareinseparablylinked.
Theprinciplehasbeenappliedinagreatnumberofcases.InPriestV.
Last,theplaintiffwenttothedefendant,achemist,andaskedforahot
waterbottle.ThedefendantsoldhimanAmericanrubberbottle,saying
thatitwouldsandhotbutnotboilingwater.Theplaintiffhadpurchased
thebottleforhiswifeandwhileshewasusing,itburstandinjuredher.
Sincethebottlewasnotfitforbeingusedasahotwaterbottle,the
particularpurposeforwhichthebuyerhadpurchaseit,thedefendantwas
heldliabletopaycompensationforthebreachoftheimpliedcondition.
Defectivepacking.Packingofthegoodsisanequallyimportant
considerationinjudgingtheirmerchantability.Theplaintiffpurchaseda
bottleofStonesGingerWine.Whenheattemptedtodrawitscorkwitha
corkscrewandwithduecare,theneckofthebottlebrokeoff,thebottlefell
tothegroundcuttingtheplaintiffshand.Thesellerhadtoanswerin
damages.
Partlydefective.Whereapartofthegoodsaredefective,thebuyermay
rejectthewholelotevenifhehadacceptedsomedeliveriesbeforefinding
outthedefect.
Merchantablequalitymeansthatthegoodsshallbeasfitforthepurposeor
purposesforwhichgoodsofthatkindarecommonlyboughtasitis
reasonabletoexpecthavingregardtoanydescriptionappliedtothem,the
price(ifrelevant)andallotherrelevantcircumstances.
Therearepointsofdistinctionbetweenthetwoexception.TheLegislature
intended,andthecourtshavealwaystreated,themtobetwoindependent
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conditions.Andtheydomakesometimesaverypracticaldifferencetothe
buyer.InHenryKendall&SonsV.WilliamLillico&SonsLtd,aBrazilian
groundnutextractionwassoldtoamanufacturerforuseasingredientin
compoundingfoodforpoultry.Thecompoundcauseddeathofchicksand
poultsduetotoxicsubstanceinthegroundnutextraction.Butthefoodwas
fitforolderbirdsandotheranimals.Itwasheldthatthefoodwasnotfitas
apoultryfeedand,therefore,theimpliedconditionoffitnessbythebuyers
particularpurposewasbreachedandthesupplierswereresponsibleforthe
losscausedtohim,butthegoodswereofmerchantablequality.
Secondly,theprerequisitesoftwoexceptionaredifferent.Toavailofthe
firstexceptionthebuyerhadtorelyonthesellersskillandjudgment,but
thisisnotnecessarytoimporttheconditionofmerchantablequality.
Lastly,theprovisothetwoexceptionaredifferent.Wheregoodsaresold
undertheirpatentortradename,theimpliedconditionoffitnessis
excluded.Buttheconditionofmerchantabilityarisesevenwhenthe
purchaseiseffectedbyrelianceonthepatentortrademark.
(c)Conditionsimpliedbytradeusage[S.16(3)]:S.16(3)givesstatutory
forcetoconditionsimpliedbytheusageofaparticulartrade.Itsays,An
impliedwarrantorconditionstoqualityorfitnessforaparticularpurpose
maybeannexedbytheusageoftrade.Ithaslongbeensettledthatin
commercialtransactionsextrinsicevidenceofcustomandusageis
admissibletoannexincidentstowrittencontractsinmatterswithrespect
towhichtheyaresilent.Thisissobecausethepartiescontractwith
referencetothoseknownusages.Anunreasonablecustomwillnot,
howeveraffectthepartiescontract.
(d)ExpressTerms[S.16(4)]:Itisopentothepartiestoincludeanyexpress
conditionand/orwarrantiesintheircontract.Butanexpresswarrantyor
conditiondoesnotnegativeawarrantyorconditionimpliedbytheAct
unlesstheexpresstermsareinconsistentwiththeimpliedconditions.
NemoDatQuodNonHabet
Inthedevelopmentofourlaw,twoprincipleshavestrivenformastery.The
firstistheprotectionofproperty:noonecangiveabettertitlethanhe
himselfpossesses.Thesecondistheprotectionofcommercial
transactions:thepersonwhotakesingoodfaithandforvaluewithout
noticeshouldgetagoodtitle.Thefirstprincipleheldswayforalongtime
butithasbeenmodifiedbythecommonlawitselfandbystatutesoasto
meettheneedsofourtimes.Thefirstprincipleisenshrinedintheancient
maxim,nemodatquodnonhabet,whichmeansthatnoonecantransfera
bettertitlethanhehimselfhas.
Whenthesellerhimselfistheownerofthegoodswhichhesellsorheis
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somebodysagenttodisposeofthegoods,heconveysagoodtitleinthe
goodstothebuyer.Difficultyariseswhenthesellerisneitherhimselfthe
ownernorhasheanysuchauthorityfromtheownertosellthegoods.
Section27oftheActstatesthisprinciple.Itsaysthatsubjecttothe
provisionsofthisActandofanyotherlawforthetimebeinginforce,
wheregoodsaresoldbyapersonwhoisnottheownerthereofandwho
doesnotsellthemundertheauthorityorwithconsentoftheowner,the
buyeracquiresnobettertitletothegoodsthanthesellerhad.Sowhere
goodsaresoldbyafinderorathiefthebuyergetsnotitle.
Section27,asageneralrule,triestoprotecttheinterestofthetrueowner
whenitprovidesthatwherethegoodsaresoldbyapersonwhoisnotthe
ownerthereofandwhodoesnotsellthemundertheauthorityorwiththe
consentoftheowner,thebuyeracquiresnobettertitletothegoodsthanthe
sellerhad.
Exceptions:
Theprincipleofprotectingbonafinecommercialtransactionsisgiven
effecttobyengraftinganumberofexceptionsupontheaboveprinciple.
Afterstatingtheprincipleingeneralterms,Section27andthethree
sectionsthatfollowitenumeratethesituationsinwhichnemodatdoesnot
apply.
I.Estoppel:[S.27]:Section27saysthatapurchasermaygetagoodtitleif,
theownerofthegoodsisbyhisconductprecludedfromdenyingthe
sellersauthoritytosell.
Whentheownerisnotpermittedtodenythesellersauthoritythatis
knownasanestoppelagainsthim.Estoppelarisesfromarepresentation
thatthesellerhastheauthoritytosell.Andwhenthatrepresentationis
innocentlyacteduponbythebuyer,itbecomestoolatetodenythesellers
authority.Representationmayarisefromwordsordeclarationoritmay
arisefromanactoromission.Anomissiontoperformonesdutymay
createanestoppel.Butthedutymustbealegalobligation.
Estoppelbynegligence:Merecarelessnessmaynotcreateanestoppel.
Negligence,inordertogiverisetoadefenceunderthissection,mustbe
morethanmerecarelessnessonthepartofapersonintheconductofhis
ownaffairs,andmustamounttoadisregardofhisobligationstowardsthe
personwhoissettingupthedefence.
Failuretoregisteratransactionwhereregistrationiscompulsorymay
createanestoppel,butnotfailuretoregisterasasafetymeasurewitha
privateorganizationsuchasHirePurchaseInformationLtd.
II.SalebymercantileAgent[S.27,Proviso]:Abuyerofgoodsfroma
mercantileagentacquiresgoodtitleiftheconditionslaiddowninSection
27(2)aresatisfied.
FolkesV.Kingillustratestheprotectionthatthissectionaffordstoan
innocentpurchaserfromamercantilegent.Theplaintiffentrustedhiscar
toamercantileagentforsaleatastatedpriceandnotbelowthat.Hesoldit
toXbelowthatpriceandmisappropriatedtheproceeds.Xresoldthecarto
thedefendant.Theplaintiffcouldnotrecoveritfromthedefendant.Xgota
goodtitlefromthemercantileagentandheconveyedagoodtitletothe
defendant.Aconveyancethroughdocumentsoftitletothegoodsisequally
effectiveagainstthetrueowner.
Theconditionssubjecttowhichtheruleoperatesmaynowstatedas:
(1).MercantileAgent:Thefirstrequirementisthatthesalemustbebya
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mercantileagent
(2).InPossessionasmercantileagent:Secondly,themercantileagent
shouldbeinpossessionofthegoodsasmercantileagent.Ifthegoodsare
entrustedtohiminanyothercapacity,hecannotconveyagoodtitle.This
wassoheldinStaffsMotorGuaranteeLtd.V.BritishWagonCo.Ltd.A
dealerinsecondhandcarssoldhislorrytoacompanyandthen
immediatelytookitbackfromthecompanyunderahirepurchase
agreement.Hethenresoldthelorrytoanothercompany,whichclaimed
thatithadgoodtitletothelorryhavingboughtitfromamercantileagent
ingoodfaith.
Butthecourtrefusedtosustainthisclaim.Thelorryhadbeenhandedback
tothedealernotasanagentbutasahirerand,therefore,asitsbailee.It
wassaidbecauseonehappenstotrusthisgoodstoamanisinother
respectsamercantileagent,butwithwhomheisdealing,notasa
mercantileagent,butinadifferentcapacity,Idonotthinkthatitisopento
athirdpartywhobuysthegoodsfromthatmantosaythattheywereinhis
possessionasamercantileagent.
(3).WithownersConsent:Thirdly,thegoodsshouldbeinthepossession
ofthemercantileagentwiththeconsentoftheowner.Thisrequirementis
satisfiedwhenitisshownthatthetrueownerdidintentionallydepositin
thehandsofthemercantileagentthegoodsinquestion.Whenthisisso,
thenitisimmaterialthattheconsentwasobtainedbyfraudoftricksor
othermethodswhichrendertheconsentvoidable.
Forinstance,ifamercantileagentshouldinducetheownertopassthe
propertytohimbysomefalsepretence,asbygivingfordisplaypurposes,by
falselypretendingthathewasinalargewayofbusinesswhenhewasnot,
thentheownercannotclaimthegoodsbackfromaninnocentpurchaser.
Wheretheagentobtainspossessionofthegoodsbytheft,orotherwise
withouttheconsentoftheowner,thebuyerfromhimcannotacquirea
goodtitle.PearsonV.Rose&YoungLtd.Isawellknownauthority.Pleft
hiscarwithamercantileagentandauthorizedhimonlytoreceiveoffers
andnottosell.Theagentobtainedpossessionoftheregistrationbooks
fromPwithouthisconsentandthenpromptlysoldthecartothe
defendants.Itwasheldthatasalewithouttheregistrationbookswouldnot
havebeenagoodsaleandtheregistrationbookswereobtainedwithoutthe
consentoftheowner,and,therefore,thebuyerdidnotacquireagoodtitle.
(4).Mustsellwhileactingasmercantileagent:Fourthly,themercantile
agentmustsellthegoodswhenactingintheordinarycourseofbusinessof
amercantileagent.Itmeansactinginsuchawayasamercantileagentin
theordinarycourseofbusinessasamercantileagentwouldactthatisto
say,withinbusinesshours,ataproperplaceofbusiness,andinother
respectsintheordinarywayinwhichamercantileagentwouldact,sothat
thereisnothingtoleadtheotherpartytosupposethatanythingwrongis
beingdone.
(5).Goodfaithandwithoutnotice:Lastly,thebuyermustactingoodfaith
andshouldnothavenoticethatthesellerhasnoauthoritytosell.Mere
suspicionshouldnotamounttonotice.Butitiswellestablishedthat
suspicioninthemindofaperson,andthemeansofknowledgeinhis
powerwillfullydisregarded,wouldamounttonotice.
III.SalebyJointOwner[S.28]:Ifoneoftheseveraljointownersofgoods
hasthesolepossessionofthembypermissionofthecoowners,the
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propertyinthegoodsistransferredtoanypersonwhobuysthemofsuch
jointowneringoodfaithandhasnotatthetimeofthecontractofsale
noticethatthesellerhasnoauthoritytosell.
IV.SalebyPersoninPossessionunderVoidableContract[S.29]:Whena
personhasobtainedpossessionofthegoodsunderavoidablecontractand
hemakesasaleofthem,thebuyergetsagoodtitleprovidedthecontract
hasnotbeenavoidedatthetimeofthesaleandthebuyeractsingoodfaith
andwithoutnoticeofthesellersdefectinthetitle.
Thefirstconditionforapplicationofthisexceptionisthatthegoodsshould
havebeenobtainedunderavoidablecontractasopposedtoavoidcontract.
Wherepossessionofthegoodsisobtainedunderavoidcontract,thebuyer
doesnotgetagoodtitle.
Saleafteravoidanceofcontractdoesnotpasstitle:Thenextrequirementis
thatthecontractmustnothavebeenrescindedatthetimeofthesale.The
usualmethodofrescindingacontractisbygivingnoticetootherpartyof
theintentiontorescind.Ifhemakesasaleafterreceivingthisnotice,he
cannotconveyagoodtitletothebuyer.Wherethegoodshavebeentaken
awaybyafraudulentpersonwhowillkeepoutofthewayandcannotbe
communicatedwith,thecontractmayberescindedbydoingwhateverthe
ownerofthegoodscandotoregainpossession.
Goodfaithandwithoutnotice:Thelastrequirementisthatthebuyer
shouldactingoodfaithandshouldnothavenoticeofthesellersdefective
title.
V.SellerinpossessionaftertheSale[S.30(1)]:Whereaseller,havingsold
goods,continuestobeinpossessionofthem,andsellsthemoveragainto
anotherperson,thebuyergetsagoodtitleprovidedtheconditionsof
Section30(1)aresatisfied.
Thefirstrequirementoftheexceptionisthatthesellershouldcontinueto
beinpossessionofthegoodsafterhavingsoldthem.InStaffsMotor
GuaranteeLtd.V.BritishWagonCo.Ltd.,theownerofalorrysoldittothe
defendantsandtookitbackonhirepurchase.Hethenresoldittothe
plaintiffs.Thelaterwouldnotgetagoodtitlebecausethesellerwasnotin
possessionassellerbutasabaileeunderahirepurchaseagreement.
Itishowevernotnecessarythatthesellershouldbeinpersonalpossession
ofthegoods.Itisenoughthatthegoodsareathisdisposaleveniftheyare
inthecustodyofawarehousekeeper.Thus,inCityFurManufacturingCo.
V.Fureenbond(Brokers)LondonLtd.OneHpurchaseaquantityofskins
fromabroker.Thegoodsremainedinthebrokerswarehousepending
payment.Hsoldthemtotheplaintiffswhogavehimabillofexchangeto
enablehimtopaythebrokerandarrangedeliverytotheplaintiffs.Instead
Hpledgedthegoodswiththedefendants.Thedefendantswereheldtohave
acquiredagoodtitle.
Where,however,thesalehasbeencompletedbydeliveringthegoodstothe
buyer,thisexceptionwillnotapplyevenifthebuyerhassubsequently
returnedthegoodstothesellerforsomespecificpurposeandtheyareinthe
possessionofthesellerwhenheresellsthem.Insuchcasesthesecond
buyerdoesnotgetagoodtitle.
Thebuyerhastoactingoodfaithandwithoutnoticeofthefactthatthe
goodsinquestionwerealreadysold.Itisnecessaryforthisconditiontobe
satisfiedthatthesalemusttakeplaceinthesellersordinarycourseof
businessofamercantileagent.
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VI.Buyerinpossessionbeforesale[S.30(2)]:Whereapersonhasbought
orhasagreedtobuycertaingoodsofwhichpossessionhasbeengivenover
tohim,butthesellerstillhassomelienorrightoverthegoods,ifthebuyer
resellsthegoodsthesecondbuyerwillgetatitlefreefromthesellersright
oflien.
Thesalemayhavebeenmadebyactuallytransferringthegoodsorby
transferofdocumentsoftitle.Apledgeoranyotherdispositionofthegoods
willbeequallyeffective.Thesecondbuyershouldactingoodfaithand
withoutnoticeofthesellersrights.
Possessionobtainedunderahirepurchaseagreementdoesnotmakethe
possessorabuyerinpossessionsothatasalebyhimwillnotconveya
goodtitletothebuyer.
Itisnecessarythattheoriginalsellershouldhavetherighttosellthe
goods.Ifhedoesnothavetherighttosellthegoods,e.g.heisathiefor
finder,neitherthepersontakingpossessionfromhimnoranysubsequent
buyerwillgetagoodtitle.
VII.ResalebyanUnpaidSeller:AccordingtoSec.54(2),ifanunpaidseller
hasexercisedtherightoflienorstoppageintransitandthebuyerdoesnot
payhim,hemayresellthegoodsafteranoticetothebuyer.Ifsuchanotice
isnotgiven,thesellerisneitherentitledtoclaimfromthebuyeranylossif
thegoodsbringlowerthanthecontractpricenorcanheretainthebenefit
ifthegoodsaresoldatahigherprice.Whenanunpaidsellerhasexercised
hisrightoflienorstoppageintransitandresellsthegoods,thebuyer
acquiresgoodtitletheretoasagainsttheoriginalbuyer,notwithstanding
thatnonoticeoftheresalehasbeengiventotheoriginalbuyer.
VIII.SalebyFinderofGoods:AccordingtoS71,IndianContractAct,the
finderofgoodsissubjecttothesameresponsibilityasthebailee.Heisto
takeduecareofthegoodswhiletheyareinhispossessionandalsoto
returnthemwhentheirownerhasbeenfound.AccordingtoS169ofthe
IndianContractAct,however,iftheownercannotwithareasonable
diligencebefoundorifherefusesupondemand,topaythelawfulcharges
ofthefinder,thefindermaysellthegoods.
Whenthegoodsisindangerofperishingoroflosingthegreaterpartofits
value,orwhenthelawfulchargesofthefinder,inrespectofthething
found,amounttotwothirdofitsvaluethefindermaysellthegoodsand
thebuyerofsuchgodsgetsagoodtitle.
IX.SalebyPawnee:Normally,thepawneeofthegoodsisunderadutyto
returnthemifthedebtsecuredbysuchgoodsispaidbacktohim.
AccordingtoS.176,IndianContractAct,ifthepawnormakesadefaultin
thepaymentothedebt,thepawneemayeithersuehimforthedebtormay
sellthegoodspledgedongivingthepawnorreasonablenoticeofthesale.
Uponsuchasalebeingmadebythepawnee,thebuyerofsuchgoods
acquiresagoodtitletothem.
X.SaleinMarketOvert:Thesaleofgoodsinmarketaccordingtotheusage
ofthemarket,thebuyeracquiresagoodtitletothegoods,providedhebuys
themingoodfaithandwithoutnoticeofanydefectorwantoftitleonthe
partoftheseller.Suchsalemeanssaleintheopenmarketbyapersonwho
generallydealsinsuchgoods.Thebuyerstitleisprotectedincaseofsucha
salethoughthesellermaybeliableforthetortofconversion.
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UnpaidSeller
Section45oftheSalesofGoodsActdefinesthetermunpaidseller.The
sellerofgoodsisdeemedtobeanunpaidsellerwithinthemeaningofthis
Act:
(a)Whenthewholeofthepricehasnotbeenpaidortendered
(b)Whenabillofexchangeorothernegotiableinstrumenthasbeen
receivedasconditionalpayment,andtheconditiononwhichitwas
receivedhasnotbeenfulfilledbyreasonofthedishonouroftheinstrument
orotherwise.
Asellerwhohasonlyreceivedapartofthepriceisalsoanunpaidseller.
Wherethesellerhasreceivedanegotiableinstrument,likeabillof
exchange,promissorynoteorcheque,fortheprice,heisnotaunpaid
seller.Butif,beforehehasdeliveredthegoods,thenegotiableinstrumentis
dishonoured,thenhebecomesanunpaidsellerandmayexercisehis
rights.Thisissobecauseanegotiableinstrumentisalwayspresumedto
havebeenreceivedasaconditionalpaymentandtheconditionisnot
fulfilledwhenitisdishonoured.
Ifthebillisdishonouredbeforedeliveryhasbeenmade,thenthevendors
lienrevivesorifthepurchaserbecomesopenlyinsolventbeforethedelivery
actuallytakesplace,thenthelawdoesnotcompelthevendortodeliverto
aninsolventpurchaser.
TheprotectionaffordedbytheActtoanunpaidsellerarealsoextendedto
anypersonwhoisinthepositionofaseller,asforinstance,anagentof
thesellertowhomthebillofladinghasbeenendorsedoraconsignoror
agentwhohashimselfpaid,orisdirectlyresponsiblefortheprice.But
thisprovisiondoesnotoperatesoastoconvertabuyerintoaseller.
Section46seekstoprotecttheinterestofanunpaidsellerbyconferring
uponhimthefollowingrightsagainstthegoods,notwithstandingthefacts
thatthepropertyinthegoodshaspassedtothebuyer:
(i)alienonthegoodsforpricewhileheisinpossessionofthem
(ii)incaseoftheinsolvencyofthebuyerarightofstoppageofthegoodsin
transitafterhehaspartedwiththepossessiononthem.
(iii)arightofresaleaslimitedbyAct.
Theserightsofanunpaidsellerdonotdependuponanyagreement,
expressorimpliedbetweentheparties.Theyarisebyimplicationoflaw.
Theyaresomeoftheincidentsattachedbylawtoacontractofsale.The
buyerhasnorighttohavepossessionofthegoodstillhepaystheprice.
Thesellersrightinrespectofthepriceisnotamerelienwhichhewill
forfeitifhepartswiththepossession,butgrowsoutofhisoriginal
ownershipanddominion,andpaymentoratenderofthepriceisa
conditionprecedentonthebuyerspartanduntilhemakessuchpaymentor
tender,hehasnorighttothepossession.
Theserightsgenerallypresupposethatthepropertyinthegoodshaspassed
tothebuyer,and,inordertoassurethesamerightsandprotectionsto
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sellerwherethepropertyhasnotpassed,Section46(2)speciallydeclares
thatwherethepropertyinthegoodshasnotpassedtothebuyer,theseller
wouldhavethesamerightsoflienandstoppageintransitwhichhewould
havehadasifthepropertyhadpassed.
Lienistherighttoretainpossessionofgoodsuntilcertainchargesduein
respectofthemarepaid.Theunpaidsellerhastherighttoretainthegoods
untilhereceivestheirprice.Section47providesthattheunpaidsellerof
goodswhoisinpossessionofthemisentitledtoretainhispossessionuntil
paymentortenderofthepriceinthefollowingcases,namely:
(1)Wherethegoodshavebeensoldwithoutanystipulationastocredit
(2)Wherethegoodshavebeensoldoncreditbutthetermofcredithas
expired
(3)Wherethebuyerbecomesinsolvent.
Wherethegoodsaresoldoncredit,therightoflienissuspendedduringthe
termofcredit.Butontheexpiryofthatterm,ifthegoodsarestillinthe
possessionoftheseller,hislienrevives.
Therightoflienislinkedwithpossessionandnotwithtitle.Thus,where
sellerhastransferredtothebuyerthedocumentsoftitletothegoods,his
lienisnotdefeatedaslongasheremainsinthepossession.Evenwhere
thesellerissuedtothebuyerdeliveryorderstherebyconvertinghimself
fromanownerintoabaileeforthebuyer,hislienwasnotdefeated.For
Section47(2)clearlydeclaresthatthesellermayexercisehislien
notwithstandingthatheisinpossessionofthegoodsasagentorbaileefor
thebuyers.
Therightoflienexistsonlyforthepriceofthegoods.Thesellerisnot
entitledtolienforanyothercharges,i.e.,chargesforstrongerorthelike.
Section48oftheActprovidesforpartdelivery.Whereanunpaidsellerhas
deliveredapartofthegoods,hemayexercisehislienontheremainder.
Wheredeliveryofapartisintendedasadeliveryofthewhole,thelienis
lost.Ifbothpartiesintenditasadeliveryofthewhole,thenitisadelivery
ofthewholebutifeitherofthepartiesdoesnotintenditasadeliveryofthe
wholeifeitherofthemdissents,thenitisnotadeliveryofthewhole.
Wherethecontractenvisagesdeliveryofgoodsbyinstalments,thebuyers
defaultinpayingforoneinstalmentdoesnotentitlethesellertostop
deliveryoftherestoftheinstalmentsunless:(1)thebuyerhasbecome
insolvent,or(2)thebuyersdefaultamountstorepudiationofthewhole
contract.
TerminationofLien:Lienislinkedwiththepossessionandislostwhen
possessionislost.Section49accordinglyprovidesthattheunpaidsellerof
goodsloseshislieninthefollowingcases:
1.BydeliverytoCarrier:Deliveryofthegoodstoacarrierforthepurposeof
transmissiontothebuyeroperatesasadeliverytothebuyerhimself,and
therefore,therightoflienistherebylost.Deliverytoacarrierputsanendto
lien,butthesellerstillhastherightofstoppageintransit.Iftheseller
regainspossessionofthegoodsfromthecarrierbyexercisinghisrightof
stoppageintransit,hislienrevives.Butifhetakesbackthegoodsfromthe
carrierforanyotherpurpose,theliendoesnotrevive.Wherethesellerhas
reservedtherightofdisposalofthegoodshisliencontinuestilltheendof
thetransit.
2.BydeliverytoBuyer:Therightoflienisalsolostwhenthegoodsare
deliveredtothebuyerorhisagent.Theeffectofdeliverytothebuyeris
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statedaswhenthevendorhasgiventhebuyerpossessionunderthe
contractofsaleallhisrightsinthegoodsarecompletelygonehemust
recoverthepriceexactlyashewouldrecoveranyotherdebtandhasno
longeranyclaimsonthegoodssoldsuperiortothoseofanyothercreditor.
Thedeliveryandacceptanceofpossessioncompletethesale,andgivethe
buyerabsolute,unqualifiedandindefeasiblerightofpropertyand
possessioninthethingssold,thoughthepricebeunpaidandthebuyerbe
insolvent.
Wherethegoodsaredeliveredbacktothesellerforaspecificpurpose,such
asrepairofamachinesold,thatdoesnotrevivethesellerslien.The
sellerslienis,however,notdefeatedwherethebuyerhasobtained
possessionwithouttheconsentoftheseller.Thebuyerhastoobtain
possessionlawfullyandunderthecontract.
3.Bywaiver:Therightoflienisattractedbyimplicationoflawtoevery
contractofsaleforthebenefitoftheseller.Thesellermay,therefore,ifhe
solikes,waivehisright.Waivermaybeexpressorimpliedfromthe
conductoftheseller.Animpliedwaivertakesplacewhenthesellerisguilty
ofsomewrongfulactinreferencetothegoods,suchasdealingwiththe
goodsinamannerinconsistentwiththemererighttohavepossessionof
them,asbywrongfullyresellingorconsumingthem,orbyclaimingto
keepthemonsomegroundotherthanhisrighttolien.
4.Bytenderofprice:Whenthebuyertenderspriceforthegoods,theseller
ceasestobeanunpaidseller,and,thereforecannot,byhisvoluntary
refusaltoaccepttheprice,converthimselfintoanunpaidsellerandclaim
lien.
Boththerightsaredesignedfortheprotectionoftheunpaidseller.The
effectoftheirexerciseisalsothesame,becausewhenthesellerstopsthe
goodsintransitheresumespossessionandthegoodsonceagainfallinto
thespellofhislienuntilthepriceispaid.Yet,itisimportanttokeepthem
distinct,because,thoughtherightsareanalogous,theyareincertain
respectsgovernedbydifferentconsiderations.
Requirementsofstoppageintransit:
(i)Thefirstrequirementisthatthesellershouldbeunpaid
(ii)Thesecondthatthebuyershouldhavebecomeinsolvent
(iii)Thepropertyshouldhavepassedtothebuyer,for,ifthesellerreserves
therightofdisposal,thegoodsremainhisproperty,and,therefore,under
hislienand
(iv)Thegoodsshouldbeinthecourseoftransit.
Commencementandendoftransit[S.51]:Section51triestosolvethe
difficultybylayingdownbasicpropositionswhichgovernthe
commencementandendoftransit:
1.DeliverytoBuyer:Goodsaredeemedtobeincourseoftransitfromthe
timewhentheyaredeliveredtoacarrierorotherbaileeforthepurposeof
transmissiontothebuyer,untilthebuyerorhisagenttakesdeliveryof
them.Thus,transitendswhenthegoodsaredeliveredtothebuyerorhis
agent.Forexample,inGIPRlyCo.V.Hanmandas,thesellerconsigned
thegoodswiththeGIPRlyCo.fortransportationtothebuyer.Onarrival
atthedestinationthecompanyhaddeliveredthegoodstothebuyerwho
hadloadedthemonhiscart,butthecarthadnotyetlefttherailway
compoundwhenatelegramwasreceivedbythecompanytostopthegoods.
Thecompanydidnotdosoandweresuedbythesellerindamages.
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Itwasheldthatthetransithadendedassoonasthegoodswerehanded
overtothebuyer.Therailwaycompanywas,therefore,leftwithnopower
tostopthem.Wherethebuyerdoesnotacceptthegoods,thetransitdoes
notendevenifthegoodshavebeenlandedattheportofdestination.
2.InterceptionbyBuyer:Thetransitendswhenthebuyerorhisagenttakes
deliveryofthegoodsfromthecarrierbeforetheirarrivalattheappointed
destination.Itmaybewrongfulforthecarriertodeliverthegoodstothe
buyerbeforetheirarrivalattheappointeddestinationandthecarriermay
beheldliableindamagesfordeprivingthesellerofhisopportunity,but
transitendswiththat.Themerefactthatthebuyertakeshisseatasa
passengerintheshipwhichiscarryingthegoodsdoesnotamountto
deliverytothebuyerbeforetheirarrivalattheappointeddestination.
3.Acknowledgementtobuyer:Whenthegoodshavearrivedattheir
appointeddestinationandthecarrieracknowledgestobuyerorhisagent
thatheisnowholdingthegodsonhisbehalf,thetransitisatanend,and
itisimmaterialthatthegoodsarestillwiththecarrierorthatthebuyerhas
indicatedafurtherdestination.Itrequiresaveryclearacknowledgementto
putanendtotheoriginalcontractofcarriage.
4.RejectionbyBuyer:Ifthegoodsarerejectedbythebuyerandthecarrier
orotherbaileecontinuesinpossessionofthem,thetransitisnotatanend.
Thiswillbesoevenifthesellerhimselfhasrefusedtotakebackthegoods.
5.Deliverytoshipcharteredbybuyer:Wherethegoodsaredeliveredtoa
shipcharteredbythebuyer,itisaquestionoffactineachcasewhetherthe
carrierisactingindependentlyorasagentofthebuyer.Ifthe
circumstancesshowthatthecarrierisactingasanagentofthebuyer,then
thetransitisatanendassonasthegoodsareloadedonboardtheship.
Butthemerefactthattheshipischarteredbythebuyerandhehasgivenno
indicationofthedestinationofthegoodsdoesnotmeanthatthecarrier
hasbecometheagentofthebuyer.
Whenthevendorknowsthatheisdeliveringthegoodstosomeoneas
carrier,whoisreceivingtheminthatcharacter,hedeliversthemwiththe
impliedrightofstoppingthemsolongastheyremaininthepossessionof
thecarrierascarrier.
6.Wrongfulrefusaltodeliver:Wherethecarrierwrongfullyrefusesto
deliverthegoodstothebuyerorhisagent,thetransitisatanend.Itis
obviousthatthegoodsshouldhavebeenarrivedattheirdestination,
becauseotherwisethecarrierhastherighttorefusetodeliverthem.
7.PartDelivery:Wherethegoodshavebeendeliveredinpart,theseller
maystoptheremainderofthegoods,unlessthepartdeliveryshowsan
agreementtogiveupthepossessionofthewhole.
HowStoppageiseffected:Anoticeisgiventothecarriertostopthegods
andredeliverthemtotheselleroraccordingtohisdirections.Noticemay
begiventothepersoninactualpossessionortohisprincipal,inwhich
casethereshouldbesufficientmarginoftimetoenabletheprincipleto
communicatewithhisagent.
EffectofSubSale:Theunpaidsellersrighttolienorstoppageintransitis
notaffectedbyanysaleorotherdispositionofthegoodsbythebuyer.Thus,
forexample,inMordauntBrothersV.BritishOilandCakeMills,anoil
merchantsoldaquantityofoiltoB,withoutappropriatinganyparticular
oiltothecontract.BsoldsomeofittoCandgavehimadeliveryorder.C
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lodgedthedeliveryorderwiththemerchantrequestinghimtoawaithis
orders.MeanwhileBfailedtopaythemerchant,who,therefore,becamean
unpaidseller.Itwasheldthatthemerchantslienonthegoodsfortheprice
wasnotdefeatedbyBssaletoCandhecouldretainthegoodstilltheprice
waspaid.
Buttherearetwocasesinwhichthebuyersdealingswiththegoodsdefeat
thesellersrightagainstthegoods.Theyare:
1.SellersConsent:Wherethebuyersellsormakesotherdispositionofthe
goodswiththeconsentoftheseller,thatisbindingontheseller.The
assentcontemplatedmustbesuchanassentasinthecircumstances
showsthatthesellerintendstorenouncehisrightsagainstthegoods.Itis
enoughtoshowthatthefactofasubcontracthasbeenbroughttohis
notice,andthathehasassentedtoitmerelyinthesenseofacknowledging
thereceiptofinformation.ThiswaspointedoutinMordauntBrothersV.
BritishOilandCakeMills,wherethesellerwasinformedofthesubsale
afterithadbeeneffectedanditwasheldthatbythisthesellerhadmerely
acknowledgedtheexistenceofthesubsalesubjecttohisownrightsthe
goodsuntilpaidfor.
2.Transferofdocumentsoftitle:Whenthesellerhasissuedtothebuyer
documentsoftitletothegoodsandhehassoldorpledgedthegoodsby
transferringthedocumentsoftitle,theninthecaseofsale,thesellersright
oflienandstoppageintransitaredefeatedand,incaseofpledge,hisright
becomesubjecttothepledge.Itisnecessarythatthetransfereeshouldact
ingoodfaithandshouldhavegivenvalueforthegoods.Heshouldnotat
thetimehavethenoticeofthefactthattheoriginalsellerisstillunpaidand
hasrightsagainstthegoods.
Thus,resalebythebuyerbytransferofthedocumentsoftitlecompletely
defeatsthesellersrightagainstthegoods.Butapledgedoesnotcompletely
defeatthesellersrightagainstthegoods.Itonlymakeshisrightssubject
tothepledge.Theeffectisthatthesellermaystillexercisehisrightsby
payingoffthepledge.
3.RightofResale:Thecontractofsaleisnotrescindedwhentheseller
exerciseshisrightoflienorstoppageintransit.Thecontractstillremains
inforceandthebuyercanclaimdeliveryofthegoodsontenderingthe
price.Thepropertyhavingpassedtothebuyer,itisnotrevestedinthe
seller.Butobviouslythelawcannotallowthethingstostandinthat
conditionindefinitely.Theselleris,thereforegivenalimitedrighttoresell
thegoods.
Inthefirstplace,hemayresellthegodswithoutreferencetothedefaulting
buyerifthegoodsareofperishablenature.
Secondly,inothercases,thesellershouldgiveanoticetothedefaulting
buyerofhisintentiontoresell.Ifthebuyerdoesnotpaythepricewithin
reasonabletimeafterreceivingthenotice,thesellermayresellthegoods.
Hecanrecoverfromthedefaultingbuyeranylossoccasionedbyhisbreach
ofcontract.Hecanalsokeepanyprofitwhichmayoccurontheresale.But
iftheunpaidsellersellsthegoodswithoutservinguponthebuyera
reasonablenotice,thesellercannotrecoverdamagesforthebreachandhe
hasalsotohandoveranyprofittothebuyermadeontheresale.
Thesellermayexpresslyreservetherightofresaleincasethebuyershould
makeadefault.Insuchacasenonoticeofsaleisnecessary.Thecontract
isautomaticallyrescindedwhenthesellerresellsthegoods.Hedoesnot
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resellasanunpaidseller,butasanoriginalownerofthegoods.
Wherethebuyerpaysadepositheisentitledtorefundofitwhentheseller
resellsthegoods,butsubjecttothesellersclaimfordamages.Wherethe
sellerdoesnotofferevidenceofthedifferencebetweenthecontractprice
andresalepriceonthedateofbreach,heisnotentitledtoany
compensation.
postedbyMayankMehandru|9:50PM
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Law Notes - Sales of Goods Act

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