Amity School of Business 1 Amity School of Business BBA (GEN), IMBA, M&S, F&A- III Semester Module-III Sale of Goods Act, 1930 Swati Mittal

Amity School of Business 2 Conditions and Warranties Generally, at the time of sale, the seller makes some representation, statements of stipulations for the praise of his goods. Some of representations are in nature of opinion others are in nature of facts. Representation as to fact which becomes a part of contract of sale is called as stipulation. There are certain stipulations which are essential for main purpose of the contract of sale of goods. These go to the root of contract and non-fulfillment will mean loss of foundation of contract. These are termed as ‘conditions’. Other stipulations, which are not essential are termed as ‘warranty’. These are collateral to contract of sale of goods. Contract cannot be avoided for breach of warranty, but aggrieved party can claim damages. - - A breach of condition can be treated as breach of warranty, but vice versa is not permissible.

Amity School of Business 3 A stipulation in a contract of sale with reference to goods which are the subject thereof may be a condition or a warranty. [section 12(1)]. 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. [section 12(2)] (Where a particular stipulation in contract is a condition or warranty depends on the interpretation of terms of contract. Mere stating ‘Conditions of Contract’ in agreement does not mean all stipulations mentioned are ‘conditions’ within meaning of section 12(2)) A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated. [section 12(3)]. 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 be a condition, though called a warranty in the contract. [section 12(4)].

Amity School of Business 4 When condition to be treated as warranty - VOLUNTARY WAIVER OF CONDITION Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may waive the condition or elect to treat the breach of the condition as a breach of warranty and not as a ground for treating the contract as repudiated. [section 13(1)]. ACCEPTANCE OF GOODS BY BUYER Where a contract of sale is not severable and the buyer has accepted the goods or part thereof, the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty and not as a ground for rejecting the goods and treating the contract as repudiated, unless there is a term of the contract, express or implied, to that effect. [section 13(2)]. BY IMPOSSIBILITY Nothing in this section shall affect the case of any condition or warranty fulfillment of which is excused by law by reason of impossibility or otherwise. [section 13(3)].

Amity School of Business 5 Implied warranties Implied warranties of quiet possession Implied warranty of freedom from encumbrances Disclosure of Dangerous Nature of Goods – Clark v. Army and Navy Cooperative Society

Amity School of Business 6 Implied conditions Implied condition as to title Implied condition as to description- goods must correspond with description A machine was sold. The buyer has not been the machine, but the seller described it as a new one. However, it was found to be a very old one. Held, the machine was not according to the description. Implied condition of wholesomeness Implied condition as to fitness and quality Priest v. Last (1903) Implied conditions as to Sample Correspondence with sample Buyer’s opportunity Implied conditions as to merchantability Implied conditions as to custom

Amity School of Business 7 Doctrine of caveat emptor The principle termed as ‘caveat emptor’ means ‘buyer be aware’. Generally, buyer is expected to be careful while purchasing the goods and seller is not liable for any defects in goods sold by him. This principle in basic form is embodied in section 16 that subject to provisions of Sale of Goods Act and any other law, there is no implied condition or warranty as to quality or fitness of goods for any particular purpose. As per section 2(12), “Quality of goods” includes their state or condition. Exceptions 1.False representation by seller amounting to fraud. 2.Merchantable Quality. 3.Buyer relying upon the skill of the seller Priest v. Last. 4.Sale under patent or trade name.

Amity School of Business 8 Transfer of Property The phrase “transfer of property in goods” means transfer of ownership of the goods. Property in goods is different from possession of goods which means custody over goods. The moment of time at which property in goods passes from seller to buyer is very important due following points: i) Risk passes with ownership ii) Action against third parties iii) Suit for price iv) Insolvency of buyer or seller

Amity School of Business 9 Transfer of property or ownership sec18-26 PASSING OF PROPERTY OF SPECIFIC/ASCERTAINED GOODS (19-22 ) Property passes when intended to pass - 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. 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. Specific goods in a deliverable state - Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immate­ rial whether the time of payment of the price or the time of delivery of the goods, or both, is postponed. Specific goods to be put into a deliverable state.- 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 does not pass until such thing is done and the buyer has notice thereof. Specific goods in a deliverable state, when the seller has to do anything thereto in order to ascertain price.- Where there is a contract for the sale of specific goods in a deliverable state, but 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 notice thereof.

Amity School of Business 10 PASSING OF PROPERTY OF UNASCERTAINED GOODS (23-25) Sale of unascertained goods and appropriation.- (1) Where there is a contract for the sale of unascertained or future goods by description and goods of that description and 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 property in the goods thereupon passes to the buyer. Such assent may be expressed or implied, and may be given either before or after the appropriation is made. (2) Delivery to carrier.- Where, in pursuance of the contract, the seller delivers the goods. Goods sent on approval or ‘on sale or return’- when goods are delivered to the buyer on approval or on sale or return or other similar terms, the property therein passes to the buyer- (a) when he signifies his approval or acceptance to the seller or his disapproval to the same. (b) if he does not signify his approval or acceptance to the seller but retains the goods without giving notice of rejection, then, if a time has been fixed for the return of the goods, on the expiration of such time, and, if not time has been fixed, on the expiration of a reasonable time. NOTE : The property in goods will never pass to anybody if the seller reserves the right of disposal

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Amity School of Business 12 Reservation of right of disposal.-sec 25 (1) Where there is a contract for the sale of specific goods or where goods are subsequently appropriated to the contract, the seller may, by the terms of the contract or appropriation, reserve the right of disposal of the goods until certain conditions are fulfilled. In such case, notwithstanding the delivery of the goods to a buyer, or to a carrier or other bailee for the purpose of transmission to the buyer, the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled. (2) Where goods are shipped or delivered to a railway administration for carriage by railway and by the bill of landing or railway receipt, as the case may be, the goods are deliverable to the order of the seller or his agent, the seller is prima facie deemed to reserve the right of disposal.

Amity School of Business 13 Sale by non-owners (sec 27-30) Subject to the provisions of this Act and of any other law for the time being in force, where goods are sold by a person who is not the owner thereof and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by conduct precluded from denying the seller’s authority to sell. Exceptions 1.Mercantile agent 2.Sale by co-owners 3.Sale by person under voidable contract 4. Sale by seller or buyer in possession after sale 5.Estoppels Where the owner by his conduct or by his act leads the buyer to believe that seller has the authority to sell The general rule is expressed by maxim ‘Namodat quod non habet’ which means no one can give what he does not himself posses. If seller’s title is defective, then buyer’s title will be defective. Alternatively, we can say that the seller can’t give a better title to the buyer than be himself has.

Amity School of Business 14 Sale by seller in possession after sale – Sec 30 Ownership of goods has been passed to buyer. Seller continuous to be in possession of goods even after sale. Seller resells goods to new buyer. New buyer buys without notice to prior sell. Example A sells certain goods to B and promises to deliver the goods the next day. Before the delivery, A sells and delivers the goods to C, who buys them in good faith and without notice of the prior sale to B, C gets a good title to the goods, not with standing that the property had, before he purchased, passed to B. Sale by unpaid seller Sec. 54 After exercise of his right of lien or right of stoppage goods in transit. If the owner of goods has declared insolvent and his goods, is sold by official receiver or assignee or liquidator. Sale by person under other laws Sale by finder of goods (Sec.169 of IC Act 1872). Sale by pawnee or pledge(Sec.176 of IC Act 1872).

Amity School of Business 15 Rights of unpaid seller Who is an unpaid seller…. When the whole of the price has not been paid Where a bill of exchange or other negotiable instrument received as conditional payment is dishonoured. When the seller has been paid the large amount but small portion of payment remains to be paid. Seller must have an immediate right of action for the price. A seller of goods is deemed as unpaid seller on following conditions- He must sell goods on cash terms and must be unpaid. He must be unpaid either wholly or partly. A bill of exchange or other negotiable instrument was received but has been dishonoured. He must not refuse to accept payment when tendered.

Amity School of Business 16 Rights of unpaid seller can be divided into two categories- i)Right against the goods ii)Right against the buyer personally. The ownership has not been transferred. Conditions Unpaid Seller + ownership not transferred. Consequences Lawfully refuse to deliver the goods to the buyer until he is paid the price. Buyer cannot hold the seller liable for now delivery of goods.

Amity School of Business 17 RIGHT AGAINST THE GOODS 1) Right of lien (Sec- 47) Subject to the provisions of this Act, the unpaid seller of goods who is in possession of them is entitled to retain possession of them until payment or tender of the price in the following cases, namely:- (a) where the goods have been sold without any stipulation as to credit; (b) where the goods have been sold on credit, but the term of credit has expired; (c) where the buyer becomes insolvent. The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the buyer. In case of part delivery- Where an unpaid seller has made part delivery of the goods, he may exercise his right of lien on the remainder, unless such part delivery has been made under such circumstances as to show an agreement to waive the lien.

Amity School of Business 18 Termination of lien (Sec-49) The unpaid seller of goods loses his lien (a) 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; (b) when the buyer or his agent lawfully obtains possession of the goods; (c) by waiver thereof.

Amity School of Business 19 2) RIGHT OF STOPPAGE IN TRANSIT Right of stoppage in transit (Sec-50) When the buyer of goods becomes insolvent, the unpaid seller who has parted with the possession of the goods has the right of stopping them in transit, that is to say, he may resume possession of the goods as long as they are in the course of transit, and may retain them until payment or tender of the price. Duration of transit (Sec-51) (1)Goods are deemed to be in course of transit from the time when they are delivered to a carrier or other bailee for the purpose of transmission to the buyer, until the buyer or his agent in that behalf takes delivery of them from such carrier or other bailee. (2) If, after the arrival of the goods at the appointed destination, the carrier or other bailee acknowledges to the buyer or his agent that he holds the goods on his behalf and continues in possession of them as bailee for the buyer or his agent, the transit is at an end and it is immaterial that a further destination for the goods may have been indicated by the buyer.

Amity School of Business 20 (3) If the buyer or his agent in that behalf obtains delivery of the goods before their arrival at the appointed destination, the transit is at an end (4) If the goods are rejected by the buyer and the carrier or other bailee continues in possession of them, the transit is not deemed to be at an end, even if the seller has refused to receive them back. (6) Where the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent in that behalf, the transit is deemed to be at an end. (7) Where part delivery of the goods has been made to the buyer or his agent in that behalf, the remainder of the goods may be stopped in transit,

Amity School of Business 21 How stoppage in transit is effected (Sec-52) (1)The unpaid seller may exercise his right of stoppage in transit either by taking actual possession of the goods, or by giving notice of his claim to the carrier or other bailee in whose possession the goods are. Such notice may be given either to the person in actual possession of the goods or to his principal. The notice to principal be given on time and in such circumstances, that he, by the exercise of reasonable diligence, may communicate it to his servant or agent in time to prevent a delivery to the buyer. (2) 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.

Amity School of Business 22 Effect of sub-sale or pledge by buyer (Sec-53) (1)The unpaid seller's right of lien or stoppage in transit is not affected by any sale or other disposition of the goods which the buyer may have made, unless the seller has assented thereto: (2) Where the transfer is by way of pledge, the unpaid seller may require the pawnee to have the amount secured by the pledge satisfied in the first instance, as far as possible, out of any other goods or securities of the buyer in the hands of the pawnee and available against the buyer. 3) Right of Resale (Sec-54) The unpaid seller has limited right to resell the goods in case of i)Perishable goods ii)Where seller has given notice to the buyer to resell and buyer does not pay the price in reasonable time. iii)Where the seller has expressly reserved the right in contract in case buyer should make a default.

Amity School of Business 23 RIGHT AGAINST THE BUYER PERSONALLY 1)Suit for price (Sec-55) (i)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. (ii) Where under a contract of sale the price is payable on a day certain 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) 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.