Sale of Goods Act 1930

HISTORICAL BACKGROUD:

Until the 1st July 1930 the law of sales of goods was being governed by Chapter VII (Section 76-
123) The Indian Contract Act, 1872. The Indian Contract Act itself being based on the English
Common Law, the law related to the Sale of Goods also followed the English Common Law.
The English law of Sale of Goods was being codified in year 1893 which included the very basic
laws related to the sale of goods in the view of the common laws adapting them to meet the
changes of the growing society. In India by 1920 it was realized that the Laws related to the sale
of goods which was mentioned in The Indian Contract Act was not sufficient to meet the changes
as per the English law of Sale of Goods. There was a great hustle as the Judgements in the
British Courts were different and the privy counsel was not able to follow them. In order to
eradicate this problem in year 1929 a special bench of eminent lawyers and Jurist was set up
which finally provided the draft of Act of 1930 which led to the repeal of the Section 76 to 123
of the Indian Contract Act. The Sale of Goods Act, 1930 was totally based on the British Act of
1893.

Hence it is clear that the Act of 1930 was basically part and parcel of the Indian Contract Act.
Section 2 (15) and Section 3 of the Act of 1930 are the two sections which still relate the Act of
1930 toIndian Contract Act. Section 2 (15) enumerates that the expressions used but not defined
in this Act and defined in the Indian Contract Act, 1872 (9 of 1872), have the meanings assigned
to them in that Act. Further Section 3 of the Act of 1930 enumerates that the un-repealed
provisions of the Indian Contract Act, 1872, which are not inconsistent with the express
provisions of the Act of 1930, shall continue to apply to contracts for the sale of goods.

CONTRACT OF SALE OF GOODS

Section 4 of the Act of 1930 reads as

―Sale and agreement to sell.—

(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the
property in goods to the buyer for a price. There may be a contract of sale between one part-
owner and another.

(2) A contract of sale may be absolute or conditional.

(3) Where under a contract of sale the property in the goods is transferred from the seller to the
buyer, the contract is called a sale, but where the transfer of the property in the goods is to take
place at a future time or subject to some condition thereafter to be fulfilled, the contract is called
an agreement to sell.
 (4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled
subject to which the property in the goods is to be transferred.‖

Therefore according to Section 4, a contract of sale of goods is a contract whereby the seller:

(i) transfers or agrees to transfer

(ii) the property in goods

(iii) to the buyer,

(iv) for a money consideration called the price.

It shows that the expression "contract of sale" includes both a sale where the seller transfers the
ownership of the goods to the buyer, and an agreement to sell where the ownership of goods is to
be transferred at a future time or subject to some conditions to be fulfilled later on.

The following are thus the essentials of a contract of sale of goods:

(i) Bilateral contract: It is a bilateral contract because the property in goodshas to pass from one
party to another. A person cannot buy the goods himself.

(ii) Transfer of property: The object of a contract of sale must be the transfer of property
(meaning ownership) in goods from one person to another.

(iii) Goods: The subject matter must be some goods.

(iv) Price or money consideration: The goods must be sold for some price, where the goods are
exchanged for goods it is barter, not sale.

(v) All essential elements of a valid contract must be present in a contract of sale.

i. Bilateral Contract: A sale has to be bilateral because the property in goods has to pass from one
person to another. Its first essential, therefore, is that the seller and the buyer must be different
persons. A sale is said to be consensual because it is necessary that the parties should agree with
their free consent.

In Graff V. Evans, the accused was the manager of a club. The club was not licensed for the sale
of intoxicating liquors, but these were supplied by the manager to the members at fixed prices.
This was held to be not a sale within the meaning of licensing Acts. It was merely a distribution
of the liquors among the members, they being the joint owners of the club. But if the club were
an incorporated body, the result would perhaps have been different. Sometimes a contract may
not be entered into by the normal process of negotiation, but under a statutory compulsion when
the goods are supplied under a statutory compulsion whether that results in sale or not.
 In Vishnu Agencies V. Commercial Tax Officer, it was held that the transaction of supply of
cement by a distributor to a permit-holder, in terms of the provisions of West Bengal Cement
Control Act and control Order, amounts to ‗sale‘ and thus eligible to sales tax. The appellant
contended that no volition or free will or bargaining power was left to it, and since there was no
element of mutual consent or agreement between it and the allottees, the transactions were not
sales within the meaning of Sales Tax Act.The court observed that the offer and acceptance need
not always be in an elementary form, nor indeed does the Law of Contract or of Sale of goods
require that the consent to a contract must be ex press, it may be implied and can be spelt out
from the conduct of the parties. In the first place, it is not obligatory on a trader to deal in cement
nor on anyone to acquire it. The decision of trader to deal in an essential commodity is volitional.
Such volition carries with it the willingness to trade in the commodity strictly on the terms of
Control Order. The consumer too, who is under no legal compulsion to acquire or possess
cement, decided as a matter of his volition to obtain it on the terms of permit or the order of
allotment issued in his favour. Thus, though both parties are bound to comply with the legal
requirements governing the transaction they agree as between themselves to enter into
transaction on agreeing to supply on statutory terms and other agreeing to accept it on the very
terms. Thus, transaction between them, is ‗consensual‘ or with their ‗free consent‘. Also, there is
some scope for the parties to bargain. The Cement Control Order provides that no person shall
sell cement at a ―higher than notified price‖, leaving it open to parties to charge and pay a price
which is less than the notified price.

In another case of Coffee Board, Karnataka V. Commissioner of Commercial Taxes, it was

held that the compulsory delivery of coffee by the coffee growers to the Coffee Board constitutes
a sale and not compulsory acquisition, and the State can impose Purchase tax on the same.

ii.Transfer of ownership in the goods: Transfer of property i.e. the ownership in the goods from
the seller to the buyer, is the essence of the contract. A sale is said to be ‗consensual‘ because it
is necessary that the parties should agree with their free consent.

iii. Goods: The subject-matter of the contract must be goods. ‗Goods‘ means every kind of
movable property other than actionable claims and money; and includes stock and shares,
growing crops, grass and things attached to or forming part of that land which are agreed to be
severed before sale or under the contract of sale.
Thus, goods include every kind of movable property other than actionable claim or money.
Human organs and tissues have become an object of sale subject to statutory restrictions.The
Goods which form the subject-matter of any contract of sale can be classified into various
categories. This classification help in determining as to when does the property in the goods pass
from the seller to the buyer. The goods may be either existing goods or future goods. Existing
goods may be further classified into specific goods and unascertained goods. Specific goods are
those goods which have been identified and agreed upon at the time of the contract of sale. If the
goods are not identified and agreed upon at the time of making of the contract, they are known as
ascertained goods. In case of specific goods, there is a possibility of the property in the goods
passing to the buyer at the time of making of the contract, whereas in the case of unascertained
goods, the property in the goods does not pass to the buyer unless and until the goods are
ascertained.The parties are free to provide as to when the performance of the contract by each
side will be made. They may provide that the delivery of the goods will be made either
immediately or by instalments or on some future date. Similarly regarding the payment of price
too the contract may require either immediate payment, or payment by instalments or the
payment on some future date.

According to Section 2(7) "goods'" means every kind of movable property' other than actionable
claims and money and includes stock and shares, growing crops, grass and things attached to or
forming part of the land which are agreed to be served before sale orunder the contract of .

Actionable claims and money are not goods and cannot be brought and sold under this Act.
Money means current money, i.e., the recognised currency in circulation in the country, but not
old and rare coins which may be treated as goods. An actionable claim is what a person cannot
make a present use of or enjoy, but what can be recovered by him by means of a suit or an
action. Thus, a debt due to a man from another is an actionable claim and cannot be sold as
goods, although it can be assigned. Under the provisions of the Transfer of Property Act, 1882,
goodwill, trade marks, copyrights, patents are all goods, so is a ship. As regards water, gas,
electricity, they are subjected to other laws in force (Rash Behari v. Emperor, (1936) 41
C.W.N.225; M.B. Electric Supply Co. Ltd. v. State of Rajasthan, AIR (1973) RaJ. 132).

Goods may be (a) existing, (b) future, or (c) contingent.

The existing goods may be (i) specific or generic, (ii) ascertained or unascertained.

Existing Goods

Existing goods are goods which are either owned or possessed by the seller at the time of the
contract. Sale of goods possessed but not owned by the seller would' be by an agent or pledgee.

Existing goods are specific goods which are identified and agreed upon at the time of the
contract of sale. Ascertained goods are either specific goods at the time of the contract or are
ascertained or identified to the contract later on i.e. made specific.

Generic or unascertained goods are goods which are not specifically identified but are indicated
by description. If a merchant agrees to supply a radioset from his stock of radio sets, it is a
contract of sale of unascertained goods because it is not known which set will be delivered. As
soon as a particular set is separated or identified for delivery' and the buyer has notice of it, the
goods are ascertained and become specific goods.

Future Goods
 Future goods are goods to be manufactured or produced or acquired by the seller after the
making of the contract of sale. A agrees to sell all the mangoes which will be produced in his
garden next season. This is an agreement for the sale of future goods. [Section 2(6)]

Contingent Goods

Where there is a contract for the sale of goods, the acquisition of which by the seller depends
upon a contingency which mayor may not happen - such goods are known as contigent
goods[Section 6(2)]. Contigent goods fall in the class of future goods. A agrees to sell a certain
TV set provided he is able to get it from its present owner. This is an agreement to sell contigent
goods. In such a case, if the contingency- does not happen for no fault of the seller, he will not be
liable for damages.

Actual sale can take place only .of specific goods and property in goods passesfrom the seller to
buyer at the time of the contract, provided the goods are in a deliverable state and the contract is
unconditional. There can be an agreement to sell only in respect of future or contingent goods.

Effect of Perishing of Goods

In a contract of sale of goods, the goods may perish before sale is complete. Such a stage may
arise in the following cases:
(i) Goods perishing before making a contract
Where in a contract of sale of specific goods, the goods without the knowledge of the seller have,
at the time of making the contract perished or become so damaged as no longer to their
description in the contract, the contract is void. This is based on the rule that mutual mistake of
fact essential to the contract renders the contract void. (Section 7)
If the seller was aware of the destruction and still entered into the contract, he is estopped from
disputing the contract. Moreover, perishing of goods not only includes loss by theft but also
where the goods have lost their commercial value.
(ii) Goods perishing after agreement to sell
Where there is an agreement to sell specific goods and subsequently, the goods without any fault
of any party perish or are so damaged as no longer to answer to their description in the
agreement before the risk passes to the buyer, the agreement is thereby avoided. The provision
applies only to sale of specific goods. If the sale is of unascertained goods.the perishing of the
whole quantity of such goods in the possession of the seller will not relieve him of his obligation
to deliver. (Section 8)

iv. Price/Money Consideration: The consideration for a sale of goods must be money, called the
price.Money is basically tender recognized by the Govt. of India. Where the property in goods is
transferred for any consideration other than money that will not be sale, but an exchange or
barter. But where goods are sold for a definite sum and the price is paid partly in terms of valued
up goods and partly in cash, that is sale. For example if 52 Apples, valued Rs 6 a piece, were
exchanged for 100 quarters of barley at Rs 2 per quarter, the difference to be made up in cash,
the contract was treated as one of sale. Similarly, where corn was delivered on terms that on
demand either the price would be paid or an equal quantity of corn would be returned, that was
held to be a sale.
Modes of Fixing Price (Sections 9 and 10)
The price may be fixed:
(i)at the time of contract by the parties themselves, or
(ii) may be left to be determined by the course of dealings between the
parties, or
(iii) may be left to be fixed in some way stipulated in the contract, or
(iv) may be left to be fixed by some third-party.

Where the contract states that the price is to be fixed by a third-party and he fails to do so, the
contract is void. But if the buyer has already taken the benefit of the goods, he must pay a
reasonable price for them. If the third-party's failure to fix the price is due to the fault of one of
the parties, then that party is liable for an action for damages.
Where nothing is said by the parties regarding price, the buyer must pay a reasonable price, and
the market price would be a reasonable price.

Sale and Agreement to Sell:

Further Section 4 distinguishes between ‗Sale‘ and ‗Agreement to Sell‘. It states where under a
contract of sale the property in the goods is transferred from the seller to the buyer, the contract
is called a sale, but where the transfer of the property in the goods is to take place at a future time
or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell.

A ‗Contract of Sale‘ is a generic term and includes both an actual sale, where the ownership in
the goods passes to the buyer immediately when the contract is made, and an agreement to sell,
where the ownership in goods is to pass subsequent to the making of the contract.

In order to constitute a sale there should be an agreement between the parties for the purpose of
transferring title to goods, which of course presupposed capacity to contract, that it must be
supported by money consideration, that as a result a transaction, the property must actually pass
in goods.

A sale has the immediate effect of transferring property, whereas in an agreement to sell the
property is to pass at some future time or subject to some condition. The sale of the whole of the
haystack on the seller‘s farm, the buyer having the liberty to take away when he likes, is an
immediate sale.
The essential object of the contract of sale is the exchange of property for a money price. There
must be a transfer of property, or an agreement to transfer it, from one party, the seller, to the
other, the buyer, in consideration of a money payment or a promise thereof by the buyer.

A contract of sale becomes a sale only when the property in the goods is transferred to the buyer
under the terms of the contract itself. As there must be a complete exchange of property to
constitute a sale, it follows that the seller and buyer must be different persons. One co-owner
may sell to another and therefore a partner may sell to his firm and the firm may sell to a partner,
but in the case of a member of an ordinary club paying for a meal at the club, or even for
provisions which he may carry away, there is no sale; the transaction is a release of joint interest
of the other members of the club, and the only contract involved is the contract made once and
for all by the member on ‗his admission to use the property of the club only on the conditions
laid down or authorized in its rules and usages. Members of a club or voluntary society are
undivided joint owners, not part owners.

In Ghasiram V. State, the accused, a retailer, made an agreement with State Government and
agreed to sell whet during shop-hours to consumers within his zone at a retail rate fixed by
government. The wheat was delivered by government to the retailer on his deposit of price of
wheat at the agreed whole-sale rate. At one stage, by night-time, retailer removed some bags of
wheat from shop and thereafter, possibly apprehensive of adverse consequences brought them
back to his shop.

The question in the case was whether there was an agreement of sale or that of an agency. The
court held that retailer by virtue of agreement could not be regarded as an agent of government in
respect of wheat received by him under agreement. The property in wheat received by retailer,
under the agreement, did pass to him. There was no criminal breach of trust by him, as he was
not agent of government.

If an agreement to sell contemplates passing of property at a future date, it becomes a sale when
that date arrives. If it contemplates certain conditions subject to which the property is to pass, it
becomes a sale when those conditions are fulfilled.

‗Sale‘ and ‗Agreement to Sell‘ can be distinguished on the following grounds:

1. In a sale the buyer becomes the owner of the goods at the time of making of contract but in an
agreement to sell buyer becomes owner of goods at a later time.

2. A sale makes the buyer the owner of the goods. He can exercise al the proprietary rights in
respect of them, such as an action for conversion or detenue. He acquires a jus in rem, that is, a
right against the goods. The effect is that if the seller refuses to deliver the goods, the buyer may
sue for recovery of the goods by specific performance. If the seller has resold the goods to
another person, the buyer may follow the goods in his hands, unless that other had bought them
in good faith and without notice. On the other hand, an agreement to sell is a contract pure and
simple. It is not a conveyance. The buyer‘s right are only personal against the seller, that is, a jus
in personam. He can sue only for damages for breach and not for recovery of goods.

3. In a sale, since the ownership in the goods has passed to the buyer, the risk of loss, if any, of
the goods is on the buyer. But in an agreement to sell, the seller remains the owner of the goods
and, therefore, he runs all the risks.

4. In a sale, if the buyer commits default, the seller may sue him for the price, that is, for specific
enforcement of the contract. In an agreement to sell, the seller‘s only remedy is to sue for
damages for breach.

5. Sale is an executed contracted, where there is a contract plus a conveyance, whereas an

agreement to sell is termed as executory contract pure and simple.

CASE ANALYSIS
 A agrees to buy a haystack from B on B‘s land with liberty to come on B‘s land to take it
away. This is a sale and B cannot revoke the licence given to A to woo on his land. (Wood Vs
Manley 1839)
 Agreement by A to buy 20 tonnes of oil from the seller‘s cisterns. The seller has many
cisterns, with more than 20 tonnes in them. This is merely an agreement to sale. (White VsWilks,
1813)
 Agreement for sale of a quantity of nitrate of soda to arrive at a certain ship. This is an
agreement to sell at a future date subject to the double condition of the arrival of the ship with
the specified cargo on board. (Johnson Vs Macdonald 1842)
 A customer who picks up goods in a self-service shop is merely offering to buy them and the
sale is not complete until they are paid for.(Pharmaceutical Society Vs Boots, 1952)

Essential Requisites of Sale

In the case of (State of Madras Vs Gannon Dunkerley and Company Limited, 1958) the Supreme
Court has held that according to the law, both of England and India, in order to constitute a sale,
it is necessary that there should be an agreement between the parties for the purpose of
transferring title to goods, which of course presupposed capacity to contract, that it must be
supported by money consideration, that as a result of transaction, the property must actually pass
in the goods. Unless all these elements are present there would be no sale.
The Supreme Court distinguished these two classes of contract –thus
An agreement to sell is a contact pure and simple whereas a sale is a contract plus conveyance.
By an agreement to sale a jus in personance is caused by a sale a jus in rem also is transferred.
Where goods have been sold and the buyer makes the fault, the seller may sue for the contract
price on the count of ‗goods bargained and sold‘ but when an agreement to buy is broken, the
seller‘s normal remedy is an action for unliquidity damages. If an agreement to sell be broken, by
the seller, the buyer has only a personal remedy against the seller. The goods are still the
property of the seller, and he can dispose of them as he likes, but if there has been a sale and a
seller breaks his engagement to deliver the goods, the buyer has not only a personal remedy
against the seller but also the usual proprietary remedies in respect of the goods themselves. In
many cases, too, he can follow the goods into the hands of third parties. Again, if there be an
agreement of sale, and the goods are destroyed the loss as a rule falls on the seller, while if there
has been a sale, the loss as a rule falls up on the buyer though the goods may have never come to
his position. (The Instalment Supply Limited Vs STO Ahmedabad and others, 1974.)

Sales & Hire Purchase

The Hire Purchase agreement can be described as a hiring agreement coupled with an option to
purchase, that is to say, the owner lets out the chattel on hire and undertakes to sell it to the hirer
his making a certain number of payments. If that is the real effect of the agreement there is no
contract of sale until the hirer has made the requisite number of payment, and he remains a bailee
until then. But some so-called hire-purchase agreements are in reality contracts to purchase, the
price to be paid by instalments, and in those cases the contract is a contract of sale and not of
hiring.
A hire-purchase agreement partakes of the nature of a contract of bailment with an element of
sale added to it. A hirer may not be bound to purchase the thing hired but where there is an
obligation or an option to buy on the terms that the hirer on payment of a premium as also the
number of instalments, shall enjoy the goods which ultimately may become his property, the
transaction amounts to one of hire-purchase, though the title to the goods would remain with the
owner till all the instalments are paid or the hirer has exercised his option to finalise the purchase
on payment of a sum nominal or otherwise.
Under a hiring agreement the hirer has a right to return the goods at any time, and thereby relieve
himself from any further obligation. If the intention of the financing party in obtaining the hire-
purchase and the allied agreement was to secure the return of loans advanced to their customers
the transactions would merely be financial transaction.
An agreement to sell and a sale have to be distinguished from a contract of hire purchase. They
can be distinguished on the basis, firstly a hire purchase agreement entitles the hirer only to
possession of the goods. He cannot pass a good title to any buyer from him. But a person who
receives possession under an agreement to buy is able to pass a good title to a bona fide
purchaser from him. Secondly, a hirer cannot claim the benefit of implied conditions and
warranties created by the Act unless it becomes a sale. Thirdly, the Hire Purchase Act is
applicable only to hire purchase contracts. Lastly, sales tax is not leviable on a hire purchase
until it becomes sale.

In a hire-purchase agreement the hirer has two options:

(i) hirer has an option to buy, but no obligation to buy; and
(ii) right to terminate the agreement as such.

The basis of distinction between the two was explained by House of Lords in Helby V. Matthews.
Helby let a piano on hire on the following terms: (i) Hirer should pay a certain amount per
month; (ii) should he punctually pay 36 monthly instalments, the piano should become his
property, until then it should continue to be the property of Helby; and (iii) Hirer had the right to
terminate the hire at any time by returning the instrument to Helby.After paying a few
instalments hirer pledged the instrument with the defendant, who acted in good faith. Helby sued
defendant to recover the instrument. It was held that he could do so. Hirer was not in possession
having agreed to buy the piano, but under a hire purchase agreement and therefore, had no right
to pledge.An agreement to buy imports a legal obligation to buy. If there was no such obligation,
there cannot properly be said to have been an agreement. Hirer might buy, or not, just as he
pleased. He did not agree to pay 36 or any number of monthly payments. All that he undertook
was to make the monthly payment so long as he kept the piano. He had an option no doubt to
buy it by continuing the stipulated payments. If he had exercised that option he would have
become the purchaser. Under these circumstances how hirer can be said either to have bought or
agreed to buy the piano.

Thus, it is the presence of the option on the part of the hirer to buy or to terminate the hiring that
makes the distinction. The ownership passes to him when he exercises that option. The hirer
cannot be compelled to buy. The Supreme Court of India has cited this statement in K L Johar&
Co. V. Deputy Commercial Tax Officer. The court said that the essence of sale is that the
property is transferred from the seller to the buyer for a price, whether paid at once or paid later
in instalments. On the other hand, a hire purchase agreement has two aspects. There is first an
aspect of bailment of goods subject to the hire purchase agreement, and there is next, an element
of sale which fructifies when the option to purchase is exercised by the intending purchaser.

Where the hirer does not have the option to return, it will be an agreement to buy and not a hire
purchase, even if the price is payable in instalments and the seller has the power to seize the
goods on default. This was established in Lee V. Butler. Here a lady hired certain furniture from
plaintiff, the price to be paid in two instalments, and the plaintiff having the right to take back the
furniture if an instalment was not paid. Before the last instalment was paid, the lady sold the
furniture to the defendant. It was held that the defendant had acquired a good title, the lady being
in possession of the furniture under an agreement to buy. She did not have the option to return
but was compellable to buy.

In Sundram Finance Ltd. V. State of Kerala, the appellant carried on the business of financing
purchase of motor vehicles on the security of these vehicles. The State imposed sales tax on the
transaction between the appellants and their customers. Appellant contended that they were mere
financiers and that they did not enter into any transaction of sale of goods with parties and they
were not ‗dealer‘ within the meaning of the Act.
The court observed that a hire-purchase agreement broadly takes one or the other of two forms.
IN the first, the goods are purchased by financier dealer, and he obtains a hire-purchase
agreement from customer, under which the latter become owner of goods on payment of all
installments by exercising his option to purchase the goods. In the Second, goods are purchased
by the customer which remain in his possession, subject to liability to any amount paid by
financier on his behalf to dealer, and the financier obtains a hire purchase agreement which given
him a licence to seize the goods in event of failure by customer to fulfil agreement‘s conditions.

Contract for Work & Material

Sometimes a contract may involve supply of some article which also involves rendering of some
work or service in respect of the same. In such a case, there may be difficulty in deciding
whether it is a contract of sale of goods or a contract for work and labour or a contract of service.
The problem of ascertaining the nature of the contract in such cases generally arises in the
context of the liability for sales tax, which could be levied in case of sale of goods and not when
the contract is one for work and labour.
A contract of sale has to be distinguished from a contract involving the exercise of skill or labour
on some material. Apart from the question of liability to sales tax, the distinction is important
because it is only a sale that carries a number of implied conditions and warranties.

In Lee V. Griffin, a lady engaged a dentist to make two sets of false teeth ―to be fitted into her
mouth‖. Before the work could be completed the lady died. In the doctor‘s action to recover his
charges the contract was held to be one of sale. The court emphasized that we should see the end
of the transaction. If the result of a transaction is the passing of an article for a price it is a sale.
Whether the contract is one of sale or of work and labour depends on the circumstances of each
case. If the object of the contract is to transfer the property in some chattel and the delivery of the
same to the buyer, it is a contract of sale, irrespective of the fact that the cost of the materials
used bear a very small proportion to the price charged. On the other hand, if the object is not to
transfer property in the chattel but to render skill and labour, the contract is one for work and
labour.
In Robinson V. Graves, the test laid down in above case was not approved by the Court. In this
case the defendant orally commissioned the plaintiff, an artist, to paint the portrait of a lady, and
subsequently repudiated the contract before the portrait was completed. In an action by the
plaintiff for the agreed price, it was held to be a contract of work and labour. The painter
recovered.

In Asstt. Sales Tax Officer V. B.C. Kame, it has been held by the Supreme Court that when a
photographer undertakes to take a photograph, to develop the negative, or to do other
photographic work and thereafter supply the prints to his client, the contract is one of skills and
labour and not that of sale of goods.

The primary difference between a contract for work or service and a contract for sale of goods is
that in the former there is in the person performing work or rendering service no property, in the
things produced as a whole notwithstanding that a part or even the whole of the material used
him may have been his property. In the case of contract of sale, the thing produced as a whole
has individual existence as the sole property, and of the party who produced it, at some time
before delivery, and the property therein passes only under the contract relating thereto in goods
used in the performance of the contract is not sufficient; to constitute a sale there must be an
agreement express or implied relating to the sale of goods and completion of the agreement by
passing of title in the very goods contracted to be sold.

In every case the court will have to find out what was the primary object of the transaction and
the intention of the parties while entering into it. Generally a contract to make a chattel and
deliver it, when made, is a contract of sale, but not always. The test would seems to be whether
the thing to be delivered has any individual existence before delivery as the sole property of the
party who is to deliver it.
For example ‗A‘ is employed by ‗B‘ to draw a conveyance on paper and with ink furnished by
‗A‘. This is a contract for work and not for the sale of goods.

In Northern India Caterers V. Lt. Governor of Delhi, the appellant, who ran a hotel in which not
only lodging and meals were provided to the residents on an all-inclusive basis, but meals were
also served to non-residents in the restaurant located in the hotel. Regarding the nature of the
contract in the two kinds of services rendered by the appellant it was held by the Supreme Court
that not only the service of meals to the visitors in the hotel on an all-inclusive basis, but also
service of meals in the restaurant to the casual visitors was in the nature of a service provided to
the customers and the same could not be considered to be a transaction of sale, and therefore, the
transactions were not subject to the imposition of sales tax.
The Supreme Court reviewing its own decision in Northern India Caterers V. Lt. Governor,
Delhi, held that where food is supplied in an eating house or restaurant, and it is established upon
the facts that the substance of the transaction, evidenced by its dominant object, is a sale of food
and the rendering of services is merely, incidental, the transaction would undoubtedly be eligible
to sales tax.
When there is sale of an article with an additional and subsidiary contract to affix it, it is
considered to be a contract of sale. In such a case, the main contract is to deliver the goods in
which the property passes and the services put in the process is only ancillary to that. When, on
the other hand, the object is to complete a certain stipulated work.

In State of Rajasthan V. Nenu Ram, the Supreme Court held a contract to supply and fix wooden
door and window frames and shutter to be a contract for work and not a sale.
A contract of sale is a contract whose main object is the transfer of the property in, and the
delivery of the possession of a chattel as a chattel to the buyer. Where the main object of work
undertaken by the payee of the price is not the transfer of a chattel qua-chattel, the contract is one
for work and labour. The test is whether or not the work and labour bestowed and in anything
that can properly become the subject of sale neither the ownership of the materials, nor the value
of the skill and labour as compared with the value of the materials, is conclusive, although such
matters may be taken into consideration is determining, in the circumstances of a particular case,
whether the contract is in substance one for work and labour or one for the sale of chattel.
The primary test is whether the contract is one whose main object is transfer of property in
chattel as a chattel to the buyer, though some work may be required to be done under the contract
as ancillary or incidental to the sale or is carrying out of work by bestowal of labour and service
and materials are used in execution of such work. The test has been recognized and approved in a
number of decisions of this court and it may now be regarded as beyond controversy, but the real
difficulty arises in its application as there are a large number of cases which are on the border
line and fall within what may be called grey area. To resolve this difficulty, the courts have
evolved some subsidiary tests.
The primary difference between a contract for work or service and a contract for sale of goods is
that in the former there is in the person performing work rendering service no property in the
things produced as a whole. In the case of a contract for sale, the thing produced as a whole has
individual existence as the sole property of the party who produced it, at some time before
delivery, and the property there in passes only under the contract relating there to the other party.
―this was the test applied by this court in the State of Rajasthan V. Man Industrial Corporation,
for holding that a contract for providing and fixing four different types of windows of certain
size according to specifications, designs, drawings and instructions set out in the contract was a
contract for work and labour and not a contract for sale.

The same test was applied by the court in Sentinel Rolling Shutters V. CST. There the question
was whether a contract for fabrication, supply and erection of certain types of rolling shutters,
was a contract of sale or a contract for work and labour, this court analysed the nature of the
contract and pointed out that not only are the Rolling shutters to be manufactured according to
the specifications drawlings and instructions provided in the contract, but they are also to be
erected and installed at the premises of the company. The price stipulated in the contract is
inclusive of erection and installation charges and the contract does not recognise any dichotomy
between the fabrication and supply of the Rolling Shutters and their erection and installation so
far installation of Rolling shutters is as much an essential part of the contract as the fabrication
and supply and it is only on the erection and installation of Rolling shutters that our contract
would be fully executed. This court then proceeded to examine what is a rolling shutter and how
it is erected and installed in the premises and observed that a rolling shutter consists of several
component parts and the component parts do not constitute a rolling shutter until they are foxed
and erected on the premises. It is only when the component parts are fixed on the premises and
fitted in the one another that they constitute a rolling shutter as a commercial article and till then
they are merely component parts and cannot be said to constitute a rolling shutter. The erection
and installation of the rolling shutter cannot therefore, be said to be incidental to its manufacture
and supply. It is a fundamental and integral part of the contract, because without it the rolling
shutter does not come into being. The manufacturer would undoubtedly be the owner of the
component part when he fabricates them but at no stage does as to transfer he rolling shutter
comes into existence as a unit when the component parts are fixed in position on the premises
and it, therefore becomes the property o the customer as soon as it comes into being. There is no
transfer of property in the rolling shutter by the manufacturer to the customer as a chattel. It is
essentially a transaction for fabricating component parts and fixing them on the premises so as to
constitute a rolling shutter. The contract for fabrication supply and erection of the rolling shutters
was, on this reasoning held by the court to be a contract for work and labour and not a contract
for sale.

The principle established in the above case is applied in Ram Singh & Sons Engineering Works
V. The Commissioner of Sales Tax, U.P. There was a contract for fabrication and erection of 3
motion electrical overhead traveling cranes. The fabrication and erection was one single
indivisible process and such a crane came into existence only when the erection was complete.
The fabrication and erection of a 3 motion electrical overhead traveling crane is highly skilled
and specialized job and the component parts have to be taken to the site and they are assembled
and erected there and they are assembled and it is only when this process is complete then a 3
motion electrical overhead traveling crane comes into being. The process of assembly and
erection requires a high degree of skill and it is not possible to say that the erection of a 3 motion
electrical overhead traveling crane comes into existence only when the erection is complete. The
erection is thus a fundamental and integral part of the contract because without it the 3 motion
electrical overhead traveling crane does not comes into being. The manufacturer would
undoubtedly be the owner of the component parts when he fabricated them, but at no stage does
he become the owner of the 3 motion electrical overhead traveling crane as a unit so as to
transfer the property into the customer. The 3 motion electrical overhead traveling crane comes
into existence as a unit only when component parts are fixed in position and erected at the site,
but at that stage it becomes the property of the customer because it is permanently embedded in
the land belonging to the customer. The result is that as soon as 3 motion electrical overhead
traveling crane comes into being it is the property of the customer and there is, therefore, no
transfer of property in it by the manufacturer to the Customer As A Chattel. It is essentially a
transaction for fabricating component parts and putting them together and erecting them at the
site so as to constitute a 3 motion electrical overhead traveling crane. The transaction is no
different than one for fabrication and erection of an open godown or shed with asbestos or tin
sheets fixed on columns. There can, therefore be no doubt that the contract in the present case
was a contract for work and labour and not contract for sale.

Formalities of a contract of sale:

Section 5: Contract of Sale - how made

1. A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of
such price. A contract may provide for the immediate delivery of goods or immediate payment of
the price or both, or for the delivery or payment by instalments. Or that the delivery of payments
or both shall be postponed.

2. Subject to the provisions of any law for the time being enforced, a contract of sale may be in
writing or by the word of mouth or may be impliedly or may be implied from the conduct of the
parties.

A statement or conduct inviting the making of an offer such as by display of goods in a shop
does not buy itself bind the shopkeeper to accept the customer‘s offer even at the price displayed
or advertised. Such invitation to treat therefore differs from an offer, which is intended to be
binding on the person making it and is capable of being accepted without any further negotiation.
Where, however, the accessibility to goods in intended to an offer capable of acceptance by
customer‘s act such as filling the petrol tank of a car from a self service pump or choosing items
in a self service shop or taking goods intended for sale for an automatic vending machine the
question of obtaining seller‘s assent does not arise.

Sub-section 1 emphasis the consensual nature of a contract of sale; the parties may agree to such
terms as they think fit. A sale can be complete even without effecting immediate delivery and
immediate payment. In a contract of sale, the title in goods passes immediately on the payment
of price while in an agreement to sale the title in goods passes at a future time subject to
conditions to be fulfilled thereafter however, when the goods are accepted by the buyer and the
price is received by the seller the sale is deemed to be complete.

Earnest :

The conclusion of a contract of sale is sometimes marked by the giving of earnest this was
expressly referred to in Sec. 78 of the Contract Act with regard to the giving of earnest Fry L.J.
said in Howe V.s Smith (1884). The practice of giving something to signify the conclusion of
the contract, sometimes a sum of money, sometimes a ring or other object, to be repaid or
redelivered on the completion of the contract, appears to be one of great antiquity and very
general prevalence….. It was familiar to the law of Roam ( where the rule was that a defaulting
buyer forfeited the earnest money and a defaulting seller was bound to restore it two fold‖.

Earnest whether given in money or not must be something of value really given by the buyer and
kept by the seller … A mere symbolic ceremony such as one party drawing a coin across the
other‘s hand will not do.

When a deposit in the nature of earnest is paid for the same of immovable property in India, a
vendor by whose default the sale goes off must return the sum so paid, but if the default is the
purchasers the purchaser must loose it.

Conditions & Warranties

Some terms of the contract of sale constitute the hard core of the contract and their non-
fulfilment may seem to upset the very basis of the contract. They may be so vital to the contract
that their breach may seem to be a breach of the contract as a whole. Such terms are known as
conditions of the contract and their breach entitles the innocent party to repudiate the contract. A
term which is not of such vital importance is known as a warranty. Its breach does not lead to
repudiation, but only to damages for breach.

Section 12(1) provides that stipulations in a contract of sale with reference to goods may be
conditions or warranties. The section then goes on to explain the distinction between the two. It
says ‗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.‘ Whereas ‗a warranty is a
stipulation collateral to the main purpose of the contract, the breach of which gives rise to a
claim for damages but not to a right to reject the goods and treat the contract as repudiated.‘
Whether a stipulation in a contract of sale is a condition 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.

The court is not bound by the terminology employed by the parties. The concept of a condition is
well illustrated by the case of Baldry V. Marshall. The plaintiff consulted the defendants, motor
car dealers, for a car ―suitable for touring purposes‖. The defendants suggested that a ―Bugatti‖
car would be appropriate and the plaintiff accordingly bought one. The car turned out to be unfit
for touring purpose and the plaintiff ought to reject it. The defendants relied upon a term in the
contract which guaranteed the car for twelve months against mechanical defects and excluded
every other guarantee or warranty.But it was held that the suitability of the car for touring
purposes was not a guarantee or warranty, but a condition of the contract. The term was so vital
that its non-fulfilment defeated the very purpose for which the plaintiff bought the car. He was,
therefore, entitled to reject and have refund of the price.
Consequences of Breach: Since a condition is a stipulation essential to the main purpose of the
contract its breach by one party entitles the other to treat contract as repudiated. For example, if
the seller makes a breach of condition, the buyer may reject the goods. Similarly, if the breach is
made by the buyer, the seller may treat it as a breach of contract and not perform his own part of
the obligation.

Option to the buyer on breach of conditions by the seller: When there is a breach of condition by
the seller, the buyer may:

(i) treat the contract as repudiated, or

(ii) waive the condition, or

(iii) treat the breach of condition as a breach of warranty.

The law implies into every sale of goods a number of conditions and warranties. They are read
into every contract of sale unless they are excluded and are known as implied conditions and
warranties.

Conditions as to title: The essence of sale being the transfer of ownership, it is one of the duties
of the seller to ensure that he has the right to sell what he purports to sell. If the seller‘s title turns
out to be defective the buyer may reject the goods. There can be no sale at all of the goods which
the seller has no right to sell. The whole object of sale is to transfer property from one person to
another. In fact the buyer has not received any part of that which he contracted to receive-
namely, the property and right to possession- and that being so, there has been a total failure of
consideration.

In Niblett V. Confectioners’ Material Co, the defendant sold the plaintiffs 3,000 tins of
condensed milk. On their arrival in England from New York it was found that 1,000 tins were
labeled ‗Nissley Brand‘. Another manufacturer of condensed milks under the name of ‗Nestle
Brand‘ claimed that this was an infringement of his trade mark. The plaintiff had to remove all
the labels in order to obtain the goods and subsequently sold them at a reduced value. He sued
the sellers for the breach of the condition as to title. It was held that the plaintiff had the right to
reject the goods or to recover as damages the loss caused by the sale at a reduced
price.Explaining the meaning of ‗right to sell‘ it was said that the seller had not the right to sell
these goods. Having admitted that they were an infringement of the Nestle Company‘s trade
mark they were liable to an injunction restraining the sale. Therefore they had no right to sell
these goods at the time when the property was to pass. If a vendor can be estopped by process of
law from selling he has not the right to sell.

Sale by description: Section 15 of the Act lays down the conditions which is implied by law in a
sale by description. It says that where there is a contract for the sale of goods by description,
there is an implied condition that the goods shall correspond with the description.
Two things are necessary to enable a buyer to invoke the protection of this section. First, there
should be a sale by description and, secondly, the goods do not correspond with the description.
The expression ‗sale description‘ includes many situations. Firstly, it refers to a case where the
buyer has never seen the goods and buys them on the basis of the description given by the seller.

In Priest v. Last (1903) 2 K.B. 148, a hot water bottle was bought by the plaintiff, a draper, who
could not be expected to have special skill knowledge with regard to hot water bottles, from a
chemist, who sold such articles. While being used by the plaintiff's wife, the bottle bursted and
injured her. Held, the seller was responsible for damages.

In Grant v. Australian Knitting Mills (1936) 70 MLJ 513, 'G' purchased woollen underpants from
'M' a retailer whose business was to sell gCJods of that description. After wearing the
underpants, G developed some skin diseases. Held, the goods were not fit for their only use and
'G' was entitled to avoid the contract and claim damages.

This happened in Varley V. Whipp.

There was a sale of reaping machine which the buyer had never seen and which the seller stated
‗to have been new the previous year and used to cut only 50 to 60 acres.‘ On delivery the buyer
found the machinery to be extremely old and, therefore, returned it. The seller‘s action against
the buyer for the price failed. It was a sale by description and the machine did not correspond
with the description.

Even where the buyer has seen the goods, it may be a sale by description if he relies not on what
he has seen but what was stated to him and ‗the deviation of the goods from the description is not
apparent‘.

This is illustrated in Nicholson and Venn V. Smith Marriott.

It was an auction sale of a set of linen napkins and table cloths, described as ‗dating from the
seventeenth century‘. The plaintiff, who were dealers in antiquities, saw the set and bought it.
They subsequently found it to be an eighteenth century set and sought to reject it. It was held that
they could do so. They had relied on the description and the discrepancy between the description
and the quality could not have been discovered by the casual examination. Thirdly, packing of
goods may sometimes be a part of the description. Thus, in Moore & Co. V. Landuer& Co., there
was a contract for the purchase of 3,000 tins of canned fruit from Australia, to be packed in cases
each containing 30 tins. The sellers tendered a substantial portion in cases containing 24 tins.
The method of packing was held to be a part of the description and, therefore, the purchasers
were entitled to reject the whole consignment.

Once it is proved that the sale is by description, the law implies the condition that the goods must
correspond with the description. If they do not do so the buyer may reject them and it will be no
defence to say that they will serve the buyer‘s purpose. Where is a sale of copra cake, the goods
were found adulterated with castor beans. It was held that the goods did not correspond with
description and the condition was broken.

Sale by description as well as by Sample: The section 15 further provides that if the sale is by
sample as well as by description, it is not sufficient that the bulk of the goods correspond with
the sample if the goods do not also correspond with the description. In other words, the implied
condition in such cases is that the goods shall not merely agree with the sample, but must also
correspond with the description. The basic insistence of the section is ‗correspondence with
description.‘

Sale by sample: This is defined in Section 17 of the Act. A contract of sale is a contract for sale
by sample where there is a term in the contract, express or implied, to that effect. A sale by
sample is indistinguishable from a sale by description. The law implies three conditions into
every contract of sale by sample:

(i) That the bulk shall correspond with the sample in quality.
(ii) That the buyer shall have a reasonable opportunity of comparing the bulk with the sample.
(iii) That the goods shall be free from any defect, rendering them un-merchantable, which would
not be apparent on reasonable examination of the sample.

In Godley V. Perry, a retailer tested toy catapults by pulling at the elastic and found no defect,
but one of them subsequently exploded in the hands of a child who had bought it from the
retailer. It was held that the goods were un-merchantable by reason of the latent defect. The court
pointed out that ‗reasonable examination means as that phrase is understood by the
commonsense standards of everyday life.‘ It obviously does not mean complete or through
examination.

There are certain types of warranties which are implied by law in a sale of goods contract.

1. Quite Possession: An implied warranty that the buyer shall have and enjoy quiet possession of
the goods. It is a warranty that the vendor shall not, nor shall anybody claiming under a superior
title, or under his authority, interfere with the quiet enjoyment of the vendee.

2. Free from Encumbrance: The goods shall be free from any charge or encumbrance in favour
of any third party not declared or known to the buyer before or at the time when the contract is
made.

Conditions reduced to warranty:

In certain circumstances a condition is reduced to the status of a warranty. The effect is that the
buyer losses his right to reject the goods. He has to be content with the remedy for damages for
the breach of the conditions. This happens in the following cases:
Waiver by Buyer: 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. The conditions, express or implied, are for the benefit of the buyer. He has, therefore,
the option to waive the breach of a condition. In that case he remains liable for the price, but may
recover damages for the breach. The buyer‘s election may be express or implied.

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 the 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, unless there
is a term of the contract of that effect. Thus, where the buyer has accepted the goods and
thereafter discovers that some conditions was not fulfilled, he cannot reject.An illustration in
point is Hardy & Co. V. Hillerns& Fowler. Wheat sold under a contract arrived at the port of
destination. The buyers took up the shipping documents. The day on which the wheat was
unloaded they resold and dispatched a portion of it to sub-purchasers. They subsequently
discovered that the wheat was not of the contract quality and gave the sellers a notice of
rejection. All this happened within three days and, therefore, reasonable time for the examination
of the goods had not expired. It was held that the transfer of the possession to the sub-purchasers
was an act inconsistent with the ownership of the sellers and, therefore, that put an end to the
buyer‘s right of rejection. Notwithstanding that it took place before the expiry of reasonable time
for inspection. The act of resale is inconsistent with the seller‘s ownership because the buyer has
to place the rejected goods at the disposal of the seller immediately on rejection, whereas if he
has resold them, he cannot do that till he receives them back from the sub-buyers.

When a condition is reduced to the status of a warranty, the effect is not that the condition
becomes a warranty, but that the condition remains a condition, it is only the remedy which
changes. When the contract of sale is not severable and the buyer has accepted the goods or part
thereof, the breach of condition has got to be treated as a breach of warranty. The idea behind the
provision is that when the buyer has a choice of either accepting or rejecting the goods and he
chooses to accept them, his right of rejection can no more be exercised. Merely taking delivery
of the goods by the buyer does not necessarily mean the acceptance of them. This is
demonstrated by the decision of the House of Lords in Wallis, Son & Wells V. Pratt. The
defendants sold seed to the plaintiffs, as ―Common English Sanfoin‖ on the condition that the
―seller give no warranty express or implied as to growth, description or any other matter.‖ The
seed delivered to the buyers was not ―Common English Sanfoin‖, but ―Giant Sanfoin‖, a
different and inferior seed. The buyer accepted the seed believing it to be ―Common English
Sanfoin‖ and resold it as such to other parties, to whom they were obliged to pay damages for the
mistake.The time for rejection having been lost, the only course open to the buyers was to sue for
damages. The sellers contended that the ―condition‖ was reduced to ―warranty‖ and they had
excluded liability for warranties. The House of Lords rejected this contention and allowed the
buyers to recover damages for their loss. A condition is converted into warranty only for
remedial purposes. The result may be summed up as it was absurd to suggest that, because
subsequent events had prevented the buyers from repudiating the contract, they had also
converted a more into a less important term. Once a condition always a condition, whether or not
the remedies remained the same.

Where goods not answering to the description contracted for are delivered to a buyer, the buyer
has a right to one of two alternative remedies:

(a) reject the goods and obtain a refund of the price in advance and sue for damages for non
delivery. In such an event the damages he would obtain would be the difference between the
contract price and the market price of the goods on the date of the breach if the latter were
higher;
(b) waive condition and accept the goods and sue for damages for a breach of warranty. When he
accepts the goods, he has to pay the contract price less any claim for set-off for breach of
warranty.
Section 62 of the Act enables the parties to a sale to exclude liability for implied terms. The
section recognizes three modes by which liability for implied terms may be negatived:-
(i) By express Contract;
(ii) By course of dealing; and
(iii) By trade usage.

Doctrine of Caveat Emptor

Section 16 of the Act prescribes that ‗subject to the provisions of this Act or any other law for
the time being in the force, there is no implied warranty or condition as to the quality or fitness
for any particular purpose of goods supplied under a contract of sale.‘ This is a restatement of the
principle of caveat emptor (buyer beware). It means that subject to the implied conditions which
have been seen above and the exception created by Section 16, the seller is not bound to supply
goods which should be fit for any particular purpose or which should possess any particular
quantity. It is the buyer‘s duty to select goods of his requirement. ―It was for the buyer to make
himself acquainted with qualities and defects of the goods which he contemplated purchasing.
The principle is that it is for the buyer to satisfy himself that the goods which he is purchasing
are of the quality which he requires or, if he is buying them for a specific purpose, that they are
fit for the purpose. This principle is summed up in the maxim ‗Caveat emptor‘; and is based
upon the presumption that the buyer is relying on his own skill and judgment, when he effects a
purchase.
One illustration of the application of this principle is Ward V. Hobbs. Certain pigs were sold by
auction and no warranty was given by the seller in respect of any fault or error or description.
The buyer paid fair price for healthy pigs, but they were ill and all but one died of typhoid fever.
They also infected a few of the buyer‘s own pigs. The House of Lords held that sending infected
pigs to the market was an offence, but there was no implied condition or warranty that they were
sound. It was said hat although a vender is bound to employ no artifice or disguise for the
purpose of concealing defects in the article sold, since that would amount to a positive fraud on
the vendee; yet under the general doctrine of caveat emptor, he is not ordinarily bound to
disclose every defect of which he may be cognizant, although his silence may operate virtually to
deceive the vendee.
Another case of the same kind is Burnby V. Bollet. ‗A‘, a farmer, bought from ‗B‘ a butcher, the
carcass of a dead pig for consumption and left it hanging up, intending to return after completing
other business, and take it away. In his absence ‗C‘, a farmer, on seeing and wishing to buy it,
was referred to ‗A‘, and bought it of ‗A‘. It turned out unsound and unfit for human
consumption. It was held that no warranty of soundness was implied by law between the farmers
‗A‘ and ‗C‘. The result would have been different if the plaintiff had bought the pig from a
dealer in pork. In that case there would have been an obligation to supply goods of merchantable
quality.
Caveat Emptor does not mean that the buyer must ‗take chance‘, it means he must ‗take care‘. It
applies to the purchase of specific things upon which the buyer can, and usually does, exercise
his own judgment; it applies also whenever the buyer voluntarily chooses what he buys; it
applies also where by usage or otherwise it is a term of the contract, that the buyer shall not rely
on the skill or judgment of the seller.
Exceptions:
The exceptions to the rule of caveat emptor have now become more prominent than the rule
itself. The rule owes its origin to the times when nearly all sales took place in the open market.
The buyer and the seller came face to face, the seller exhibited his wares, the buyer examined
them and bought them if he liked. But as trade grew and assumed global dimensions, it became
difficult for buyers to examine goods beforehand, most transactions being concluded by
correspondence. Further on account of the complex structure of modern goods, it is only the
sellers who can assure the contents and quality of the goods. For these reasons it became
necessary to restrict the rule of caveat emptor by grafting a few exception upon its scope.
The essence of these exceptions it thus explained as it is the duty of the court in administering
the law to lay down rules calculated to prevent fraud, to protect persons who are necessarily
ignorant of the qualities of a commodity they purchase, and to make it the interest of
manufactures and those who sell, to furnish the best article that can be supplied.

Section 16 provides for the following exceptions:

(a) Fitness for buyer’s purpose: S. 16(1) requires the seller in certain circumstances to supply
goods which shall be fit for the buyer‘s purpose. For this exception to apply, the following points
have to be proved:
(1) The buyer should make known to the seller the particular purpose for which the goods are
required.
(2) The buyer should rely on the seller‘s skill or judgment.
(3) The goods must be of a description which it is the course of the seller‘s business to supply.
At first glance the exception seems to require too many conditions to be satisfied. But all of them
are implicitly satisfied in the routine course of the act of purchasing an article. This is shown in
Grant V. Australian Knitting Mills. The plaintiff, a doctor, purchased from a retailer two woolen
underpants manufactured by the defendants. Next day after wearing one of them he became ill.
His illness was diagnosed as dermatitis caused by a chemical irritant which the defendants had
negligently omitted to remove in the process of manufacture. It was held that the sale was within
the exception and the implied condition of fitness for the buyer‘s purpose was broken. It was said
that it is no doubt essential that the buyer must rely upon the seller‘s skill or judgment. But the
reliance will seldom be express, it will usually arise by implication from the circumstances.
Where the seller deals in certain goods, the buyer goes to the shop in the confidence that the
tradesman has selected his stock with skill and judgment.This should be contrasted with a case
where the plaintiff contacted dermatitis from Harris tweed coat and the illness being due to her
sensitiveness the sellers were held not liable, the cloth being fit for a normal person.
Where the goods are capable of more than one use, the buyer should inform his purpose to the
seller and only then may depend upon him to supply goods for that purpose. Where this is not
done, the condition as to fitness will not be implied.
For example, in Re Andrew Yule and Co., Hessian cloth, which is generally used for packing
purpose, was supplied to the buyer who found it, because of an unusual smell, unfit for packing
foodstuffs, though it was good as a packing cloth, the buyer could not reject it, because he had
never disclosed his particular purpose to the seller. Where the ―particular purpose‖ is disclosed,
the condition immediately attaches. The seller is entitled to assume that the goods are required
for their normal purposes, or one of their normal purposes, unless otherwise indicated by the
buyer.‖
Sale under Trade Name: The proviso to Section 16(1) provides that sometimes a buyer may rely
more on the trade name of a commodity than on the skill and judgment of the seller. ―If a person
goes in a shop and asks for a bottle of R White‘s Lemonade, or somebody‘s particular brand of
beer, he is not relying on the skill and judgment of the person who serves it to him.‖ In such
cases it would be manifestly unjust to burden the seller with responsibility for fitness.
The mere mention of the name of a product, or patent does not exclude the condition, for even
then the buyer may rely on the seller‘s skill and judgment. In Baldry V. Marshall, a car had to be
selected for touring purpose and the seller recommended ―Bugatti‖ car, a trade name. This did
not exclude the implied condition of fitness.
Stating the true effect of the proviso it was said that the mere fact that an article sold is described
in the contract by its trade name does not necessarily make the sale, a sale under a trade name.
we may illustrate meaning by reference to three different cases. First, where a buyer asks a seller
for an article which will fulfil some particular purpose and in answer to that request the seller
sells him an article by a well known trade name; there it is clear that proviso does not apply.
Secondly, where the buyer says to the seller ―I have been recommended such and such an article‘
mentioning it by its trade name ‗will it suit my purpose‘, naming the purpose and thereupon the
seller sells it without more; there again I think the proviso has no application. But there is a third
case where the buyer says to a seller, I have been recommended so and so, ‗giving its trade
name‘ as suitable for the particular purpose for which I want it. Please sell it to me. In that case it
is equally clear that the proviso would apply and that the implied condition of things‘ fitness for
the purpose named would not arise.
The condition of fitness remains applicable even when goods are sold by an agent who does not
disclose that he is selling on behalf of his principal and the buyer does not know that he is buying
from an agent.
(b) Merchantable Quality [S. 16(2)]: The second leading exception of the principle of caveat
emptor is that a dealer who sells goods by description is bound to deliver goods of merchantable
quality. The only requirement for this condition to arise is that the goods must be purchased by
description from a seller who deals in goods of that description. When this requirement is
fulfilled it becomes the responsibility of the seller to supply goods which shall be of
‗merchantable quality‘.
For instance, in Godley V. Perry, a toy dealer displayed in his shop window some toy catapults.
A child of six was attracted by them and bought one. While he was using it, it broke off an
entered his left eye which had to be removed. The seller contended that there was no condition of
merchantable quality as the toy was not bought from him by description. Rejecting this and
holding him liable, the court said that a sale over the counter can be sale ‗by description‘ is clear,
and where, as here, a child asks for a catapult and one is sold to him over the counter, that is no
less a ‗sale by description‘ than one where an order is placed on the strength of a catalogue.
The term ‗merchantable quality‘ includes the following propositions:
(i) Marketability: Merchantability does not merely mean that the goods shall be marketable, but
that they shall be marketable at their full value. ―Merchantability does not mean that the thing is
saleable in the market because it looks all right; it is not merchantable in that event if it has
defects unfitting it for its only proper use but not apparent on ordinary examination.
(ii) Reasonable fitness for general purpose: ―Merchantable quality‖ means, in the second place,
that if the goods are purchased for self use, they must be reasonably fit for the purpose for which
they are generally used. ―It has long been recognized that merchantable quality reflected in use
value, as well a exchange value, and that the two are inseparably linked.
The principle has been applied in a great number of cases. In Priest V. Last, the plaintiff went to
the defendant, a chemist, and asked for a hot-water bottle. The defendant sold him an American
rubber bottle, saying that it would sand hot but not boiling water. The plaintiff had purchased the
bottle for his wife and while she was using, it burst and injured her. Since the bottle was not fit
for being used as a hot-water bottle, the ‗particular purpose‘ for which the buyer had purchase it,
the defendant was held liable to pay compensation for the breach of the implied condition.
Defective packing. Packing of the goods is an equally important consideration in judging their
‗merchantability‘. The plaintiff purchased a bottle of Stone‘s Ginger Wine. When he attempted
to draw its cork with a corkscrew and with due care, the neck of the bottle broke off, the bottle
fell to the ground cutting the plaintiff‘s hand. The seller had to answer in damages.
Partly defective. Where a part of the goods are defective, the buyer may reject the whole lot even
if he had accepted some deliveries before finding out the defect.
Merchantable quality means that the goods shall be as fit for the purpose or purposes for which
goods of that kind are commonly bought as it is reasonable to expect having regard to any
description applied to them, the price (if relevant) and all other relevant circumstances.
There are points of distinction between the two exception. The Legislature intended, and the
courts have always treated, them to be two independent conditions. And they do make sometimes
a very practical difference to the buyer. In Henry Kendall & Sons V. William Lillico& Sons Ltd, a
Brazilian groundnut extraction was sold to a manufacturer for use as ingredient in compounding
food for poultry. The compound caused death of chicks and poults due to toxic substance in the
groundnut extraction. But the food was fit for older birds and other animals. It was held that the
food was not fit as a poultry feed and, therefore, the implied condition of fitness by the buyer‘s
particular purpose was breached and the suppliers were responsible for the loss caused to him,
but the goods were of merchantable quality.
Secondly, the prerequisites of two exception are different. To avail of the first exception the
buyer had to rely on the seller‘s skill and judgment, but this is not necessary to import the
condition of merchantable quality.
Lastly, the proviso the two exception are different. Where goods are sold under their patent or
trade name, the implied condition of fitness is excluded. But the condition of merchantability
arises even when the purchase is effected by reliance on the patent or trade mark.
(c) Conditions implied by trade usage [S. 16(3)]: S. 16(3) gives statutory force to conditions
implied by the usage of a particular trade. It says, ‗An implied warrant or condition s to quality
or fitness for a particular purpose may be annexed by the usage of trade‘. It has long been settled
that in commercial transactions extrinsic evidence of custom and usage is admissible to annex
incidents to written contracts in matters with respect to which they are silent. This is so because
the parties ‗contract with reference to those known usages.‘ An unreasonable custom will not,
however affect the parties contract.
(d) Express Terms [S. 16(4)]: It is open to the parties to include any express condition and/or
warranties in their contract. But an express warranty or condition does not negative a warranty or
condition implied by the Act unless the express terms are inconsistent with the implied
conditions.

Transfer of Property as Between Seller and Buyer

Section 18 – Goods must be ascertained

 Goods must be ascertained: where there is contract for the sale of unascertained goods, no
property in the goods is transferred to the buyer unless and until the goods are ascertained

Characteristics

1. Transfer of property
2. Property cannot pass until the goods are identified
3. Part of a specific whole
4. Property and risk
5. Identification of goods

1. Transfer of property – This and the five following sections of the Act deal with the question
foreshadowed by section 4 of the Act and lay down rules which assist in deciding the question
when the object of the contract of sale, namely, the transfer of the property in the goods to the
buyer has been affected.

2. Property cannot pass until the goods are identified – It is a condition precedent to the passing
of the property in every case that, the ‗individuality of the thing to be delivered‘ should be
established. In any given case, there may be question whether this condition is fulfilled or not,
and it may be that the property will not pass even if it is fulfilled, but until it is, there is no
possibility of the property passing. It is essential that the article should be specific and
ascertained in a manner binding on both the parties, for unless that be so, the contract cannot be
construed as contract to pas the property in that category.
Where according to the terms of the contract, the seller was to supply waste coal ash as and when
it was discharged from the bunkers of the powerhouse, it was held that the contract was for the
sale of unascertained goods and, therefore no property passed to the buyer till the goods were
ascertained. (Tej Singh Vs State of Uttar Pradesh and others 1981)

3. Part of a specific whole

It is obvious that if the contract is merely for the sale of goods by description, such as a contract
for sale of a certain quantity of malting barley, or future goods, the necessary condition is not
fulfilled. Nor is it fulfilled even if the goods are so far ascertained that the parties have agreed
that they shall be taken from some specified larger stock. ‗The parties did not intend to transfer
the property in one portion of the stock more than in another, and the law which only gives effect
to their intention does not transfer the property in any individual portion‘(White Vs. Wilks 1813).
And the mere fact that an order for the delivery is given by the seller to the buyer, and is lodged
by the buyer with a warehouseman, who holds the specified larger stock out of which the goods
sold are to be taken, is not sufficient to transfer the property to the buyer.(Laurie &Morewood
Vs. Dudin& sons 1926) Thus, where the ascertainment of the goods depends upon their being
separated from the bulk by the seller or a third party or the buyer, by their being severed,
weighed or measured or some other process, no property can pass until this is done (National
Coal Board Vs. Gamble 1959)

4. Property and Risk

In this class of case, it is necessary to distinguish the passing of the property from the transfer of
the risk; the risk usually passes with the property, but may pass independently of it; Thus,
acceptance of the delivery warrant for a certain quantity of spirit out of a larger bulk which was
liable to deteriorate in storage was held to put the risk of deterioration on the buyer, although he
had acquired, not property but only undivided interest in the whole bulk. Equally, it would seem
that there can be none in an individual part of a chattel, such as a tree which has been felled, of
which a marked portion was sold, and of which the other portion is to be retained by the seller.
In such a case, it is conceived, the whole tree remains the property of the seller until the marked
portion is severed, even if the severance is to be done by the buyer.

5. Identification of the goods

The contract itself may provide that the property shall pass on the happening of some specified
event, sufficient to identify the goods, and occasionally they may become identified by other
means. Thus, in a case where the seller sold 250 quarters of wheat out of a larger bulk belonging
to him in a warehouse, and the buyer took delivery of 400 quarters and pledged the remaining
850 quarters to a bank, and in the meantime the seller sold the remainder of the bulk in the
warehouse, of which delivery was taken, so that 850 quarters only were left in the warehouse, it
was held that by this process of exhaustion the 850 quarters became ascertained goods and
property therein passed to the buyer, so that the pledgee acquired a title thereto against the
seller.(Wait & Midland Bank 1926) In State of karnataka Vs. The West Coast Paper Mills Ltd.
AIR 1986 it was held that where under a contract a company was permitted to remove bamboos
from the forest area at Rs.10 /- per ton, and the government by a subsequent order enhanced the
price to Rs.20/- per ton, it was held that the enhanced rate was no applicable to the bamboos cut
although not removed prior to the date of the government order, because on the bamboos being
cut and extricated, the goods being ascertained and in a deliverable state, the property had passed
to the company.

Section 19. Property passes when intended to pass

1. 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.
2. 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 circumstances of the case.
3. Unless a different intention appears, the roles contained in section 20 to 24 are rules for
ascertaining the intention of the parties as to the time at which the property in the goods is to
pass to the buyer.

Characteristics

1. Principles for determining whether the property is transferred

2. Intention of the parties
3. Ascertained goods

1. Principles for determining whether the property is transferred

When it appears that the goods -- the subject of the contract—are specific or ascertained, so that
it is possible for the property to pass to the buyer, it becomes necessary to determine whether it
has actually passed;

This section reproduces this statement in statutory form, and the rules of construction adopted by
courts are those set out in Section 20 to 24.

2. Intention of the parties

The governing principle which should determine as to the passing of the property in the goods
must be to find out what is the intention of the parties. It is open to the parties to agree that the
property shall pass ipso facto immediately the goods become ascertained or even that it shall
pass at some time after the delivery is effected. The desirability of making express provisions to
this effect is demonstrated by the consequences of its omission from the Contract Act. It might
have been thought that, even in the absence of such a provision, the courts would be free to give
effect to the intention of the parties to a lawful contract of sale on such an important element of
the contract as the transfer of the property, and that view has on some occasions been acted upon.
Where a company had transferred its plant and machinery to the finance corporation and the only
right the company had was to redeem and it was clear that the company could not sell the same
without the concurrence of the finance corporation it was held that the intention of the parties
notwithstanding the language of the document between the company and M/s Ranga Engineering
Company was to transfer the property only after obtaining the consent of the finance corporation
and there was no sale until then.(PPLooke Vs. NJ Mathew & others 1967) Sale of shares
becomes complete as soon as property in the shares is intended to be transferred to the buyer.
Such intention does not depend on any particular form or mode of transfer and has to be gathered
from the facts of each particular case. Unity Company Pvt. Ltd. Vs. Diamond Sugar Mills &
others AIR 1971

3. Ascertained goods
Then term ‗ascertained goods‘, which also occurs in Section 58, is not defined by the Act. It is,
however, clear that the words ‗specific goods‘ bear the meaning assigned to them in the
definition clause, ‗goods identified and agreed upon at the time a contract of sale is made.‘
Ascertained‘ probably means ‗identified in accordance with the agreement after the time a
contract of sale is made‘. Sections 23 and 25, therefore, must also be read subject to the
provisions of this section, and regard must be had to the intention of the parties when considering
whether the property has or has not passed in the circumstances dealt with by those sections.
Where teak trees to be cut were of more than 12 inches girth, it was held that till it was
ascertained as to which trees fell within the description they were not ascertained goods.
BadriPrasad Vs. The State of Madhya Pradesh AIR 1970 SC.

Section 20 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 immaterial whether
the time of payment of or the time of delivery of goods, or both, is postponed.

Examples

This section may be illustrated by the following examples:

1. Sale on the 4th January of a haystack on the seller‘s land at the price of £145 to the paid on
the 4th February, the hay to be allowed to remain on the seller‘s land until the 1st May: no hay to
be cut until the price was paid. The property in the haystack passed on the making of the
contract and on the stack being destroyed by fire, the buyer must bear the loss Tarling Vs.
Baxter (1827)

2. Sale of a specified number of bushels of oats, the contents of a bin in a warehouse. The seller
gives a delivery order to the buyer, addressed to the warehouseman, authorising delivery of the
oats tio the buyer, and asking the warehouseman to weigh them,. The warehouseman accepts the
order and enters it in his books. The property has passed to the buyer, as the weighing was not
necessary to identify the oats or to ascertain the price, but was merely for the satisfaction of the
buyer. Swanwik Vs. Sothern (1839)

Section 21 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.
Example
This section may be illustrated by the following example: Sale of the whole contents of a cistern
of oil, the oil to be put into casks by the seller and then taken away by the buyer. Some of the
casks are filled in the presence of the buyer, buy before any are removed, or the remainder are
filled, filled, fire destroys the whole of the oil. The buyer must bear the loss of the oil which had
been put into the casks, the seller that of the remainder .Rugg Vs. Minett (1089)

Section 22 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.

Examples
This section may be illustrated by the following examples:

1. Sale of a stack of bark at a certain price per ton, the bark to be weighed by the seller‘s and
buyer‘s agents. Part was weighed and taken away, but before anything more was done a flood
carried away the remainder. The loss of this fell on the seller. Simmons Vs Swift (1826)
2. Sale of 289 specified bales of goatskin, containing 5 dozen in each bale, at a certain price per
dozen. By the usage of the trade, it was the sellers duty to see whether the bales contain the
number specified in the contract. Before the seller had done this the bales were destroyed by fire.
The loss fell on the seller. ZaguryvsFurnell(1809)

Section 23 : 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 assent of the buyer or by the buyer with the assent of the seller, the property in the goods
there upon passed to the buyer. Such assent may be expressed or implied, and may be given
either before or after the appropriation made.

2. Delivery to the carrier - Where in pursuance of the contract the seller delivers the goods to the
buyer or to the carrier or other bailee (whether named by the buyer or not) for the purpose of
transmission to the buyer, and does not reserve the right of disposal, he is deemed to have
unconditionally appropriated the goods to the contract.

Example
This section may be illustrated by the following example:
1. Sale of 20 hogsheads of sugar out sugar out of a larger quantity. The seller fills four hogsheads
which the buyer takes away. Subsequently the seller fills sixteen more hogsheads, and informs
the buyer of this asking him to come and take them away. The buyer promises to do so. The
property has passed to the buyer.
2. Mr A contracts to sell to Mr B a certain quantity of liquor out of a big cask containing a much
larger quantity. The required quantity is not separated or bottled. The property in the liquor does
not pass to the purchaser.

Passing of Risk (Section 26)

The general rule is that goods remain at the seller's risk until the ownership is transferred to the
buyer. After the ownership has passed to the buyer, the goods are at the buyer's risk whether the
delivery has been made or not. For example, 'A' buys goods of 'B' and property has passed from
'B' to 'A': but the goods remain in 'B's warehouse and the price is unpaid. Before delivery, 'B's
warehouse is burnt down for no fault of 'B' and the goods are destroyed. 'A' must pay 'B' the
price of the goods, as he was the owner. The rule is resperitdemino- the loss falls on the owner.
But the parties may agree that risk will pass at the time different from the time when ownership
passed. For eg.the seller may agree to be responsible for the goods even after the ownership is
passed to the buyer or vice versa.

In Consolidated Coffee Ltd. v. Coffee Board, one of the terms adopted by coffee board for
auction of coffee was the property in the coffee',knocked down to a bidder would not pass until
the payment of price and in the meantime the . goods would remain with the seller but at the risk
of the buyer, In such cases, risk and property passes on at different stages.
In MultanmalChampalal v. Shah & Co., AIR (1970) Mysore 106, goods were despatched by the
seller from Bombay to Bellary through a public carrier. According to the terms of the contract,
the goods were to remain the property of the seller till the price was paid though the risk was to
pass to the buyer when they were delivered to public carrier for despatch. When the goods were
subsequently lost before the payment of the price (and the consequent to the passing of the
property to the buyer), the Court held that the loss was to be borne by the buyer.
It was further held in the same case that the buyer was at fault in delaying delivery unreasonably
and therefore on that ground also he was liable for the loss, because such loss would not have
arisen but for such delay.
Thus, where delivery has been delayed through the fault of either the buyer or the seller, the
goods are at the risk of the party at fault, as regards any loss which might not have occurred but
for such fault.

NemoDat Quod Non Habet

In the development of our law, two principles have striven for mastery. The first is the protection
of property: no one can give a better title than he himself possesses. The second is the protection
of commercial transactions: the person who takes in good faith and for value without notice
should get a good title. The first principle held sway for a long time but it has been modified by
the common law itself and by statute so as to meet the needs of our times. The first principle is
enshrined in the ancient maxim, nemodat quod non habet, which means that no one can transfer a
better title than he himself has.
When the seller himself is the owner of the goods which he sells or he is somebody‘s agent to
dispose of the goods, he conveys a good title in the goods to the buyer. Difficulty arises when the
seller is neither himself the owner nor has he any such authority from the owner to sell the
goods.
Section 27 of the Act states this principle. It says that 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 consent of the owner, the buyer
acquires no better title to the goods than the seller had. So where goods are sold by a finder or a
thief the buyer gets no title.
Section 27, as a general rule, tries to protect the interest of the true owner when it provides that
where the 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.
Exceptions:
The principle of protecting bona fine commercial transactions is given effect to by engrafting a
number of exceptions upon the above principle. After stating the principle in general terms,
Section 27 and the three sections that follow it enumerate the situations in which nemodat does
not apply.

I. Estoppel:[S.27]: Section 27 says that a purchaser may get a good title if, ‗the owner of the
goods is by his conduct precluded from denying the seller‘s authority to sell.
When the owner is not permitted to deny the seller‘s authority that is known as an estoppel
against him. Estoppel arises from a representation that the seller has the authority to sell. And
when that representation is innocently acted upon by the buyer, it becomes too late to deny the
seller‘s authority. Representation may arise from words or declaration or it may arise from an act
or omission. An omission to perform one‘s duty may create an estoppel. But the duty must be a
legal obligation.
Estoppel by negligence: Mere carelessness may not create an estoppel. ―Negligence, in order to
give rise to a defence under this section, must be more than mere carelessness on the part of a
person in the conduct of his own affairs, and must amount to a disregard of his obligations
towards the person who is setting up the defence.
Failure to register a transaction where registration is compulsory may create an estoppel, but not
failure to register as a safety measure with a private organization such as Hire-Purchase
Information Ltd.
II. Sale by mercantile Agent [S. 27, Proviso]: A buyer of goods from a mercantile agent
acquires good title if the conditions laid down in Section 27(2) are satisfied.
Folkes V. King illustrates the protection that this section affords to an innocent purchaser from a
mercantile gent. The plaintiff entrusted his car to a mercantile agent for sale at a stated price and
not below that. He sold it to X below that price and misappropriated the proceeds. X resold the
car to the defendant. The plaintiff could not recover it from the defendant. X got a good title
from the mercantile agent and he conveyed a good title to the defendant. A conveyance through
documents of title to the goods is equally effective against the true owner.
The conditions subject to which the rule operates may now stated as:
(1). Mercantile Agent: The first requirement is that the sale must be by a ‗mercantile agent;
(2). In Possession as mercantile agent: Secondly, the mercantile agent should be in possession of
the goods as mercantile agent. If the goods are entrusted to him in any other capacity, he cannot
convey a good title. This was so held in Staffs Motor Guarantee Ltd. V. British Wagon Co. Ltd.
A dealer in second-hand cars sold his lorry to a company and then immediately took it back from
the company under a hire-purchase agreement. He then resold the lorry to another company,
which claimed that it had good title to the lorry having bought it from a mercantile agent in good
faith.
But the court refused to sustain this claim. The lorry had been handed back to the dealer not as an
agent but as a hirer and, therefore, as its bailee. It was said because one happens to trust his
goods to a man is in other respects a mercantile agent, but with whom he is dealing, not as a
mercantile agent, but in a different capacity, I do not think that it is open to a third party who
buys the goods from that man to say that they were in his possession as a mercantile agent.
(3). With owner‘s Consent: Thirdly, the goods should be in the possession of the mercantile
agent ‗with the consent of the owner‘. This requirement is satisfied when it is shown that ‗the
true owner did intentionally deposit in the hands of the mercantile agent the goods in question.
When this is so, then it is immaterial that the consent was obtained by fraud of tricks or other
methods which render the consent voidable.
For instance, if a mercantile agent should induce the owner to pass the property to him by some
false pretence, as by giving for display purposes, by falsely pretending that he was in a large way
of business when he was not, then the owner cannot claim the goods back from an innocent
purchaser.
Where the agent obtains possession of the goods by theft, or otherwise without the consent of the
owner, the buyer from him cannot acquire a good title.Pearson V. Rose & Young Ltd. is a well-
known authority. P left his car with a mercantile agent and authorized him only to receive offers
and not to sell. The agent obtained possession of the registration books from P without his
consent and then promptly sold the car to the defendants. It was held that a sale without the
registration books would not have been a good sale and the registration books were obtained
without the consent of the owner, and, therefore, the buyer did not acquire a good title.
(4). Must sell while acting as mercantile agent: Fourthly, the mercantile agent must sell the
goods ‗when acting in the ordinary course of business of a mercantile agent‘. It means ‗acting in
such a way as a mercantile agent in the ordinary course of business as a mercantile agent would
act; that is to say, within business hours, at a proper place of business, and in other respects in the
ordinary way in which a mercantile agent would act, so that there is nothing to lead the other
party to suppose that anything wrong is being done.
(5). Good faith and without notice: Lastly, the buyer must act in good faith and should not have
notice that the seller has no authority to sell. Mere suspicion should not amount to notice. But it
is well established that suspicion in the mind of a person, and the means of knowledge in his
power willfully disregarded, would amount to notice.

III. Sale by Joint Owner [S. 28]: If one of the several joint owners of goods has the sole
possession of them by permission of the co-owners, the property in the goods is transferred to
any person who buys them of such joint owner in good faith and has not at the time of the
contract of sale notice that the seller has no authority to sell.

IV. Sale by Person in Possession under Voidable Contract [S. 29]: When a person has
obtained possession of the goods under a voidable contract and he makes a sale of them, the
buyer gets a good title provided the contract has not been avoided at the time of the sale and the
buyer acts in good faith and without notice of the seller‘s defect in the title.
The first condition for application of this exception is that the goods should have been obtained
under a voidable contract as opposed to a void contract. Where possession of the goods is
obtained under a void contract, the buyer does not get a good title.
Sale after avoidance of contract does not pass title: The next requirement is that the contract must
not have been rescinded at the time of the sale. The usual method of rescinding a contract is by
giving notice to other party of the intention to rescind. If he makes a sale after receiving this
notice, he cannot convey a good title to the buyer. Where the goods have been taken away by a
fraudulent person who will keep out of the way and cannot be communicated with, the contract
may be rescinded by doing whatever the owner of the goods can do to regain possession.
Good faith and without notice: The last requirement is that the buyer should act in good faith and
should not have notice of the seller‘s defective title.

V. Seller in possession after the Sale [S. 30(1)]: Where a seller, having sold goods, continues to
be in possession of them, and sells them over again to another person, the buyer gets a good title
provided the conditions of Section 30(1) are satisfied.
The first requirement of the exception is that the seller should continue to be in possession of the
goods after having sold them. In Staffs Motor Guarantee Ltd. V. British Wagon Co. Ltd., the
owner of a lorry sold it to the defendants and took it back on hire-purchase. He then resold it to
the plaintiffs. The later would not get a good title because the seller was not in possession ‗as
seller‘ but as a bailee under a hire-purchase agreement.
It is however not necessary that the seller should be in personal possession of the goods. It is
enough that the goods are at his disposal even if they are in the custody of a warehouse keeper.
Thus, in City Fur Manufacturing Co. V. Fureenbond (Brokers) London Ltd. One H purchase a
quantity of skins from a broker. The goods remained in the broker‘s warehouse pending
payment. H sold them to the plaintiffs who gave him a bill of exchange to enable him to pay the
broker and arrange delivery to the plaintiffs. Instead H pledged the goods with the defendants.
The defendants were held to have acquired a good title.
Where, however, the sale has been completed by delivering the goods to the buyer, this
exception will not apply even if the buyer has subsequently returned the goods to the seller for
some specific purpose and they are in the possession of the seller when he resells them. In such
cases the second buyer does not get a good title.
The buyer has to act in good faith and without notice of the fact that the goods in question were
already sold. It is necessary for this condition to be satisfied that the sale must take place in the
seller‘s ordinary course of business of a mercantile agent.
VI. Buyer in possession before sale [S. 30(2)]: Where a person has bought or has agreed to buy
certain goods of which possession has been given over to him, but the seller still has some lien or
right over the goods, if the buyer resells the goods the second buyer will get a title free from the
seller‘s right of lien.
The sale may have been made by actually transferring the goods or by transfer of documents of
title. A pledge or any other disposition of the goods will be equally effective. The second buyer
should act in good faith and without notice of the seller‘s rights.
Possession obtained under a hire-purchase agreement does not make the possessor a buyer in
possession so that a sale by him will not convey a good title to the buyer.
It is necessary that the original seller should have the right to sell the goods. If he does not have
the right to sell the goods, e.g. he is a thief or finder, neither the person taking possession from
him nor any subsequent buyer will get a good title.

VII. Resale by an Unpaid Seller: According to Sec. 54(2), if an unpaid seller has exercised the
right of lien or stoppage in transit and the buyer does not pay him, he may resell the goods after a
notice to the buyer. If such a notice is not given, the seller is neither entitled to claim from the
buyer any loss if the goods bring lower than the contract price nor can he retain the benefit if the
goods are sold at a higher price. When an unpaid seller has exercised his right of lien or stoppage
in transit and resells the goods, the buyer acquires good title thereto as against the original buyer,
notwithstanding that no notice of the resale has been given to the original buyer.

VIII. Sale by Finder of Goods: According to S 71, Indian Contract Act, the finder of goods is
subject to the same responsibility as the bailee. He is to take due care of the goods while they are
in his possession and also to return them when their owner has been found. According to S 169
of the Indian Contract Act, however, if the owner cannot with a reasonable diligence be found or
if he refuses upon demand, to pay the lawful charges of the finder, the finder may sell the goods.
When the goods is in danger of perishing or of losing the greater part of its value, or when the
lawful charges of the finder, in respect of the thing found, amount to two-third of its value the
finder may sell the goods and the buyer of such gods gets a good title.

IX. Sale by Pawnee: Normally, the pawnee of the goods is under a duty to return them if the
debt secured by such goods is paid back to him. According to S. 176, Indian Contract Act, if the
pawnor makes a default in the payment o the debt, the pawnee may either sue him for the debt or
may sell the goods pledged on giving the pawnor reasonable notice of the sale. Upon such a sale
being made by the pawnee, the buyer of such goods acquires a good title to them.
X. Sale in Market Overt: The sale of goods in market according to the usage of the market, the
buyer acquires a good title to the goods, provided he buys them in good faith and without notice
of any defect or want of title on the part of the seller. Such sale means sale in the open market by
a person who generally deals in such goods. The buyer‘s title is protected in case of such a sale
though the seller may be liable for the tort of conversion.

XII. Sale by person under other laws: The Official Assignee or Official Receiver, Liquidator,
Officers of Court selling under a decree, Executors, and Administrators, all these persons are not
owners, but they can convey better title than they have.

Performance of the Contract of Sale

It is the duty of the seller and buyer that the contract is performed. The duty of the sellers is to
deliver the goods and that of the buyer to accept the goods and pay for them in accordance with
the contract of sale.
Unless otherwise agreed, payment of the price and the delivery of the goods and concurrent
conditions, i.e., they both take place at the same time as in a cash sale over a shop counter.
Delivery (Sections 33-39)
Delivery is the voluntary transfer of possession from one person to another. Delivery may be
actual, constructive or symbolic. Actual or physical delivery takes place where the goods are
handed over by the seller to the buyer or his agent authorised to take possession of the goods.
Constructive delivery takes place when the person in possession of the goods acknowledges that
he holds the goods on behalf of and at the disposal of the buyer. For example, where the seller,
after having sold the goods,may hold them as bailee for the buyer, there is constructive delivery.
Symbolic delivery is made by indicating or giving a symbol. Here the goods themselves are not
delivered. but the "means of obtaining possession" of goods is delivered, e.g, by delivering the
key of the warehouse where the goods are stored, bill of lading which will entitle the holder to
receive the goods on the arrival of the ship.
Rules as to delivery
The following rules apply regarding delivery of goods:
(a) Delivery should have the effect of putting the buyer in possession.
(b) The seller must deliver the goods according to the contract.
(c) The seller is to deliver the goods when the buyer applies for delivery; it is the
duty of the buyer to claim delivery.
(d) Where the goods at the time of the sale are in the possession of a third
person, there will be delivery only when that person acknowledges to the
buyer that he holds the goods on his. behalf. .
(e) The seller should tender delivery so that the buyer ca~ take the goods. It is no duty of the
seller to send or carry the goods to the buyer unless the contract so provides. But the goods must
be in a deliverable state at the time of delivery or tender of delivery. If by the contract the seller
is bound to send the goods to the buyer, but no time is fixed, the seller is bound to send them
within a reas9nable time.
(f) The place of delivery is usually stated in the contract. Where it is so stated, the goods must be
delivered at the specified place during working hours on a working day. Where no place is
mentioned, the goods are to be delivered at a place at which they happen to be at the time of the
contract. of sale and if not then in existence they are to be delivered at the price they are
produced.
(g) The seller has to bear the cost of delivery u~less the contract otherwise provides. While the
cost of obtaining delivery is said to be of the buyer, the cost of the putting the goods into
deliverable state must be borne by theeseller. In other words. in the absence of an agreement to
the contrary, the expenses of and incidental to making delivery of the goods must be borne by the
seller, the expenses of and incidental to receiving delivery must be borne by the buyer.
(h) If the goods are to be delivered at a place other than where they are, the risk
of deterioration in transit will, unless otherwise agreed, be borne by the
buyer.
(i) Unless otherwise agreed, the buyer is not bound to accept delivery in instalments.
Acceptance of Goods by the Buyer
Acceptance of the goods by the buyer takes place when the buyer:
(a) intimates to the seller that he has accepted the goods; or
(b) retains the goods, after the lapse of a reasonable time without intimating to
the seller that he has rejected them; or
(c) does any act on the goods which is inconsistent with the ownership of the seller, e.g., pledges
or resells.
If the seller sends the buyer a larger or smaller quantity of goods than ordered, the buyer may:
(a) reject the whole; or
(b) accept the whole; or
(c) accept the quantity be ordered and reject the rest.
If the seller delivers, with the goods ordered goods of a wrong description, the buyer may
accept the goods ordered and reject the rest, or reject the whole.
Where the buyer rightly rejects the goods, he is not bound to return the rejected goods to the
seller. It is sufficient if he intimates to seller that he refuses to accept them. In that case, the seller
has to remove them.

Instalment Deliveries
When there is a contract for the sale of goods to be delivered in stated instalments which are to
be separately paid for, and either the buyer or the seller commits a breach of contract, it depends
on the terms of the contract whether the breach is a repudiation of the whole contract or a
severable breach merely giving right to claim for damages.
Suits for Breach of Contract
 Where the property in the goods has passed to the buyer, the seller may sue himfor the price.
 Where the price is payable on a certain day regardless of delivery, the seller may sue for the
price, if it is not paid on that day, although the property in the goods has not passed.
 Where the buyer wrongfully neglects or refuses to accept the goods and pay forthem, the
seller may sue the buyer for damages for non-acceptance.
 Where the seller wrongfully neglects or refuses to deliver the goods to the buyer,the buyer
may sue him for damages for non-delivery.
 Where there is a breach of warranty or where the buyer elects or is compelled to treat the
breach of condition as a breach of warranty, the buyer cannot reject the goods. He can set breach
of warranty in extinction or dimunition of the price payable by him and if loss suffered by him is
more than the price he may sue for the damages.
 If the buyer has paid the price and the goods are not delivered, the buyer can sue the seller for
the recovery of the amount paid. In appropriate cases the buyer can also get an order from the
Court that the specific goods ought to be delivered.

Anticipatory Breach
Where either party to a contract of sale repudiates the contract before the date of
delivery, the other party may,either treat the contract as still subsisting and wait till the date of
delivery, or he may treat the contract as rescinded and sue for damages for the breach.

In case the contract is treated as still subsisting it would be for the benefit of both the parties and
the party who had originally repudiated will not be deprived of:
(a) his right of performance on the due date in spite of his prior repudiation or
(b) his rights to set up any defence for non-performance which might have actually arisen after
the date of the prior repudiation.

Measure of Damages
The Act does not specifically provide for rules as regards the measure of damages except stating
that nothing in the Act shall affect the right of the seller or the buyer to recover interest or special
damages in any case were by law they are entitled to the same. The inference is that the rules laid
down in Section 73 of the Indian Contract Act will apply.

Unpaid Seller

Section 45 of the Sales of Goods Act defines the term ‗unpaid seller‘. The seller of goods is
deemed to be an ‗unpaid‘ seller within the meaning of this Act:
(a) When the whole of the price has not been paid or tendered;
(b) When a bill of exchange or other negotiable instrument has been received as conditional
payment, and the condition on which it was received has not been fulfilled by reason of the
dishonour of the instrument or otherwise.

A seller who has only received a part of the price is also an unpaid seller. Where the seller has
received a negotiable instrument, like a bill of exchange, promissory note or cheque, for the
price, he is not a unpaid seller. But if, before he has delivered the goods, the negotiable
instrument is dishonoured, then he becomes an unpaid seller and may exercise his rights. This is
so because a negotiable instrument is always presumed to have been received as a conditional
payment and the condition is not fulfilled when it is dishonoured.

If the bill is dishonoured before delivery has been made, then the vendor‘s lien revives; or if the
purchaser becomes openly insolvent before the delivery actually takes place, then the law does
not compel the vendor to deliver to an insolvent purchaser.
The protection afforded by the Act to an unpaid seller are also extended to ―any person who is in
the position of a seller, as for instance, an agent of the seller to whom the bill of lading has been
endorsed or a consignor or agent who has himself paid, or is directly responsible for the price.‖
But this provision does not operate so as to convert a buyer into a seller.

RIGHTS OF AN UNPAID SELLER

The sale of Goods Act has expressly given two kinds of right to an unpaid seller of goods,
namely :

(1) Against the goods

(a) When property in the goods has passed

(i) Right of lines

(ii) Right of stoppage of goods in transit

(iii) Right of re-sale

(b) When property in the goods has not passed

(i)Right of withholding delivery.

(2) Against the buyer personally

(i) Right to use for price

(ii) Right to sue for damages

(iii)Right to sue for interest.

Section 46 seeks to protect the interest of an unpaid seller by conferring upon him the following
rights against the goods, notwithstanding the facts that the property in the goods has passed to
the buyer:
(i) a lien on the goods for price while he is in possession of them;
(ii) in case of the insolvency of the buyer a right of stoppage of the goods in transit after he has
parted with the possession on them.
(iii) a right of resale as limited by Act.

These rights of an unpaid seller do not depend upon any agreement, express or implied between
the parties. They arise by implication of law. They are some of the incidents attached by law to a
contract of sale. The buyer has no right to have possession of the goods till he pays the price. The
seller‘s right in respect of the price is not a mere lien which he will forfeit if he parts with the
possession, but grows out of his original ownership and dominion, and payment or a tender of
the price is a condition precedent on the buyer‘s part and until he makes such payment or tender,
he has no right to the possession.
These rights generally presuppose that the property in the goods has passed to the buyer, and, in
order to assure the same rights and protections to seller where the property has not passed,
Section 46(2) specially declares that where the property in the goods has not passed to the buyer,
the seller would have the same rights of lien and stoppage in transit which he would have had as
if the property had passed.
―Lien‖ is the right to retain possession of goods until certain charges due in respect of them are
paid. The unpaid seller has the right to retain the goods until he receives their price. Section 47
provides that the unpaid seller of goods who is in possession of them is entitled to retain his
possession until payment or tender of the price in the following cases, namely:
(1) Where the goods have been sold without any stipulation as to credit;
(2) Where the goods have been sold on credit; but the term of credit has expired;
(3) Where the buyer becomes insolvent.
Where the goods are sold on credit, the right of lien is suspended during the term of credit. But
on the expiry of that term, if the goods are still in the possession of the seller, his lien revives.
The right of lien is linked with possession and not with title. Thus, where seller has transferred to
the buyer the documents of title to the goods, his lien is not defeated as long as he remains in the
possession. Even where the seller issued to the buyer delivery orders thereby converting himself
from an owner into a bailee for the buyer, his lien was not defeated. For Section 47(2) clearly
declares that ‗the seller may exercise his lien notwithstanding that he is in possession of the
goods as agent or bailee for the buyers.
The right of lien exists only for the price of the goods. The seller is not entitled to lien for any
other charges, i.e., charges for stronger or the like.
Section 48 of the Act provides for part delivery. Where an unpaid seller has delivered a part of
the goods, he may exercise his lien on the remainder. Where delivery of a part is intended as a
delivery of the whole, the lien is lost. ―If both parties intend it as a delivery of the whole, then it
is a delivery of the whole; but if either of the parties does not intend it as a delivery of the whole
if either of them dissents, then it is not a delivery of the whole.
Where the contract envisages delivery of goods by instalments, the buyer‘s default in paying for
one instalment does not entitle the seller to stop delivery of the rest of the instalments unless: (1)
the buyer has become insolvent, or (2) the buyer‘s default amounts to repudiation of the whole
contract.
Termination of Lien: Lien is linked with the possession and is lost when possession is lost.
Section 49 accordingly provides that the unpaid seller of goods loses his lien in the following
cases:
1. By delivery to Carrier: Delivery of the goods to a carrier for the purpose of transmission to the
buyer operates as a delivery to the buyer himself, and therefore, the right of lien is thereby lost.
Delivery to a carrier puts an end to lien, but the seller still has the right of stoppage in transit. If
the seller regains possession of the goods from the carrier by exercising his right of stoppage in
transit, his lien revives. But if he takes back the goods from the carrier for any other purpose, the
lien does not revive. Where the seller has reserved the right of disposal of the goods his lien
continues till the end of the transit.
2. By delivery to Buyer: The right of lien is also lost when the goods are delivered to the buyer
or his agent. The effect of delivery to the buyer is stated as when the vendor has given the buyer
possession under the contract of sale all his rights in the goods are completely gone; he must
recover the price exactly as he would recover any other debt and has no longer any claims on the
goods sold superior to those of any other creditor. The delivery and acceptance of possession
complete the sale, and give the buyer absolute, unqualified and indefeasible right of property and
possession in the things sold, though the price be unpaid and the buyer be insolvent.
Where the goods are delivered back to the seller for a specific purpose, such as repair of a
machine sold, that does not revive the seller‘s lien. The seller‘s lien is, however, not defeated
where the buyer has obtained possession without the consent of the seller. The buyer has to
obtain possession lawfully and under the contract.
3. By waiver: The right of lien is attracted by implication of law to every contract of sale for the
benefit of the seller. The seller may, therefore, if he so likes, waive his right. Waiver may be
express or implied from the conduct of the seller. An implied waiver takes place when the seller
is guilty of some wrongful act in reference to the goods, ‗such as dealing with the goods in a
manner inconsistent with the mere right to have possession of them, as by wrongfully re-selling
or consuming them, or by claiming to keep them on some ground other than his right to lien‘.
4. By tender of price: When the buyer tenders price for the goods, the seller ceases to be an
unpaid seller, and, therefore cannot, by his voluntary refusal to accept the price, convert himself
into an unpaid seller and claim lien.
Both the rights are designed for the protection of the unpaid seller. The effect of their exercise is
also the same, because when the seller stops the goods in transit he resumes possession and the
goods once again fall into the spell of his lien until the price is paid. Yet, ‗it is important to keep
them distinct, because, though the rights are analogous, they are in certain respects governed by
different considerations.‘

Requirements of stoppage in transit:

(i) The first requirement is that the seller should be unpaid;
(ii) The second that the buyer should have become insolvent;
(iii) The property should have passed to the buyer, for, if the seller reserves the right of disposal,
the goods remain his property, and, therefore, under his lien; and
(iv) The goods should be in the course of transit.
Commencement and end of transit [S. 51]: Section 51 tries to solve the difficulty by laying down
basic propositions which govern the commencement and end of transit:
1. Delivery to Buyer: 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 takes delivery of them. Thus, transit ends when the goods are delivered to the buyer
or his agent. For example, in G I P Rly Co. V. Hanmandas, the seller consigned the goods with
the G I P Rly Co. for transportation to the buyer. On arrival at the destination the company had
delivered the goods to the buyer who had loaded them on his cart, but the cart had not yet left the
railway compound when a telegram was received by the company to stop the goods. The
company did not do so and were sued by the seller in damages.
It was held that the transit had ended as soon as the goods were handed over to the buyer. The
railway company was, therefore, left with no power to stop them. Where the buyer does not
accept the goods, the transit does not end even if the goods have been landed at the port of
destination.
2. Interception by Buyer: The transit ends when the buyer or his agent takes delivery of the
goods from the carrier before their arrival at the appointed destination. It may be wrongful for
the carrier to deliver the goods to the buyer before their arrival at the appointed destination and
the carrier may be held liable in damages for depriving the seller of his opportunity, but transit
ends with that. The mere fact that the buyer takes his seat as a passenger in the ship which is
carrying the goods does not amount to delivery to the buyer before their arrival at the appointed
destination.
3. Acknowledgement to buyer: When the goods have arrived at their appointed destination and
the carrier acknowledges to buyer or his agent that he is now holding the gods on his behalf, the
transit is at an end, and it is immaterial that the goods are still with the carrier or that the buyer
has indicated a further destination. It requires a very clear acknowledgement to put an end to the
original contract of carriage.
4. Rejection by Buyer: If the goods are rejected by the buyer and the carrier or other bailee
continues in possession of them, the transit is not at an end. This will be so even if the seller
himself has refused to take back the goods.
5. Delivery to ship chartered by buyer: Where the goods are delivered to a ship chartered by the
buyer, it is a question of fact in each case whether the carrier is acting independently or as agent
of the buyer. If the circumstances show that the carrier is acting as an agent of the buyer, then the
transit is at an end as son as the goods are loaded on board the ship. But the mere fact that the
ship is chartered by the buyer and he has given no indication of the destination of the goods does
not mean that the carrier has become the agent of the buyer.
When the vendor knows that he is delivering the goods to someone as carrier, who is receiving
them in that character, he delivers them with the implied right of stopping them so long as they
remain in the possession of the carrier as carrier.
6. Wrongful refusal to deliver: Where the carrier wrongfully refuses to deliver the goods to the
buyer or his agent, the transit is at an end. It is obvious that the goods should have been arrived at
their destination, because otherwise the carrier has the right to refuse to deliver them.
7. Part Delivery: Where the goods have been delivered in part, the seller may stop the remainder
of the goods, unless the part delivery shows an agreement to give up the possession of the whole.

How Stoppage is effected: A notice is given to the carrier to stop the gods and redeliver them to
the seller or according to his directions. Notice may be given to the person in actual possession
or to his principal, in which case there should be sufficient margin of time to enable the principle
to communicate with his agent.
Effect of Sub-Sale: The unpaid seller‘s right to lien or stoppage in transit is not affected by any
sale or other disposition of the goods by the buyer. Thus, for example, in Mordaunt Brothers V.
British Oil and Cake Mills, an oil merchant sold a quantity of oil to B, without appropriating any
particular oil to the contract. B sold some of it to C and gave him a delivery order. C lodged the
delivery order with the merchant requesting him to await his orders. Meanwhile B failed to pay
the merchant, who, therefore, became an unpaid seller. It was held that the merchant‘s lien on the
goods for the price was not defeated by B‘s sale to C and he could retain the goods till the price
was paid.
But there are two cases in which the buyer‘s dealings with the goods defeat the seller‘s right
against the goods. They are :
1. Seller‘s Consent: Where the buyer sells or makes other disposition of the goods with the
consent of the seller, that is binding on the seller. The assent contemplated must be ‗such an
assent as in the circumstances shows that the seller intends to renounce his rights against the
goods. It is enough to show that the fact of a sub-contract has been brought to his notice, and that
he has assented to it merely in the sense of acknowledging the receipt of information. This was
pointed out in Mordaunt Brothers V. British Oil and Cake Mills, where the seller was informed
of the sub-sale after it had been effected and it was held that by this the seller had merely
acknowledged the existence of the sub-sale subject to his own rights the goods until paid for.
2. Transfer of documents of title: When the seller has issued to the buyer documents of title to
the goods and he has sold or pledged the goods by transferring the documents of title, then in the
case of sale, the seller‘s right of lien and stoppage in transit are defeated and, in case of pledge,
his right become subject to the pledge. It is necessary that the transferee should act in good faith
and should have given value for the goods. He should not at the time have the notice of the fact
that the original seller is still unpaid and has rights against the goods.
Thus, resale by the buyer by transfer of the documents of title completely defeats the seller‘s
right against the goods. But a pledge does not completely defeat the seller‘s right against the
goods. It only makes his rights subject to the pledge. The effect is that the seller may still
exercise his rights by paying off the pledge.
3. Right of Resale: The contract of sale is not rescinded when the seller exercises his right of lien
or stoppage in transit. The contract still remains in force and the buyer can claim delivery of the
goods on tendering the price. The property having passed to the buyer, it is not revested in the
seller. But obviously the law cannot allow the things to stand in that condition indefinitely. The
seller is, therefore given a limited right to resell the goods.
In the first place, he may resell the gods without reference to the defaulting buyer if the goods
are of perishable nature.

Secondly, in other cases, the seller should give a notice to the defaulting buyer of his intention to
resell. If the buyer does not pay the price within reasonable time after receiving the notice, the
seller may resell the goods. He can recover from the defaulting buyer any loss occasioned by his
breach of contract. He can also keep any profit which may occur on the resale. But if the unpaid
seller sells the goods without serving upon the buyer a reasonable notice, the seller cannot
recover damages for the breach and he has also to hand over any profit to the buyer made on the
resale.
The seller may expressly reserve the right of resale in case the buyer should make a default. In
such a case no notice of sale is necessary. The contract is automatically rescinded when the seller
resells the goods. He does not resell as an unpaid seller, but as an original owner of the goods.
Where the buyer pays a deposit he is entitled to refund of it when the seller resells the goods, but
subject to the seller‘s claim for damages. Where the seller does not offer evidence of the
difference between the contract price and resale price on the date of breach, he is not entitled to
any compensation.