Sale of Goods Act, 1930 – CMA Inter Law and Ethics Study Material

Sale of Goods Act, 1930 – CMA Inter Business Laws and Ethics Study Material is designed strictly as per the latest syllabus and exam pattern.

Sale of Goods Act, 1930 – CMA Inter Law and Ethics Study Material

Question 1.
Write short note on:
Termination of lien of unpaid Seller. (Dec 2012, 4 marks)
Answer:
Termination of Lien: Lien has not been specified in the question. It is taken as lien of unpaid seller. The unpaid seller loses his lien on the following conditions:

• when he himself agrees to terminate or waive his lien for example when he extends the period of credit;
• When the buyer or his agent lawfully obtains possession of goods
• when the seller unconditionally delivers the goods as per directions of the buyer. It should be noted that if the seller has obtained a decree for the price of goods, it does not mean that his lien is lost.

Question 2.
Write short note on:
Damping (Sale of Goods Act) (June 2013, 4 marks)
Answer:
Damping: Some bidders may do something to discourage the other bidders for bidding. Damping is illegal practice because it is intended to reduce the bidding price. The seller or the auctioneer can withdraw goods from auction if he smells of damping in the auction sale.

Descriptive Questions

Question 3.
In an auction sale a bid once given cannot be withdrawn. Do you agree? (Dec 2012, 2 marks)
Answer:
Any bid once made can be withdrawn at any time before the completion of the auction. When auction is completed and finished, the final bid which is accepted cannot be withdrawn.

Question 4.
A non-owner cannot make a valid Transfer of Goods. Answer with Rule position. (2012 – Dec 4 marks)
Answer:
According to the Sale of Goods Act, It is implied condition of sale that only owner can sell the goods. It is expressed in the Latin phrase as ‘Nemo dat quod qui non habet.’ which means that “none can give who does not himself possess.” There is one exception to this rule in case of future goods. Future goods means goods to be manufactured or produced or acquired by the seller after the making of contract of sale.

As rule, any person may sell or offer for sale goods of which he is not the owner at present, but which he expects to acquire in due course of time.

A contract to sell oil not yet extracted from the refineries owned by him or not yet obtained from pressing of seeds in his possession is a contract for sale of future goods. Any contract for present sale of future goods, constitutes as an agreement to sell. There are many examples, some of them are given below:

• Sale by mercantile agent : (mercantile means commercial or trade). The commercial agent of owner can sell the goods on behalf of owner though the commercial agent is not the owner of goods. The buyer gets valid title on goods purchased from agent.
• Sale by one of the joint owners: The goods can be sold by any of joint owners provided that the joint owners give permission in this regard.
• Sale by seller who is in possession of goods after sale.
• Sale by unpaid seller, sale by finder of goods, sale by official receiver or liquidator.
• Sale by pawnee,

Question 5.
Comment on the following based on legal provisions:
Parties to a contract of sale can get the price of goods fixed by third parties. (June 2013, 2 marks)
Answer:
Agreement to sell at valuation:
Sometimes the goods to be sold is such that either the seller or the buyer is not able to determine and decide its price.
In such cases both the parties make a contract that value of goods will be determined or valued by a third party who is expert in such field.

• Thus there is an agreement to sell goods on the terms that the price is to be fixed by valuation of third party.
• The third party should have no interest in the contract except for fixation of price.
• If that third party does not fix the price because of any reason of its own, the contract becomes void for non-fixation of price consideration.
• If the buyer has taken or used any part of goods or the whole goods, the buyer should pay a reasonable price, what is reasonable price will depend on facts and figures of each case.

Question 6.
Transfer of Title to goods takes place when It is intended. Whether it is correct? (June 2013, 2 marks)
Answer:

• It should be noted that transfer of property in goods is distinct and different from dehvery or possession of goods.
• The property may pass from the seller to buyer even without delivery of goods.
• It is elementary (basic) law of contract that parties may fix the time when the property (ownership) in goods shall be deemed to have passed.
• It may be at the time of delivery of goods, or it may be at the time making final payment or even at the time of making of goods.
• The seller can sue for price only when the property in goods has passed to the buyer.

Question 7.
In case of auction sales, auctioneers has Some implied obligations. State such obligations. (Dec 2013, 4 marks)
Answer:
Yes, obligations are:

• He has authority to sell goods.
• He warrants that he. does not know any defects in the title of the principal.
• He undertakes to give possession of the goods against price paid.
• He guarantees quiet possession of goods by the purchases.

Question 8.
A non-owner can convey a better title to the bonafide purchaser of goods for value in certain cases. List out those cases. (Dec 2013, 6 marks)
Answer:
Sale by person not the owner:
Where goods are sold by a person who Is not the owner thereof and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by conduct precluded the seller’s authority from denying the seller’s authority to sell.

• Generally, the owner alone can transfer property in goods “nemo dat quod non habet” means that no one can give what he himself does not have.
• It means a non-owner cannot make valid transfer of property in goods.
• It the title of the seller Is detective, the buyer’s title will also be subject to same detect. If the seller has no title, the buyer does not acquire any title although he might have acted honestly ‘and might have acquired the goods after due payment. This rule is to protect the real owner of the goods.
• Though this doctrine seeks to protect the interest of real owners, but in the interest of the trade and commerce there must be some safeguard available to a person who acquired such goods in good faith for value; accordingly, the Act provides the following exceptions to this doctrine which seeks to protect the interest of bonafide buyers.

(i) Sale by mercantile agent (Section 27):
Where a mercantile agent is, with the consent of the owner, in possession of the goods or of a document of title to the goods, any sale made by him, when acting in the ordinary course of business of a mercantile agent, shall be as valid as it he were expressly authorized by the owner of the goods to make the sale, provided that the buyer acts in good faith and he has not noticed at the time of the contract of sale that the seller has no authority to sell.

(ii) Sale by one of joint owners (Section 28):
If one of several joint owners of goods has the sole possession of the goods by permission of the co-owners, the property (means ownership) in the goods is transferred to any person who buys them of such joint owner in goed faith and has not at the time of the contract of sale noticed that the seller has no authority to sell. Where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are sanctioned.

(iii) Sale by person in possession under voidable contract (Section 29):
When the seller of goods has obtained possession thereof under a contract voidable under Section 19 or 19A of the Indian Contract Act, 1872, but the contract has not rescinded at the time of the sale the buyer acquires a good title to the goods, provided he buys them in good faith and without notice of the seller’s defect of title.

(iv) Seller or buyer in possession after sale (Section 30):
Where a person, having sold goods, continues or is in possession of the goods or of the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him of the goods or documents of title under any sale, pledge or other disposition thereof to any person receiving the same in good faith and without notice of the previous sale shall have the same effect as if the person making the delivery to transfer were expressly authorized by the owner of the goods to make the same.

(v) Sale by estoppel (Section 27):
Where the owner by his conduct or omission, leads the buyer to believe that the seller has authority to sell, he is estopped from denying the fact afterwards. The buyer thus gets a better title than the seller.

(vi) Sale by an unpaid seller after exercising his right of lien or stoppage in transit In addition to the exceptions discussed above which are provided in various sections of the Sale of Goods Act, the following exceptions are provided in other Acts like Contract Act, Civil Procedure Code etc.

(a) Sale by a finder of lost goods
Under Section 169 of the Contract Act, if a finder of lost goods could not reasonably find the true owner or the true owner refuses to pay the lawful charges of the finder of lost goods, the finder of lost goods can sell the goods when the goods are perishable in nature or when the lawful charges of the finder of lost goods amounts to 2/3rd of its value.

(b) Sale by pawnee
Under Section 176 of the Indian Contract Act, a pawnee can sell the goods under certain circumstances with due notice to the owner.

(c) Sale by official receiver or assignee
In case of insolvency of any individual, his official receiver or liquidator of a company can sell the goods and buyer thereof gets good title to it.

(d) Execution of Sale:
Under order 21 of the Civil Procedure Code, officer of Court may sell goods and convey good title to the buyer in spite of the fact that the officer of Court is not the true owner of the goods.

Question 9.
Under what circumstances breach of condition is treated as breach of warranty under the provisions of The Sale of Goods Act, 1930? (June 2014, 4 marks)
Answer:
According to Section 13 of the Sale of the Goods Act,1930 a breach of condition may be treated as breach of warranty in the following circumstances:

• Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may waive the condition.
• Where the buyer elects to treat the breech of condition as breach of a warranty.
• Where the contract of sale is non-severable and the buyer has accepted the whole goods or any part thereof.
• Where the fulfillment of any condition or warranty is excused by law, by reason of impossibility or otherwise.

Question 10.
Abhishek contracts to sell Bhusan, by showing sample, a certain quantity of tea described as ‘Best quality Darjeeling tea. The tea when delivered matches with the sample, but it is not Darjeeling tea. Referring to the provisions of Sale of Goods Act, 1930 advise the remedy, if any, available to Bhusan. (Dec 2014, 3 marks)
Answer:
Sale by sample is described in Sec. 170f the Sale of Goods Act, 1930. 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. In the case of a contract for sale by sample there is an implied condition- That the bulk shall correspond with the sample in quality. That they shall have a reasonable opportunity of comparing the bulk with the sample. That the goods shah be free from any defect, rendering them un-merchantable, which would not be apparent on reasonable examination of the goods. In a contract for sale of brand by sample, Bhusan is entitled to return the tea and claim refund of money as there is breach of condition.

Question 11.
State your views on the following:
(a) Consideration for sale of goods must be in terms of money.
(b) In an auction sale, a bid once made can not be withdrawn by the bidder. (June 2016, 2 marks each)
Answer:
(a) Correct: It is one of the essentials of the contract of sale, that price must be paid in terms of money.
(b) Incorrect: The bidder can withdrw his bid any time before the fall of the hammer i.e., completion of sale.

Question 12.
Answer the question:
What are the consequences of ‘destruction of goods’ under the Sale of Goods Act, 1930, where the goods have been destroyed after the agreement to sell but before the sale is affected. (Dec 2016, 4 marks)
Answer:
Destruction of Goods-Consequences:
(i) As per Section 7, a contract for the sale of specific goods is void if at the time when the contract was made; the goods without the knowledge of the seller, perished or become so damaged as no longer to answer to their description ¡n the contract. The rule is based on ground of mutual mistake or impossibility of performance, which is one of the essentials of a valid contract.

(ii) Section 8 provides that an agreement to sell specific goods becomes void if subsequently the goods, without any.ult on the part of the seller or buyer, perish or become so damaged as no longer to answer to their description in agreement before the risk passes to the buyer. This rule is also based on the grounds of impossibility of performance as stated above.

It may, however, be noted that Sections 7 and 8 apply only to specific goods and not to unascertained goods. If the agreement is to sell a certain quantity of unascertained goods, the perishing of even the whole quantity of such “goods” in the possession of the seller will not relieve him of his obligation to deliver the goods.

Question 13.
What do you understand by “Caveat-Emptor” under the sale of Goods Act, 1930? What are the exceptions to this rule? (Dec 2017, 8 marks)
Anewari
As per Sec. 16 of the Sale of Goods Act the buyer is supposed to satisfy himself about the quality of goods he purchased and is also charged with the responsibility of seeing that the goods suit the purpose for which they were purchased by him. Later on if the goods does not turn out to be as per his purpose, the seller cannot be asked to compensate him. This is based on the famous doctrine of CAVEAT EMPTOR which means ‘let the buyer beware’.

However, there are some exceptions to this which are as under:
(a) Where the buyer, expressly or by implication, makes it known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller’s skill or judgment, and the goods are of a description which ¡s in the course of the seller’s business to supply (whether he is the manufacturer or producer or not), there is an implied condition that the goods shall reasonably be fit for such purpose. However, in the case of a contract for the sale of a specified article under its patent or other trade name, there are no implied conditions as to its fitness for any particular purpose.

(b) Where goods are bought by description from a seller who deals in goods of that description (whether he is the manufaçturer or producer or not), there is an implied condition that the goods shall be of merchantable quality. However, if the buyer has examined the goods, there shall be no implied conditions as regards defects which such examination ought to have revealed.

In order to apply the implied condition as to merchantability the following requirements must be satisfied.

• the seller should be dealer in goods of that description;
• the buyer must have not opportunity to examine the goods or there must be some latent defect in the goods which would not be apparent on reasonable examination of the same.
  It may be noted the term merchantability has not been defined in the Act.

As per English Sale of Goods Act, goods of any kind are merchantable quality if they are as fit for the purpose or purposes for which goods of that kind xe community brought as it is reasonable to expect having regard to any description applied to them, the price and all other relevant circumstances.

(c) An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade. In some cases the purpose for which the goods are required may be ascertained from the acts and conducts of the parties to the sale or from the nature of the description of the article purchased. For example if a hot water bottle is purchased, the purpose for which it is purchased is implied in the thing itself. In such a case the buyer need not tell the seller the purpose for which the bottle is purchased. Similarly if a thermometer Is purchased in common usage, the purpose of thermometer is well known, the buyer need not tell the seller.

(d) An express warranty or conditions does not negative a warranty or condition implied by this Act unless in consistent therewith.

Practical Questions

Question 14.
Comment on the following based on legal provisions:
‘A’, the buyer ordered a patent smoke-consuming furnace by it Patent name for his brewery on ‘B’. Furnace received was however found to be unsuitable for the purpose. Hence seller ¡s responsible. (Dec 2012, 2 marks)
Answer: –
The seller is not responsible because he has supplied the goods as per the orders and specifications of buyer. If the buyer could not use the goods for his purpose, it is not the failure of seller. Buyer should have been careful while giving the order for the goods, whether such goods would serve his purpose or not.

Question 15.
Mr. Barun tells Mr. Tarun in presence of Mr. Arun that he is the Agent of Arun who maintains silence instead of denying Barun’s statement. Later on Barun sells Arun’s Goods to Mr. Tarun. Arun now disputed Barun’s title to the goods, as Barun was not Agent of Arun. Explain whether Arun is right. ( Dec 2012, 2 marks)
Answer:
In this case Arun cannot dispute Tarun’s ownership title to the goods. Sec. 27 of Sale of Goods Act provides that where the owner by his conduct or omission, leads the buyer to believe that the seller has right and/or authority to sell, he is stopped from denying the fact afterwards. The buyer thus gets better title than the seller. This is case of sale by estoppels.

Question 16.
Comment on the following based on legal provision:
Mr. ‘A’ purchased a Refrigerator from Mr. ‘B’ on their purchase agreement” expiring on 31.12.15. Mr. ‘A’ sold on 01.05.13 that Refrigerator to ‘C’ who purchased against adequate consideration. ‘A’ has right to give good title to Mr. C. (June 2013, 2 marks)
Answer:
Under Hire Purchase Agreement, the ownership passes to buyer only on payment of last installment. The hirer under hire purchase system, has no title to the refrigerator therefore Mr. A cannot give a good title to Mr. C. This is because Mr. C. does not get a better title than Mr. A had.

Question 17.
M/s. wholesaler agreed to supply 1000 Pcs. of Cotton Shirt to M/s. Retailer at INR 300 per shirt by 31.05.2013. On 01.02.2013 M/s. Wholesaler informs the Retailer that he is not willing to supply the shirt as the price of shirt increased to INR 350 each. Examine the right of M/s. Retailer. (June 2013, 2 marks)
(Or)
Mr. Malhotra sold 1000 kgs. of rice to Mr. Basu who delayed in taking the rice from Mr. Malhotra. In the meantime, Mr. Maihotra sold those rice to Mr. Roy who took the delivery for value & without notice of prior sale. Hence Mr. Roy has no good title of ownership to goods – Comment. (June 2013,2 marks)
Answer:
(c) On 01.02.2013 M/s Wholeseller indicated his unwillingness to supply cotton shirt @ 300/. per shirt although there is time up to 31.05.2013 for performance of the contract.

It is therefore called anticipating breach of contract. In such case M/s. Retailers can claim damages. M/s Wholesaler may treat the contract as subsisting and wait till the date of delivery or he may treat the contract as rescinded and claim damages for breach.

(g) Where Mr. Malhotra having sold goods continues in possession thereof or documents of title to the goods, the delivery by such seller i.e., Mr. Malhotra will pass a good title to M”r. Roy, since Mr. Roy acted on good faith and without notice of the previous sale by paying the value (Sec. 30) Where however Mr. Maihotra keeps the goods as Mr. Basu’s bailee, this section shall not apply (Sec. 30) In these circumstances, Mr. Roy can sue Mr. Malhotra.

Question 18.
Raman instructed Sornan, a transporter, to send a consignment of apples to Mumbai. After covering halLa distance, Soman found that the apples will perish before reaching Mumbai. Hence, he sold the same at a half the market price. Raman sued against Soman. Will he succeed? (Dec 2013, 3 marks)
Answer:
Agent’s Authority in an emergency: As per Section 189 of the Indian Contract Act, 1872. An agent has the authority in an emergency to do all such acts as man of ordinary prudence (means carefulness, wisdom) would do for protecting his principal from losses which the principal would have done under similar circumstances.

A typical case is where the agent handling perishable goods like ‘apples’ can decide the time, date, and place of sale, not necessarily as per instructions of the principal, with the intention of protecting the principal from losses.

Here the agent acts in an emergency and acts as a man of ordinary prudence. In the given case, Sornan had acted in an emergency situation and Raman will not succeed against him.

Question 19.
Mr. Z bought a refrigerator from a dealer’s shop. But he did not mention the required purpose i.e., whether It is fit to make ice. After using the same, Mr. Z came to know that the refrigerator was unfit for the purpose. State giving reasons as per the provisions of The Sale of Goods Act, 1930, is the dealer liable to refund the price? (June 2014, 4 marks)
Answer:
As per the Rule of Implied Condition, [Sec. 16 (1)]:
There is no implied condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale. In other words, the buyer must satisfy himself about the quality as well as the suitability of the goods. This is expressed by the maxim caveat emptor (let the buyer beware). But there is exception to this rule of Condition as to Quality or Fitness: There is an implied condition that the good shall be reasonably fit for a particular purpose described if the three conditions are satisfied:

• The particular purpose for which goods are required must have been disclosed (expressly or impliedly) by the buyer to the seller.
• The buyer must have relied upon the seller’s skill or judgment.
• The seller’s business must be to sell such goods.

Note: This condition cannot be invoked against a casual seller, in the given case, Mr. ‘Z’ bought a refrigerator from a dealer’s shop. But he did not mention the required purpose i.e. whether it is fit to make ice. After using the same Mr. ‘Z’ came to know that the refrigerator was unfit for the purpose. The dealer is liable to refund the price because refrigerator was unfit for the purpose for which it was meant for and the buyer was not required to disclose this particular purpose. (Evens v. Stelle Benjamin).

Question 20.
Makhan, seeing a mobile phone in a showcase of a shop which was marked for sale for ₹ 2,000, enters the shop, places ₹ 2,000 on cash counter and told to give him displayed mobile. Shop owner refused. Can the shop owner refuse to safe the displayed mobile? (Dec 2014, 3 marks)
Answer:
Price quotations and price tags do not amount to an offer but are only, an invitation to an offer. Therefore, Makhan’s picking up the mobile with price tag of ₹ 2,000/- amounts to an offer by Makhan to purchase the same at that price.

It remains to be accepted by the seller- the salesman at the cash counter of the mobile store, to result in concluded contract. The salesman has every right to accept or refuse the offer. Thus, Makhan shall have no remedies.

Question 21.
Lalit delivered sarees valuing ₹ 50,000 to Rohit on ‘Sale or Return Basis’. Rohi further delivered these sarees to Sumit and Sumit to Mohit on the same terms. and condition is Subsequently, these sarees were burnt by fire while in the custody of Mohit; Lalit filed a suit against Mohit for the recovery of the price, with reference to provisions of the Sale of Goods Act, 1930, examine whether Lalit’s suit for the price shall be maintainable. (Dec 2014, 4 marks)
Answer:
In case of sale of goods on ‘sale or return’ basis the property in goods passes from the seller to the buyer in any of the following circumstances as per provisions given under Section 24 of the Sale of Goods Act, 1930:

• When he (buyer) signifies his approval or acceptances to the seller;
• Where ho does any act adopting the transaction, i.e, sells or pledges the goods to a third party and,
• Where he retains the goods, without giving notice of rejection, beyond the time fixed for the return of goods or beyond a reasonable time (where no time is fixed).

Thus, in the given problem, Rohit is deemed to have accepted the sarees by further transaction to Sumit, and Sumit is deemed to have accepted the sarees by further transaction to Mohit. The ownership is thus vested on Sumit till Mohit approves or does any act adopting the transaction. In the meantime, the sarees are burnt from the custody of Mohit, and it is assumed that Mohit has handled the sarees with due care. Hence the loss should fall on Sumit because at present he is the owner and risk being associated with ownership unless otherwise agreed between the parties.

Question 22.
RK sells 200 bales of clothes to SK and sends 1oo bales by lorry and 100 bales by Railway. SK receives delivery of 100 bales sent by lorry, but before he receives the delivery of the bales sent by railway, he becomes bankrupt. RK being still unpaid, stops the goods in transit. The official receiver, on SK’s insolvency, claims the goods. Decide the case with reference to the provisions of the Sale of Goods Act, 1930. (Dec 2014, 4 marks)
Answer:
Section 50, of Sale of Goods Act, states that, subject to the provisions of this Act, when the buyer of goods becomes insolvent, the unpaid seller who has parted with the possession of the goods has the right of stopping them in transit, that ¡s to say, he may resume possession of the goods as long as they are in course of transit and retain them until payment of tender of the price.

Hence the major rules applicable would be:

• The seller must be unpaid
• He must have parted with the possession of goods
• The goods must be in transit
• The buyer must have become insolvent

Applying the above provisions in the given case, we may conclude that RK being unpaid, can stop the 1oo bales of cloth sent by railway as these goods are still in transit and SK has become insolvent.

Question 23.
Answer the question:
With a view to boost the sales, M/s ABC Ltd. sells a new machine to Mr. B on trial basis for a period of three days with the condition that if Mr. B is not satisfied with the performance of the new machine, he can return back the new machine. However, the machine was destroyed in a tire accident at the place of Mr. B before the expiry of three days. Decide whether Mr. B is liable for the loss suffered under Sale ot Goods Act, 1930. (2015 – June 3 marks)
Answer:
The problem as asked in the question is based on the provisions of the Sale of Goods Act, 1930 as contained in Section 8.
Where there is an agreement to sell specific goods and subsequently the goods without any fault on the part of the seller or buyer perish or become 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.

In the given case that the subject matter of the contract i.e., new machine was destroyed before the transfer of property from the seller to the buyer. Thus the risk passes only when the ownership is transferred to the buyer. Therefore, in the present case, Mr. B is not liable for the loss suffered due to the fire accident over which B has no control. Thus M/s. ABC Ltd. will have to bear whatever loss that has taken place due to the fire accident.

Question 24.
Answer the questions:
(a) (ii) For the purpose of making uniforms for the employees, Amit bought dark blue colored cloth from Bhagat but did not disclose to the seller the purpose of said purchase. When uniforms were prepared and used by the employees, the clothes was found unfit. However, there was evidence that the cloth was fit for caps, boots, and carriage lining. Advise Amit whether he is entitled to have any remedy under the Sale of Goods Act, 1930? (Dec 2015, 3 marks)

(b) (ii) Mahendra made a hire-purchase agreement with Narendra for a car of which Narendra was described as the owner. Mahendra paid four of the twelve monthly installments and then learned that Jitendra claimed to be The owner of the car. He nevertheless paid the balance of installment and exercised his option to purchase. Jitendra then demanded the car and Mahendra gave it up to Nm. Mahendra then sued Narendra to recover the full price and Narendra counter-claimed for a reasonable sum as hiring, charges for the car during the period it was with Mahendra. Decide. (Dec 2015, 3 marks)
Answer:
(a) (ii) As per the provision of Section 16(1) of the Sale of Goods Act, 1930, an implied condition in a contract of sale is that an article is fit for a particular purpose only arises when the purpose for which the goods are supplied is known to the seller, the buyer relied on the seller’s skills or judgement and seller deals in the goods in his usual course of business.

In this case, the cloth supplied is capable of being applied to a variety of purposes, the buyer should have told the seller the specific purpose for which he required the goods. But he did, not do so.
Therefore, the implied condition as to the fitness for the purpose does not apply.
Hence, the buyer will not succeed in getting any remedy from the seller under the Sale of Goods Act (Jones y. Padgett. 14 Q.B.D. 650].

(b) (ii) The “Nemo dat quod non habef’ rule protects the true owner (Jitendra) and the buyer (Mahendra) who was aware of Narendra’s defective rights after paying the fourth installments, would not get any right or title out of his ineffective hire purchase agreement with Narendra.

• Because Narendra was neither owner nor an authorized person to put the car on hire purchase and for the same reason, he is not.
• entitled to receive any money under the agreement.
• However, Mahendra may be asked by Jitendra to pay a reasonable rent for the use of the car and Mahendra can recover the amount paid by him to Narendra.

Question 25.
Answer the question:
Ram sells 200 bales of cloth to Shyam and sends 100 bales by lorry and 1oo bales by Railway. Shyam receives delivery of 100 bales sent by lorry, but before he receives the delivery of the bales sent by railway, he becomes bankrupt. Ram Leing still unpaid, stops the goods in transit. The official receiver, on Shyam’s insolvency, claims the goods. Decide the case with reference to the provisions of the Sale of Goods Act, 1930. (June 2016, 5 marks)
Answer:
Section 50 of the Sale of Goods Act, states subject to the provisions of this Act, when the buyer of goods becomes insolvent, the unpaid seller who has parted with the possession of the goods has the right of stopping them in transit, that is to say, he may resume possession of the goods as long as they are in course of transit and retain them until payment of tender of the price.
Hence the major rules applicable would be:

• The seller must be unpaid
• He must have parted with the possession of goods
• The goods must be in transit
• The buyer must have become insolvent

Applying the above provisions in the given case, we may conclude that Ram being unpaid, can stop the 100 bales of cloth sent by railway as these goods are still in transit.

Question 26.
Answer the questions:
(ii) A delivered some diamonds to B on state or return basis. B delivered the diamonds to C and C to D on similar terms. The diamonds were stolen while in the custody of D. Who shall suffer the loss?
(Dec 2016, 5 marks)
(iii) X buys synthetic pearls for a high price thinking that they are natural pearls. The seller though understood X’s intention, kept silent. Examine the remedies X has against the seller as per the Sale of Goods Act, 1930. (Dec 2016, 3 marks)
Answer:
(ii) In this case, B has adopted the transaction by delivering the diamonds to C and thus is liable to pay the price to A. Similarly, C has adopted the transaction by further delivery to D and tus is liable to pay the price to B. As between C and D, the transaction was still of sale or return which was not adopted by D, either expressly or impliedly, and thus the ownership had not passed to D at the time of loss. Therefore, C shall suffer the loss of diamonds.

(iii) X has no remedy against the seller as the doctrine of Caveat Emptor will apply:
Caveat emptor” means “let the buyer beware”, i.e. in sale of goods the seller is under no duty to reveal unflattering truths about the goods sold. Therefore, when a person buys some goods, he must examine them thoroughly. If the goods turn out to be defective or do not suit his purpose, or if he depends upon his skill and judgment and makes a bad selection, he cannot blame anybody excepting himself.

The rule is enunciated in the opening words of Section 16 of the Sale of Goods Act, 1930 which runs thus, “Subject to the provisions of this Act and of any other law for the time being in force, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale”.

Question 27.
M/s. Tea Enterprises agreed to supply 2,200 Kgs. of Tea to M/s. Gopal Enterprises at ₹ 1200/- per Kg. by 30th April 2018. On 1st March, 2018 M/s. Tea Enterprises informs Gopal Enterprises that they are not willing to supply the Tea as the price of Tea increased to ₹ 1400/- per Kg. Examine the right of M/s. Gopal Enterprises. (June 2018, 8 marks)
Answer:
In terms of the provisions of Sections 32 and 33 of the Sale of Goods Act, 1930; unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions, that is to say, the seller shall be ready and willing to give possession of the goods to the buyer in exchange for the price, and the buyer shall be ready and willing to pay the price in exchange for possession of the goods.

Rights of the Buyer according to the Sale of Goods, 1930 Include:

1. To have delivery of the goods as per contract. (Sections 31 and 32);
2. To sue the seller for recovery of the price, if already paid, when the seller fails to deliver the goods;
3. To sue the seller for damages if the seller wrongfully neglects or refuses to deliver the goods to thé buyer (Sec. 57);
4. To sue the seller for specific performance;
5. To sue the seller for damages for breach of a warranty or for breach of a condition treated as breach of a warranty (Sec. 59);
6. To sue the seller the damages for anticipatory breach of contract (Sec. 60) In the instant case M/s. Gopal Enterprises can exercise any of his rights discussed above.

Question 28.
Himadri sent 400 Kgs. of tea to Rahul and sends 200 Kgs. by lorry and 200 Kgs. by Railway. Rahul receives delivery of 200 Kgs. sent by lorry, but before he receives the delivery of the tea sont by railway, he becomes bankrupt. Himadri being still unpaid, stops the goods in transit. The official receiver, on Rahul’s insolvency claims the goods. Decide the case with reference to the provisions of the Sale of Goods Act, 1930. (June 2019, 7 marks)
Answer:
Section 50, of Sale of Goods Act, states that, subject to the provisions of this Act, when the buyer of goods becomes insolvent, the unpaid seller who has parted with the possession of the goods has the right of stopping them in transit, that is to say, he may resume possession of the goods as long as they are in course of transit and retain them until payment of tender of the price.

Stoppage in transit (Sections 50-52):
The right of stoppage in transit is a right of stopping the goods while they are in transit, resuming possession of them, and retaining possession until payment or tender of the price.

The right to stop goods ¡s available to an unpaid seller

• When the buyer becomes insolvent; and
• the goods are in transit.

The buyer is insolvent if he has ceased to pay his debts in the ordinary course of business, or cannot pay his debts as they become due. It is not necessary that he has actually been declared insolvent by the court.

The goods are in transit from the time they are delivered to a carrier or other bailee’ like a wharfinger or warehouse keeper for the purpose of transmission to the buyer and until the buyer takes delivery of them.

The transit comes to an end In the following cases:

• If the buyer obtains delivery before the arrival of the goods at their destination
• If, after the arrival of the goods at their destination, the carrier acknowledges to the buyer that he holds the goods on his behalf, oven if further destination of the goods is indicated by the buyer
• If the carrier wrongfully refuses to deliver the goods to the buyer.

Applying the above provisions in the given case, we may conclude that Himadri being unpaid, can stop the 200 Kgs. of tea sent by railway as these goods are still in transit and Rahul has become insolvent.

Sale of Goods Act, 1930 CMA Inter Law and Ethics Notes

1. Introduction
→ It is one of the special types of contract.
→ Initially, it was the part of Indian Contract Act.
→ Later it was deleted and a separate act was passed.
→ Basic provisions and requirements of contract equally apply to Sales of Goods Act.
→ It contains and deals with law relating to sale of goods and not with mortgage or pledge.
→ It received its assent on 15th March, 1930.
→ It came into force on 1st July, 1930.
→ It extends to whole of India except the State of Jammu & Kashmir.

2. Definition of Various Terms
→ Buyer: Person who buys or agrees to buy the goods.
→ Seller: Person who sells or agrees to sell the goods.
→ Goods: As per Sec. 2(7), it means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to contract of sale.
→ Money means current money and it includes rare and old coins.
→ Actionable claim means what a person cannot make a present use of or enjoy, but can recover it by means of a suit or an action.
→ Existing Goods: It means such goods which are in existence at the time of the contract of sale i.e. owned or possessed by the seller.
→ Specific Goods: It means goods identified and agreed upon at the time the contract of sale has been made.

→ Ascertained Goods: It means that the goods are identified in accordance with the agreement after the contract of sale has been made.
→ Generic/Unascertalned Goods: It means the goods which are not specifically identified but are indicated by description.
→ Future Goods: As per Sec. 2(6), it means goods to be manufactured or produced or acquired by the seller after making the contract of sale.

→ Contingent Goods: It means the goods the acquisition of which by the seller depends upon a contingency which may or may not happen.
→ Agreement to sell can only be there in respect of future or contingent goods.
→ Actual sale can take place only in respect of specific goods.
→Goods are said to be in a deliverable state, when they are in such a condition that the buyer would, under contract, be bound to take delivery of them.
→ Delivery: It means voluntary transfer of possession by one person to another.

→ Document of Title of Goods: It includes bill leading, dock-warrant, warehouse keeper’s certificate, wharfinger’s certificate or any other document used in the ordinary course of business as proof of the possession or control of goods or authorising or purporting to authorize either by endorsement or delivery, the possessor of the document to transfer or receive goods thereby represented.

→ Property: It means the general property and not merely a special property.
→ Insolvent: Person is said to be insolvent when he ceases to pay his debts in the ordinary course of business.

3. Contract of Sale
In this ownership is transferred immediately to buyer even though possession of goods Is with seller. ‘ As per Section 4(1) of the Sale of Goods Act, 1930, “Contract of sale of Goods is a contract whereby the seller transfers or agrees to transfers the property in goods to the buyer for a price”.

4. Essential Elements
→ There must be at least two parties. (Bilateral Contracts)
→ The subject matter of the contract must be goods.
→ A price in money should be paid or promised.
→ A transfer of property in goods from seller to the buyer must take place.
→ It must be absolute or conditional.
→ All other essentials of a valid contract must be present.

5. Sale.
As per Section 4(3) of the Act, “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”.

6. Agreement to Sell
As per Section 4(3) of the Act, Where under a contract of sale 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”.

7. Formalities of Contract of Sale
→ There may be immediate delivery of goods
→ There may be immediate payment of price, but it may be agreed that the delivery is to be made at some future date.
→ There may be immediate delivery of the goods and an immediate payment of price.
→ It may be agreed that the delivery or payment or both are to be made in installments.
→ It may be agreed that the delivery or payment or both are to be made at some future date.

8. Subject Matter of Sale
As per Sec. 6 –
→ Subject matter must always be goods which may be existing or future goods.
→ Contract can also be made with regard to the goods, the acquisition of which by seller depends upon a contingency, which may or may not happen. Such contracts are contingent contracts.
→ When the seller purports by his contract to effect a sale of future goods, the contract will operate only as an agreement to sell the goods and not as sale.

9. Destruction of Subject Matter of Sale
Goods Perishing before Making a Contract (Sec. 7):

• The contract is void ab initio.
• If seller enters into the contract even on being aware of the destruction, he is estopped from disputing the contract.
• It also includes the goods that have lost their commercial value.

Goods Perishing after Agreement to Sell (Sec. 8):

• Agreement becomes void.
• Provided the risk has not passed to the buyer.
• It applies only to sale of specific goods.

10. Price
→ Price means monetary consideration for the sale of goods.
→ It may be money actually paid or promised to be paid.
→ No sale can take place without a price.

11. Ascertainment of Price.
As per Sec. 9 –
Price may be:

• Fixed by a contract.
• Agreed to be fixed in a manner provided by the contract, or
• Determined by the course of dealings between the parties.

When it cannot be fixed in any of above ways, the buyer is bound to pay a reasonable price to the seller. Generally Market Price would be the Reasonable Price:

As per Sec. 10
→ Price is to be determined by third party.
→ Where there is an agreement to sell goods on the terms that the price is to be fixed by third party, and he either does not or cannot make such valuation, the agreement will be void.
→ If the third party is prevented by the default of either party from fixing the price, the party at fault Will be liable to the damages to the other party who is not at fault.

12. Stipulation
→ Before concluding a contract of sale, certain statements are made by the contracting parties.
→ Statement may be stipulation – one by seller on the reliance of which the buyer makes the contract.
→ Statement may not be a stipulation – if it is a mere recommendation by seller thus, does not give rise to any action.

→ “A stipulation or a representation in a contract of sale with reference to goods which are the subject thereof, maybe a condition or a warranty.”

13. Warranty
→ “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 a right to reject the goods and treat the contract as repudiated.
→ As per Sec. 11,
→ Stipulation as to time of payment are not the condition unless such an intention appears from the contract.

14. Circumstances when Condition may be Deemed as Warranty
→ Where the buyer waives the performance of the condition altogether, the party may for his own benefit, waive a stipulation.
→ Where the buyer himself opts to treat the breach of condition as a warranty.
→ Where the contract is non-severable and the buyer have accepted either the whole goods or any part thereof.
→ Where the fulfillment of any condition or warranty is excused by law by reason of impossibility or otherwise.

15. Types of Conditions
Express Condition:
→ Condition is expressed when the terms of contract expressly states them.
→ They are agreed upon between the parties at the time of contract and are expressly provided in the contract.
→ It does not negativate an implied condition.

Implied Condition:
→ Condition is implied when the terms are not expressly provided for.
→ They are presumed by law to be present in the contract.
→ They may be neglected or waived by an express agreement.

It Includes:

• Condition as to title.
• Condition as to sale by description.
• Condition as to sale by sample as well as description.
• Condition as to quality and fitness.
• Condition as to merchantability.
• Condition as to sale by sample.
• Condition as to wholesomeness.

16. Condition as to title [Sec. 14(a)]
→ It presumes that the seller has a valid title to the goods.
→ Seller has a right to sell the goods in case of sale.
→ In case of agreement to sell, he will have the right to sell the goods at the time when the property is to pass unless there is a contract to the contrary.
→ If seller’s title turns out to be defective, the buyer may return the goods to the true owner and recover the price from the seller.

17. Condition as to Sale by Description (Sec. 15)
→ Here, the implied condition is that the goods must correspond with the description.
→ The buyer is not bound to accept and pay for the goods which are not in accordance with the description of goods.
→ The buyer relies for his information on the description of the goods given by the seller.

18. Condition as to Sale by Sample as well as Description (Sec. 15)
Here, the implied condition is that the bulk of goods supplied must correspond with both the sample and the description.

19. Condition as to Quality and Fitness [Sec. 16(1)]
Here the implied condition operates on the fulfilment of following conditions:-

• The buyer requires the goods for a particular purpose which he has made known to the seller.
• The buyer relies on the skill and judgement of the seller.
• The seller sells such types of goods.

If the goods are bought under a patent or trade name, there is no such condition.

20. Condition as to Merchantability [Sec. 16 (2)]

• It means that when the goods are bought by description from a seller who deals in such goods, it is implied that goods will be of merchantable quality.
• It is immaterial, whether the seller is manufacturer or producer or not.
• It does not operates where the buyer examines the goods prior to the sale and examination ought to have revealed the defects.

21. Condition as to Wholesomeness
In case of eatables and other provisions, there is an implied condition of whole some ness i.e. fit for consumption, other than merchantability.

22. Condition as to Sale by Sample (Sec. 17)
There is an implied condition that:-

• The bulk shall correspond with the sample in quality,
• The buyer shall have a reasonable opportunity of comparing the bulk with the sample.
• The goods shall be free from any defect rendering them unmerchantable, which would not be apparent on reasonable examination of the sample.

23. Doctrine of Caveat Emptor

• It means let the buyer beware’ i.e. buyer purchases the goods at his own risks.
• When the seller display the goods in open market, it is for the buyers to make a proper selection of goods.
• If the goods turn out to be defective, he cannot hold the seller liable.

As per Sec. 16,
“Subject to the provisions of this Act, or any other law for the time being in force, there ¡s no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale.”

24. Transfer of Title by Non-Owner Sec. 27:
The general rule is where goods are sold by a person who is not the owner thereof and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than that the seller had.” This rule is expressed in the Latin maxim “Nemo dat quod non ha bet” which means that no one can give what he has not got. i.e. no one can pass a better title than he himself has- Even a bonafide buyer gets no valid title.

Exceptions to the above rule:

• Effect of estoppel.
• Sale by a mercantile agent.
• Sale by joint owner.
• Sale by person in possession under a voidable contract.
• Sale by seller in possession after sale.
• Sale by buyer In possession after sale.
• Sale by an unpaid seller.
• Sale by person under other laws.

25. Mode of Delivery
Actual/Physical:

• Goods are physically handed over to buyer or his authorised agent Constructive:
• Possession of goods is changed without any actual change in their custody Symbolic:
• Goods are not delivered physically but some symbol carrying real possession or control is handed over

26. Unpaid Seller
As per Sec.45,
Seller is deemed to be an unpaid seller, when:

• Whole of the price has not been paid or tendered and seller had an immediate right of action for the price.
• A bill of exchange or other negotiable instrument was given as payment, but the same has been dishonored, unless this payment was an absolute and not a conditional payment.

Rights of Unpaid Seller Against Goods:

• Right of lien or retention.
• Right of stoppage in transit.
• Right of resale.
• Right to withhold delivery.

27. Auction Sales (Sec. 64)

• It is a mode of selling property by inviting bids publically and the property is sold to the highest bidder.
• It is a public sale where goods are offered to be taken by bidders.
• The auctioneer is only an agent of seller.

The following rules apply –

• When goods are put up for sale in lots, each lot is treated to be the subject of a separate contract of sale.
• Sale is complete when the auctioneer announces its completion by fall of hammer or in another customary manner.
• Right to bid may be reserved expressly by or on behalf of seller;
• If such right is not reserved, it is not lawful for the auctioneer knowingly to take any bid from seller.
• Sale may be notified to be subject to a reserve or upset price.
• It seller makes use of pretended bidding to raise the price, sale is voidable at the buyer’s option.