CHAPTER 11

Questions and Answers

Q.1. Distinguish between sale and hire purchase.

Ans. A sale is different from hire purchase as the sale gives complete authority to buyer to use or dispose off the goods on his own Will. But, a hirer gets only possession of goods. He cannot pass the title of goods to any buyer. Secondly, sales tax is not leviable on hire purchase unless and until it is converted into a sale.

If the hirer does not have the option to return the goods to its owner then it will be an agreement to buy and not a hire purchase.

The hirer cannot be compelled to buy as observed by the Supreme Court in the case K.L. Johar & Co. v. Dy CTO, MANU/SC/0348/1964 : AIR 1965 SC 1082, Wanchoo, J. said-

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.

It was further added-

"Coming into being of sale is a question of fact and it takes place when the hirer exercises the option. It cannot be said that merely because the hire purchase agreement stipulates a particular period for the total payment of the consideration and for the purchaser to exercise the option to purchase at the end of the said period, the sale does take place at the end of that period willy-nilly. There may be cases where the hirer may default in paying the amount within the stipulated period, he may ask for extension and the dealer may grant it. In such cases, the sale obviously takes place only when the purchaser exercises the option to purchase after fully paying the agreed amount."

We can take another example of the case Lee v. Butler, where a lady hired certain furniture from the plaintiff for which the price was to be paid in two instalments. The condition was also there that in case the lady fails to give instalments, the plaintiff had right to take the furniture back. But, before the last instalment was paid, the furniture was sold by the lady to defendant.

The court 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.

Q.2.Can a buyer claim the price of goods if it was found on possession that it was stolen and seller sold it knowingly?

Ans. In sale, the ownership of goods is transferred from seller to buyer. The law confers the rights on seller to sell the goods if there is an implied condition that the seller has the right to sell. Buyer may reject the goods if, the title of the seller turns out to be defective.

In a case, Rawland v. Divall, (1923) 2 KB 500 CA, the buyer had purchased a second hand car from a dealer and used it but within few months, the care was seized by the police as it was stolen. Here, the buyer may recover the full price from the buyer (dealer) although he had used it for few months. Lord Atkin said-

"There can be no sale at all of goods which the seller has no right to sell. The whole object of a 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. Even, when a seller has full ownership of the goods, yet he may commit a breach of this condition.

In Niblett v. Confectioner's Materials Co., (1921) 3 KB 387: (1921) All ER Rep 459 CA,

3000 tins of condensed milk was sold by the defendants. The consignment reached from New York to London and the plaintiff found that 1000 tins were labelled as "Nissly brand". Another manufacturer of condensed milk under the name of 'Nestle brand' claimed that that this was an infringement of their trade mark. Then the plaintiff removed the labels and sold it on reduced price. Then the plaintiff sued the sellers for the breach of the condition as to title.

In the case, it was held that the plaintiff had the right to reject the goods or was entitled to recover the damages what he lost due to sale of milk on reduced prices.

Lord Atkin has explained the meaning of the words "right to sell" as follows-

"The seller had not the right to sell these goods.....having admitted that there being 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".

It was the view of their Lordship that the defendants could have passed the property in the goods but for the intervention of the third party, they had nevertheless no right to sell the goods arising to the existence of a title superior to that of the vendor, so that the possession of the vendee may be disturbed. In the words of Scrutton, L.J.-

"The defendants impliedly warranted that they had then the right to sell them. In fact they could have been restrained by injunction from selling them, because they were infringing the rights of third person. If a vendor can be stopped by process of law from selling he has not the right to sell".

Q.3. Discuss sale by sample with the help of relevant cases.

Ans. Section 17 of the Sale of Goods Act puts 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 unmerchantable which would not be apparent on reasonable examination of the sample.

If a buyer purchases the goods on the basis of sample and finds that the goods are defective which was not apparent on reasonable examination of the sample, the buyer has got the right to reject the goods on discovering the defect later. Further, even on partial defects on some of the goods, the buyer can reject the entire quantity of goods.

In the case, Prabhu Dayal v. Bhagwan Sahai, AIR 1955 NVC 4067 Raj, the goods were found defective which was purchased on the basis of sample and it was unmerchantable too. Here, the buyer was justified in not accepting the goods on delivery. Here, the buyer has not committed any breach of contract and the seller is not entitled to any damages which he may have suffered on release of the goods.

Section 41 gives the buyer an opportunity to examine the goods which have been delivered and it was not previously examined, he is not deemed to have accepted them unless and until he has had a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract.

It the buyer rejects the goods after inspection due to its non-conformity with the samples and if he has already paid for the goods then he can recover the price as money had and received for his use.

When there is a dispute which arises from indifferent supply of goods (regarding quality), it would be the duty of the seller to prove that the goods were of the quality contracted for (Beharilal Baldeo Prasad, Re), AIR 1975 Mad 271.

Q. 4. Define 'ascertained goods' and differentiate it with 'unascertained goods'.

Ans. "Goods must be ascertained-Where there is a contract for the sale of unascertained goods, no property in the goods in transferred to the buyer unless and until the goods are ascertained."

The Supreme Court in the case, Badri Prasad v. State of Madhya Pradesh, MANU/SC/0079/1969 : (1971) 3 SCC 23, defined the term 'ascertained goods' as follows-

"It is true that trees which are agreed to be cut before sale or under the contract of sale are "goods" for the purposes of the Sale of Goods Act. But before they cease to be "proprietary" right or interest in proprietary rights within the meaning of sections 3 and 4(a) of the Act they must be felled under the contract. It will be noticed that under clause 1 of the contract the plaintiff was entitled to cut teak trees of more than 12 inches girth. It has to be ascertained which trees fell within that description. Till this was ascertained, they were not "ascertained goods" within section 19 of the Sale of Goods Act. Clause 5 of the contract contemplated that stumps of trees after cutting had to be 2 inches high. In other words, the contract was not to sell the whole of the trees. In these circumstances property in the cut timber would only pass to the plaintiff under the contract at the earliest when trees are felled. But before that happened the trees had vested in the State."

Unascertained goods are distinct from specific or ascertained goods in that sense that future goods include those goods which are not in existence yet or goods which have not been acquired so far by the seller. It may also be said that future goods for purposes of passing of property can never be distinct.

Unascertained goods are not defined by the Sale of Goods Act but they fall under following categories-

Ist-Goods, which are to be manufactured or grown by the seller which are necessarily future goods,

2nd-Generic goods, e.g. 20 tonnes of sugarcane or similar goods which must also be future goods where the seller does not own sufficient goods of the description in question to appropriate the contract, and

3rd-An unidentified part of a specific whole, e.g. 1000 tonnes of sugarcane out of a particular lot of 5000 tonnes of sugar cane.

Q.5.Explain the meaning of 'Buyer is without Title when sale is by a person who is not the Owner of the Title'

Ans. The buyer doesn't get the title if the goods have been sold by a finder or a thief.

In the case Farquharson Bros. v. King & Co., (1902) AC 325 (335-36), the Judges said-"if a person leaves a watch or a ring on a seat in the park or on a table at a cafe, and it ultimately gets into the hands of a bona fide purchaser, it is no answer to the true owner to say that it was his carelessness and nothing else, that it enabled the finder to pass if off as his own".

Other examples:

(a)Delivery of goods by A on sale or return to B, upon the condition that they are to remain the property of A until the price is paid. B sells them to C without paying A for them. C purchases in good faith and without notice of A's title. Here, A can recover the goods or their value from C [Edwards v. Vaughan, (1910) 26 TLR 545 (CA)].

(b)A stolen horse was sold at a public auction, the fact of theft being known neither to the auctioneer nor to the buyer [Leo v. Bayer, (1856) 18 CB 599: 107 RR 424].

(c)A, the bus owner appointed B to ply his bus for hire. Then A handed over B a letter which was to be delivered to the Magistrate to obtain a permit for hiring the bus. B fraudulently altered the letter into one addressed to the District Superintendent of Police requesting him to transfer the bus in his own (B's) name. After this, he sold the bus to stranger. Here, the buyer does not obtain any title against the real owner (Mohambaram v. Ram Narayan).

(d)A sold goods to the plaintiff, but was allowed to keep possession of them upon payment of a weekly rent, and an undertaking to deliver them upon demand. He subsequently sold them to the defendant. He thereby determined the bailment of the goods to him, and the defendant, though he bought in good faith, acquired no title against the plaintiff. (Cooper v. Willomatt)

In all the abovementioned cases the buyer could not get a good title.

Q.6.Can a buyer reject the goods after delivery if he finds that the supplied goods do not commensurate with the quality agreed at the time of contract? Explain it

Ans. Section 41, of the Sale of Goods Act speaks about rights of buyer to examine the goods which he has not examined previously.

"1. Where goods are delivered to the buyer which he has not previously examined, he is not deemed to have accepted them unless and until he has had a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract.

2. Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound, on request, to afford the buyer a reasonable opportunity of examining the goods for purpose of ascertaining whether they are in conformity with the contract."

Right to Examine the Goods-It is very genuine on the part of buyer to examine the goods what he has purchased or proposed to purchase. As per sub-section (1) in cases where there has been no previous examination of the goods, 'the mere fact that the buyer has taken delivery of them does not amount to an acceptance until he has had a sufficient period for examining them to see whether they are or are not in accordance with the contract. A right of inspection to ascertain whether such condition has been complied with is in the contemplation of both parties to such a contract, at the same time no complete and final acceptances so as to irrevocably vest the property in the buyer can take place before he has exercised or waived that right.

This section gives buyer a right to examine the goods and not a right to repudiate the contract. The right of inspection could only arise either when the consignee had taken the delivery from the carrier or when the goods were tendered for delivery to the buyer.

In the case, Ruttonjey v. Jamnadas, (1882) 6 Bom 692, it was observed that reasonable opportunity of examination is all that the Act requires: it is buyer's business to verify, not the seller's to supply further proof, that the goods are according to contract. What is a reasonable time in which the buyer should examine the goods when they are available to him for inspection is a question of fact to be judged on facts and circumstances of each case. The Bombay High Court while projecting the facts stated the principles. The facts of the case were that the defendant agreed to purchase from the plaintiff, 100 bales 'fully good fair Kishli Cotton', to be delivered from 15th March to 1st April, 1881. On 30th March, the plaintiffs sent the defendant a letter enclosing a sampling order, which was received by the defendant's agent at 11.30 a.m. that day. The defendant got samples taken of the cotton, and a dispute having arisen as to the quality and classification of the cotton, the plaintiffs wrote to the defendant on 31st March asking him to attend with the surveyor at 1 p.m. on that day to survey the cotton as, otherwise an ex parte survey would be held. It being a mail day, the defendant's surveyor could not attend at the appointed hour, and the plaintiffs had an ex parte survey held by their own surveyors, and they pronounced the cotton to be of the description contracted for. Shortly afterwards the defendant asked for a survey by a letter which reached the plaintiffs at 2.19 p.m. on that day.

The plaintiff did not comply with the application, and called upon the defendant to take delivery of the goods.

The plaintiffs filed a suit for breach of contract. It was defendant's plea that no reasonable opportunity was given to them to examine the goods, as there was no joint survey, and that the time allowed by the plaintiffs for examination of the cotton was not sufficient. It was held by the court that the defendant had reasonable opportunity within the meaning of this section.

Latham, J. said as-

The rule in the section 38 of the Contract Act agrees with the rule of English law laid down in Benjamin's Sale of Goods,¹ but there is little authority as to what is a reasonable opportunity of inspection.......in the present case the sampling order was delivered to the defendant by 11.30 a.m. on the 30th March, and he had till 1 p.m. on the 31st March, before any refusal by the plaintiffs to allow a further examination is alleged. Now Vizbookanda Atmaram seems to have been certainly dilatory in his examination, he not having compared the samples with the standards till past noon on the 31st and it seems to me that a period of over 24 hours gave a reasonable opportunity to see whether the cotton offered was the cotton which the plaintiffs were bound by their contract to deliver.

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Then we have to go further and to say that the purchase is entitled to continue inspecting and examining until there are expiration of the period for delivery? I find no authority for this and in many cases it would be unreasonable to place no limit on the inspection. Is a purchaser at liberty to open and taste every bottle of wine in a lot sold, or in the present case to pass every pound of cotton through an expert's hands? There must be some limit, and I think that a reasonable opportunity is the limit alike for vendor and purchaser and that such a reasonable opportunity had been had by 1 p.m. on 31st March. The goods need not be in the seller's actual possession, control is enough.¹

Q.7.When it can be said that the goods have been accepted by the buyer? Explain it with the help of relevant cases.

Ans. Section 42 of the Sale of Goods Act define the acceptance of goods which says that a buyer accepts the goods as soon as he intimates it to the seller that he has accepted the goods.

From the section, it appears that buyer may accept the goods even before they are delivered, by intimating to the seller that he accepts them, as he may do by actually selecting the goods, or directing delivery to be made to third parties. (Cusack v. Robinson, (1861) 1 B&S 299).

Just to take delivery does not amount to acceptance and this is particularly the case where delivery is made to a carrier. If, however, after delivery the buyer deals with the goods in a manner inconsistent with the ownership of the seller, he thereby accepts them, nor does it signify that he so deals with them before the time which he has for examining them has elapsed.

In the case Hardy & Co. v. Hillerns & Fowler, (1923) 2 KB 490 (498) (CA), the corresponding section of English (Section 35) was discussed by Atkin, L.J. as follows-

"One of the acts upon the doing of which the buyer is deemed to have accepted the goods is that he intimates to the seller that he has accepted them. I think it is plain that such an intimation may be made before he has had a reasonable opportunity of examination and if such an intimation is made then it appears to me that without more the section operates and he is deemed to have accepted them. In the same way, when he does an act in relation to the goods which is inconsistent with the ownership of the seller, the section must be treated as coming into operation notwithstanding that the reasonable opportunity of examining them has not expired; as for instance where a man having had goods delivered to him turns them, or part of them, at once into his mill and uses them in the manufacture. In the present case the Tribunal of Appeal have found that the buyer had not had a reasonable opportunity of examination until 23rd March, a date which is subsequent to the act relied on by the sellers as being inconsistent with their ownership, but that finding is, in my opinion, immaterial.

Therefore, we have here to face the problem whether the act of the buyers in reselling and dispatching the goods was inconsistent with the ownership of the sellers. If it was, they must be deemed to have accepted them. I should like to point out, in reference to that provision, that all the words of the section must have effect given to them. The words are 'when the goods have been delivered to him'-that is to the buyer-'and he does any act' of the kind specified. That means that the buyer must have got delivery before he does the act. (J&J Cunningham Ltd. v. Robert A Munro & Co., (1922) 28 Comp Cas 42)

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Time for Rejection

By contract, the parties may limit the time within which the buyer must determine whether to accept or reject the goods and if after the expiration of such a limit, or if no time be fixed, he does not reject, within a reasonable time, he is deemed to have accepted them. We can understand it further, where it was considered that whether a buyer had goods for a reasonable time, and hence had lost his right to reject them, the nature of the particular defect and the speed with which it might have been discovered were irrelevant, since section 42 was directed solely to what was a reasonably practical interval between a buyer receiving the goods and his ability to return them, while keeping it in mind regarding desirability of finality in commercial transactions.

Q. 8. Distinguish between payment by bill and payment by Credit Card

Ans. Payment by Bill - Conditional Payment.-If a seller has taken a negotiable security as an absolute payment is no longer an unpaid seller, and therefore has no rights against the goods. [Cowasjee v. Thompson, (1845) 3 MIA 422: 5 Moore CP 165: 70 RR 27]

If under the contract, the bankers arranges for a banker's commercial credit in favour of the seller for payment of the price of goods then the opening of the credit would normally be only conditional payment and in the event of the banker's default in honouring the credit the seller is entitled to claim the price from the buyer and his remedies against the goods would revive [Man (Ed&F) Ltd. v. Nigerian Sweets & Confectionery Co. Ltd., (1977) 2 Lloyd's Rep 50].

In Charge Card Service Ltd., (1988) All ER 702 (707) (CA), it was held that there is no general principle of law, that whenever a method of payment was adopted involving a risk of non-payment by a third party, it was presumed that the acceptance of payment through the third party was conditional on his making (third party) the payment and if he failed to pay the original obligation of the purchaser remained. So, each method of payment has to be considered in the light of the consequences and other circumstances attending that type of payment. In the modern times, payment through Credit Card has started and in new circumstances, it becomes necessary to consider whether such payment should be treated as absolute or conditional in the light of consequences of such payment and not according to any general principle.

Payment by Credit Card.-In the transactions, where credit card is used, there is an underlying contractual scheme which predates the individual contracts of sale. In this scheme, sellers agree to accept the card payment worth the price of goods and the buyers commit the credit card company to pay the sellers/suppliers.

Here, there are two separate contracts-first, between the credit card company and the seller and second, between the credit card company and the card holder in the first case, the credit card company agrees to reimburse the amount what the buyer has incurred on purchasing the goods and in the latter case, the card holder agrees to reimburse the credit company what it has paid to seller.

It is a tacit assumption that the legal consequences will be regulated by the separate contractual obligations between the seller and the credit company when a credit card is tendered and accepted. Credit card system is beneficial for both sellers and card holders. Sellers attract customers by agreeing credit cards as the buyer can purchase the things even when he has no cash since he had to be paid the due amount to the credit card company on a later date. At the same time card holder is free from carrying cash.

Q.9.Discuss the position of unpaid seller regarding stoppage of goods in transit if the buyer turns insolvent.

Ans. Section 50 empowers the unpaid seller to stop the goods in transit if the buyer becomes insolvent before paying the price of goods. It says-

"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 the course of transit, and may retain them until payment or tender of the price.

The essentials of this section are-first - the seller should be unpaid; second - the buyer should have become insolvent, third - 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 last and most important that the goods should be in the course of transit out of the above four, first three can be ascertained very easily but about the fourth i.e. the goods is in the transit or not is little difficult to ascertain sometime. Sometimes the goods may be with the carrier but not in transit. If there is some middle man and the middleman is seller's agent and the goods lying with him then the goods are very much in the possession of the seller and if the middleman holds the goods on behalf of buyer then it has already gone to buyer's possession. If the seller holds the goods as an independent contractor i.e. in his own right as a carrier or bailee, that there is transit in law and that there is question of stoppage in transit. It is not necessary that the goods should be actually moving. In the case, Berndison v. Strang, (1868) LR 3 Ch App 588 (591) Lord Cairns had said-

"If they arrive injured and damaged in bulk or quality, the right to stop in transitu is so far impaired; there is no contract or agreement which entitles the vendor to go beyond those goods in the state in which they arrive, and to claim some moneys which have been paid by the under writers to the purchasers of the goods in respect of their loss by the non-arrival of their property."

Q.10.What are damages available for non-acceptance of goods and breach of contract? Explain it with the help of relevant cases

Ans. Damages for non-acceptance.-If, the buyer wrongfully neglects or refuses to accept and pay for the goods then, the seller may sue him for his wrongful conduct. Section 56 says-

"Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for damages for non-acceptance."

We can understand the above section with the help of some cases-

(a)In the case, Boorman v. Nash, (1829) 9 B&C 145: 32 RR 607, the goods were deliverable by instalments, and the buyer refuses to accept one or other instalments. It was held that the differences in prices is to be reckoned on the day that a particular instalment was to be delivered.

(b)In the case Union of India v. Kesar Singh, AIR 1978 J&K 102, the military authorities were to receive the supply of cots as per the contract but when if reached to them, they refused to accept some supplies. In breach of their contract, the J&K High Court allowed Rs. 4 per cot to supplier as damages being the profit which the supplier would have earned under his contract of supply.

(c)In the case Lazenby Garages Ltd. v. Wright, (1976) 2 All ER 770, a dealer who was dealing in second hand car, purchased a car for œ 1325. Then decided to resale the car to the defendant for œ 1670, but the defendant finally did not take the car. Then the dealer sold it to another buyer for œ 1770 but even then brought an action against the defendant to recover œ 345 as damages, being the difference between his purchase price and the resale price to the defendant. Although, the Court of Appeal agreed in principle for damages but since, as a matter of fact, they had suffered no loss, they were entitled to no compensation.

There is a case Jamal, A.K.A.S. v. Moola Dawood Sons & Co., (1916) 43 IA 6: ILR (1916) 43 Cal 493, where it was held that if a seller does not resell the goods and his loss is aggravated by the falling market, he can recover the enhanced loss. Here the plaintiff contracted to sell to the defendants 23,500 shares to be delivered and paid for on December 30, 1911. The shares were tendered on the stipulated date, but the defendants declined to take delivery or to pay for them. The shares could have fetched a sum of Rs. 1,09,218 less than their price under the contract. But the plaintiff sold the shares only after February when the market was again rising and he realized only Rs. 79,862 less than the price under the contract.

The defendants contended that they should be held liable to pay the loss of only Rs. 79,862. But, he was held liable for Rs. 1,09,218. Lord Wrenbury explained the principles of law as follows-

It is undoubted law that a plaintiff who sues for damages owes the duty of taking all reasonable steps to mitigate the loss subsequent upon the breach and cannot claim as damages any sum which is due to his own neglect. But the loss to be ascertained is the loss at the date of the breach. If at that date the plaintiff could do something or did something which mitigated the damage, the defendant is entitled to the benefit of it.

Damages for breach of contract

In the case Stoczina Gdanska SA v. Latvian Shipping Co., (1998) 1 All ER 883 HL, the question arose before the House of Lords whether damages for breach of contract can be recovered and also unpaid instalments upto the date of breach.

Here, the contract was to design and build a number of ships. The contract was so designed that the payment was to be done in four instalments - first 5% of total payment at the outset, second 20% when the keel was laid, third 25% on successful launching and 50% on delivery.