Law of Contracts- II

Notes

Thank you Yashvi and Rujuta for your help

Note- Read with bare act for deeper understanding

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 Nature and formation of contract of sale of goods

Definition clause

● Buyer- Sec 2(1) provides that the buyer is a person who buys or agrees to buy the goods.
A person is said to buy when the sale is complete. It includes that person who is
contractually bound to purchase the goods.

● Delivery- Sec 2(2) provides that it is voluntary transfer of possession from one person to
another.
○ Transfer of possession must be voluntary
○ Symbolic delivery is also sufficient to constitute valid delivery. Ex- Keys of
Godown

Possession may exist without actual custody. Ex- An owner of the goods is said to be in
possession even if the custody is with the servant.

● Custody- It means when there is no authority but duty of supervision.

● Possession- It means complete dominion over goods.

Document of title of goods- Sec 2(4) provides that these are documents which represent the
goods and transfer of such documents operates as transfer of constructive possession of goods.

Constructive Possession- it is the authority over the goods without having actual custody or
charge of the goods.

● Goods- According to the Sec 2(7) It includes:

1. Movable property of every kind
2. Stocks and shares
3. Growing crops / grass
4. Things attached to land or forming part of it which is agreed to be severed

● It does not include:

1. Actionable claims- money upon which claim can be made. Ex- amount due under
insurance policy.
2. Money- it is a currency which is price received in exchange of goods

Definition of Immovable property(General Clauses Act)

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General Clauses Act Defines immovable property as it shall include land, benefit arising of land,
things attached to Earth or permanently attached to anything which is attached to earth except
standing timber, growing crops and grass.

Land- It means determining the portion of Earth's surface.Which may be covered by water in
the column of the surface, above the surface, the ground and beneath the surface. objects which
are on or under the surface in its natural state are included in land

Moveable are those which are not Immovable(Not defined in the Sale of Goods Act)

Ananda Behera v. State of Orissa

Benefits arising out of land(Immovable property)

It was held that the right to catch fishes from a particular lake was included in benefits arising
out of land and hence immovable.

● Water,oil and gas are capable of being separated and bought and sold as goods.

State of Madras v. Gannon Dunkerley(relevant)

It was held that in a building contract the agreement is to construct a building according to the
specifications contained in the agreement and the contractor receives payment for that in such
agreement there is neither the contract to sell the material used nor there is any passing of
property in that material as moveable.

Gopalkrishna Pillai v. K.M Mani

It was held that domestic animals are goods.

● Trading in human organs is opposed to public policy and unethical.

● Transplantation of human organs act totally bans commercialization of human organs.
● Wigs, skeleton can be made subject matter of contract of sale.

Central Inland Water Corporation v. B.N Ganguly ( read facts from sem 1 notes)

Public policy concerns public good and public Interest. It is decided upon the basis of what is
harmful for public good and it will be deemed to be against public policy. It varies from time to
time.

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 Karnataka Power transmission corporation v. Ashok Iron works Pvt.ltd

It was held that for limited purposes provisions of electricity are considered supply of services.
Contract of sale(Formation)

● Contract of sale is defined as a contract whereby the seller transfers or agrees to transfer
property in goods to a buyer for a price.

C.E.B. Draper v.Edward Turner

It was held that the word “sale” denotes the transfer of general property in a thing.

● The basic purpose of sale is the exchange of property for money.

Sec 4(3) includes sale and agreement to sell. Sale is an executed contract of sale and agreement
to sell is an executory contract of sale.

Generally in a sale, the buyer bears the risk of loss. However, in agreement to sell the seller bears
the risk.

In “sale” unpaid sellers have the right to sue for price if not paid by the buyer. However, in
agreement to sell the unpaid seller can claim for damages for the breach.

Essential Conditions

1. There must be at least two parties

2. Payment should be made in terms of money
3. Subject matter is goods
4. All necessary conditions for a valid contract must be fulfilled

Sale and Hire Purchase

● Under hire purchase the owner of the goods agrees to transfer properties in goods to the
hire purchaser when a fixed number of installments are paid at hire charges till that time
hirer remains bailee.

● It is governed by Hire Purchase Act,1972

● If there is a default in payments the owner has the right to resume the possession of the
goods immediately without refunding the amount.

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 ● An option to purchase is available which may or may not be exercised.

● The property in goods passes to the hirer after payment of the last installment

Sale and contract of work:

● Work involves physical or mental efforts to do any activity.

● A contract the substance of which is that skill and labor need to be excessively sized in
addition to it supplying material is happening then it will be deemed to be a contract of
work and not sale.

Hindustan Shipyard Ltd v. State of Andhra Pradesh

It was held that the court may form in the opinion that the contract is one whose main object is
to transfer property in a chattel through some work may be required to be done under the
contract or included to it if the primary object of the contract is to carry out work then the
contract will be them to be for work and labour. Therefore the predominant object of the
contract, the circumstances of the case and custom of trade provide guidance in deciding
whether the transaction is a sale or work contract.

State of Tamil Nadu v. Anandam Vishwanathan

In this case the contract in question involved printing and supplying question paper to the
university. The Supreme Court held that it was a contract of work because the nature of the job
was such that the supply of paper was merely incidental.

Northern India Caterers v. Lt. Governer of Delhi

In this case it was observed by the Supreme Court that hoteliers prepare and serve food to the
residents of the hotel and to casual customers who come to eat in the restaurant. There is no
difference in services rendered in both cases and there is supply and service of food not
amounting to sale because in such cases, the purpose of hoteliers is not to sell the food but to
serve in a proper atmosphere so as to make it service and make consumption of the food
enjoyable.

Vishnu Agencies v. Commercial Tax officer

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This case involved Vishnu Agencies (Pvt.) Ltd., a distributor of cement in West Bengal, and the
issue was whether the transactions, even though compelled by regulatory orders, amounted to a
"sale" under the Sales Tax Act and the Sale of Goods Act.

The Supreme Court of India held that the transactions were indeed sales and were taxable under
the Sales Tax Act. The court reasoned that despite the limitations imposed by the Control
Orders, the transactions were consensual. Both parties agreed to the terms specified in the
permit or allotment order issued by the relevant authority. The court also noted that while the
terms of the transaction were largely predetermined by law, there was still room for negotiation,
such as agreeing on a price lower than the notified rate and mutually deciding the time of
delivery.

The court overruled the decision in New India Sugar Mills v. Commissioner of Sales Tax, Bihar,
which had held that a transaction was not a sale if it was nothing more than the execution of an
order. The court held that a merely regulatory law, even if it circumscribes the area of free
choice, does not take away the basic character or core of sale from the transaction.

Sec.5 Conditional Contract:

● Contracts are conditional when their enforceability depends upon the performance or
fulfillment of some conditions.
● Conditions may be contingent(conditions not in control of the promiser) or
promissory(conditions in control of the promiser).
● Condition precedents are those precedents which must be fulfilled before the actual sale.
● Condition Precedents are those if remain unfulfilled the property reverts back to the
seller.
● Sec 5(1) provides for an offer and acceptance to sell or buy for a price which clearly
indicates the consensual nature of the contract.
● A sale can be complete even without immediate delivery or payment of price.
● “Implied” word is used here in the sense it is used in section 9 of the Indian Contract Act.
● Sections 14-17 deal with the term implied by law.

Sec.6 Existing and future goods:

● Existing means owned or possessed goods and future means goods which will come into
existence in the future or will be acquired by the seller in the future.
● Acquisition of which depends on contingency are also called contingent goods.
● An attempt to do present sale of future goods will always be considered as an agreement
to sell.

According to Benjamin “future” goods are:

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 1. Goods to be manufactured by a seller for which material is now in existence.
2. Which are to become a property of the seller by purchase,gift or succession.
3. Goods which are expected to come into existence in the ordinary course of nature.
4. Crops to be grown in future.
5. Things attached or forming part of land which are supposed to be severed.

Sec 2(14) defines “specific goods” as identified and agreed upon at the time of contract of sale.

Ram Narayan v. State of Madhya Pradesh

The Supreme Court said that goods which are not identified and agreed upon at the time of
contract are generic or unascertained.

Goods which are Identified and agreed upon after a contract is made are ascertained
goods.

Sec 7: Goods perishing before making of the contract

1. This section applies to specific goods only.

2. The seller must not be aware of it.
3. Goods are perished or damaged at the time when the contract was made.
4. Contract shall be void.

This section applies to those cases where the seller is deprived of goods. For Ex- If they were
stolen or lost.

Barrow lane v. Phillip and co.

There was a contract of sale of 700 bags of goods Identified by marks and were kept in a specific
warehouse. Unknown to the seller before the contract of sale 109 bags were stolen, the contract
was void and buyers could not be compelled to take delivery of remaining goods.

● Knowledge of the seller is material and if he knowingly enters into an agreement he

would be liable to pay damages to the other party.
● If the person promises to do something which he knows is not possible and he cannot
perform will be liable to compensate the other party.

Section 8 (Goods perishing before sale but after agreement to sell)

Agreement to sell—----------------- Contract

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 Perishing avoided before
risk passing to buyer

● This section applies to the cases where the goods are in existence at the time of making of
an agreement but perishes without fault of either Party before the risk has passed to the
buyer this risk passes only by agreement.
● Immutable rules- cannot be changed or agreed otherwise. Ex- Unlawful agreement
● Obtained rules- parties have the choice to follow them or not.
● Default rules- when you don't provide for any rules and by default the rules are applied.

Risk passes via default not by the agreement

● The perishing of goods must not be due to wrongful act or default of buyer or seller. If
any party is responsible for destruction he will be liable for non-delivery or will have to
pay the price as case maybe.
● Under the section the contract is not void ab initio but it is avoided by the perishing of
goods, the rights vested before the event of sale not be affected.

The following conditions must be satisfied for the application of section 8-

1. Contract of sale must be agreement to sell
2. There has to be an agreement of specific goods
3. The goods must perish/get destroyed before the agreement to sell becomes a sale.
4. There should be no default by the buyer or seller which lead to the destruction of goods
5. The risk must not have passed to the buyer.
6. The agreement is avoided.

If the property in goods remains with the seller and the risk is with the buyer this section will
not apply.

Section 9: ascertainment of price

● It is not necessary that the contract should specify the amount which is to be paid as the
price and the parties may leave the price to be determined by any other method. Ex-
Valuation at a later stage.
● Even if the contract is silent as to the method by which the price is to be determined the
agreement to pay a reasonable price will be implied.
● An agreement that one of the parties Shall have the power to fix the price himself is valid
and binding.
● The agreement should provide for the payment clause.
● If in any manner the price is not ascertainable then the agreement should be void for
uncertainty.

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H.W- see a draft of the contract of sale

Sec 10: Third-party valuation

● Price can be determined by a third party and the contract is conditional upon it.
● If the buyer has received and used any part of the good then he must pay a reasonable
price for that part.
● If one party prevents valuation the other party may take action for damages.
● If the valuer is negligent or fraudulent then he/she shall be personally liable for the loss
to the party

Sec 11: Stipulations as to time

Timely payment does not go into root of consideration and if the buyer fails to pay on an
appointed date the seller cannot treat the contract repudiated unless agreed otherwise.

The seller may withhold the delivery until the price is paid or may maintain a suit for the price if
the delivery is already made.

Other stipulations as to time may be the essence of the contract depending upon the terms. For
ex- time of delivery, date of shipment, etc.

Sec 12: Condition and warranty

● Stipulations in a contract which are made about the goods may be condition or warranty.
● Conditions are stipulations which are essential for the main purpose of contract, breach
of which gives a right to treat the contract as repudiated and reject the goods
● A warranty is stipulation collateral to the main purpose of the contract and if it is
breached the non-breacher may claim for damages but he cannot reject the goods in such
a case he/she may ask for compensation for deficiency.
● A stipulation may be a condition even if called as warranty in a contract, if it goes to the
root of the matter.
● In breach of conditions, the non-defaulter may reject the goods and also sue for damages
● In the cases where the term which is breached is flexible the court may not allow the
rejection of goods and can hold the deficiency not that serious which may lead to breach
of condition
● If the representation does not form part of contract, that is if it is neither a condition nor
warranty then it may be expression of opinion or puff and non-fulfillment of such
representation will not give rise to any right of legal action.
● A condition normally includes warranty and the buyer may waive it.
● When the conditions are annexed by law they are called as implied conditions or
warranty.

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Puffs are statements which a reasonable man would not believe and they are not binding.

Martindale v. Smith

In this case there was a contract of sale of goods and it was agreed that the goods shall remain
with the seller for a period of 4 months. The buyer was supposed to pay the price within 12
weeks, he defaulted in payment and requested the seller for an extension of time to pay the
price. The seller refused to extend the time and the buyer tendered the price after the expiry of
12 weeks. The seller said you did not pay the price therefore I sold goods to a third party, the
buyer was held entitled to recover damages for breach as time of payment is not the essence and
does not go to the root.

Stipulations are requirements that are specified in an agreement or demanded under it while
entering into an agreement the party may make representations or statements which may be
condition or warranty or mere expressions of opinion or puff.

Sec 14: Implied undertaking as to title

● Sec 14 provides that there is an implied condition on the part of the seller that in case of
a sale he has the right to sell and in case of an agreement to sell he will have the right at
the time when the property shall be passed in favor of the buyer.
● It also provides an implied warranty that the buyer shall enjoy quiet possession(Ex-
TradeMark infringement of 3rd party).
● This section also provides an implied warranty that the goods shall be free from charge
or encumbrances which is not known to the buyer till the time the contract was made.
Ex-goods are pledged.
● Seller must have the complete right to dispose of the goods.

Niblet Ltd v. Confectioners Materials Company Ltd(Implied undertaking)

In this case the seller sold tin of condensed milk to the buyer named as nissly brand. This was an
infringement of the registered trademark of manufacturers of condensed milk. The buyers in
order to make use of goods had to sell in the market unlabelled at a very low price. It was held
that the seller committed breach of implied condition that the buyer should have and enjoy quiet
possession of goods.

The property in goods will remain with the owner and will be returned to him even if the
person with the defective title sold it.

Rowland v. Divall

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There was a sale of a car after using it the buyer came to know that it was stolen. The buyer was
compelled to return it to the owner. He was held entitled to recover the price from the seller.

● Clause(c) implies that there will be a promise by the seller that the buyer's possession
will not be disturbed by reason of the existence of an incumbrance and there will be a
breach if the buyer is compelled to discharge it without knowledge.
● Under clause(b) there is an implied warranty that the buyer shall have and enjoy a quiet
position of the goods. It may be possible that the seller is innocent but still, the loss shall
be suffered by him.

Section 15: Sale by description

● There may be a sale by description only where it is clarified as to what kind of goods are
subject to sale. Ex- Glass bottle, basmati rice, etc..
● There may be a sale as well as a description in which along with the description the
sample is also sent in both cases the goods must correspond with the description
provided and if the sample is attached then it must correspond with the sample.
● The word description is not defined but it generally defines the kind of goods which are
sold or by which a specific identity might be attached it includes packaging type of goods
and nature.
● A defect in the quantity of goods is defined in section 37 and not included in section 15
● The suitability of goods for a specific purpose is also not considered as part of the
description under this section. Ex- whether a dog food is fit for a cat?
● The general purpose is included under this section as a part of the description. Ex- cough
syrup
● Description deals with the identification of goods where the parties will be able to
identify the kind of goods which are supplied and if they are different, the buyer may
refuse to accept them.
● Sometimes sample is the only description of the goods in such cases the goods must
correspond with the sample.
● If the goods are selected by the buyer himself this section still applies.

Wallace v. Pratet

In this case a sale by the sample of the seeds described as common English Sainfoin seeds. The
seller gave No warranty to the growth description quality etc. Neither the bulk nor the sample
was common English sainfoin. This was discovered after the seeds were already shown and the
crop was produced the buyer was allowed to recover the breach of condition.

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 Nichol v. Godis(additional)

There was a sale of foreign refined rape-oil. The delivered oil was the same as the sample but it
was having a mixture of other oil too. It was held in this case that the seller was liable to refund
the amount paid.

● This is a fundamental rule that the clause in the contract in favour of the seller cannot be
relied on by him if he delivers goods which are not of stipulated description it is deemed
that he has entire failed to perform his contract and such clauses are applicable only
when the contract has at least been performed.

Section 16: Implied condition as to quality and fitness

Ingredients-
1. No Implied C/W—- particular purpose
2. Makes— knowledge —- seller
3. Relies on skill and judgment
4. Implied C/W fitness for a particular purpose
5. Sale—- patent —- trade name—- no implied C or W

Under section 16 it is mentioned that there is no implied condition (C) or Warranty(W) as to

fitness for a particular purpose but if the buyer makes known to the seller the purpose for which
the goods are required and relies upon skill and judgment of the seller who deals in those
goods(description), there is an implied condition that the goods shall be reasonably fit for that
purpose.

In the case of the sale of an article under its patent as a trade name there is an application of
presumption that the buyer does not rely on the skill and judgment of the seller but relies on his
own judgment.

It is possible that the person may trade an article under a patent or trade name and may also
make it clear to the seller that he relies upon skill and judgment to ensure that the goods are fit
for a particular purpose.

Baldry v. Marshall

It was held that the mere fact that an article sold under a contract is described by it's patent or
trade name does not mean that the sale is under trade name where the buyer asks the seller for
an article which will fulfill some particular purpose and in answer to that, requests the seller to

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sell him an article by a well known trade name. There it is clear that the provision will not apply
and the buyer relied upon the seller.

Jones v. Padgett

There was a sale of a sample of indigo cloth by a seller to a merchant, who was also a tailor. The
buyer required it for the purpose of making a uniform but he did not make this known to the
seller. Owing to the latent defect in the sample as well as bulk it was unfit for the particular
purpose but there was nothing to show that the cloth was unfit for other purposes for which it
can be used. The buyer sought to reject it but was not allowed and also could not claim damages.

Merchantable quality(caveat emptor)

Under sub-section 2 it is provided that if the goods are sold by description by a seller who deals
in such goods is responsible for latent defects in the goods which render them unmerchantable,
whether the buyer has examined them or not.

The implied condition under sub-section 2 applies to all goods whether they are sold under
patent or trade name or otherwise.

Merchantable quality is not defined by the sale of goods but it generally means that goods are of
such quality and in such condition that a reasonable man acting reasonably would after
examination, accept it in performance of an offer to buy those goods.

Jones v. Just

There was a contract of sale of goods by description of manila hemp(fiber used for making
ropes) it was agreed to arrive from singapore via ships. The hemp was shipped after that it got
damaged due to sea water and became unmerchantable. The buyer was allowed to recover the
loss from the seller.

Thornet v. Beers and Sons

There was a sale of vegetable glue. The buyer came and examined the contained in which glue
was kept and agreed to purchase. The glue was unmerchantable in quality due to a defect that
the buyer would have easily discovered if he had examined the goods properly. After delivery,
the buyer tried to reject which was not allowed because it was a llatent defect easily
discoverable(caveat emptor).

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Sub-section 3 provides that an implied condition or a warranty for quality or fitness may be
annexed by usage of trade

Usage of trade here means a practice or method of dealing which is regularly observed in a place
or in a trade or both and it is expected that it shall be followed in a commercial transaction.

Jones v. Bowden

In this case it was said that any such usage must be proved if it is relied upon it must be
consistently followed, uniform, and reasonable. Ex- In the sale of a specific type of ship if this is
a constant practice in that an implied promise is given by the seller that the goods shall be
sea-worthy and made of copper wire then this will be annexed impliedly in the sale of those
goods due to the observance of consistent practice of giving such promise.

If the express term is inconsistent with the term implied by law, the express will prevail and the
implied term will usually be negated. If not inconsistent both will apply.

Section 17: Sale by sample

A contract must have a term in the contract to make it a contract for sale by sample, it may be an
express or implied term.

Whenever there is a sale by sample, the implied conditions provided are as follows-
● Bulk shall correspond to the sample in quality.
● The buyer shall have a reasonable opportunity to examine and compare bulk with the
sample.
● Goods shall be free from latent defects rendering them unmerchantable.

The extent to which goods must correspond with the sample would depend on the contract, in
some cases it can be mere visual comparison and in some cases, there will be microscopic
comparison and chemical analysis will be required.

Lorymer v. Smith

There was a contract of sale by a sample of two parcels of wheat, and the buyer went to examine
the goods. The parcel that was present in the seller's warehouse was given to the buyer for
examination but the seller refused to show him the other parcel which was not in his warehouse.
The buyer was entitled to rescind the contract.

Transfer of property in goods

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Sec 18: Goods must be ascertained: provides whenever there is a contract for the sale of
unascertained goods, the property in goods shall not be transferred until the goods are
ascertained.

Ascertainment depends upon the circumstances- it may be by severance,measurment, or any

other way.

The risk usually passes with the property(sec 26), which means after ascertainment along with
the property the risk shall also pass.

State of Karnataka v. West Coast Paper Mill

There was a contract of sale in which the company was permitted to remove bamboo from the
forest 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 not applicable to the bamboo already cut prior to the
government order because the property is transferred due to ascertainment.

You can also mention Badri Prasad v. State of M.P

Sec.19 Property passes when intended to pass: It provides that whenever there is a contract
for the sale of specific or ascertained goods, the property shall transfer to the buyer at the time
when it is agreed to be transferred.

For ascertaining the intention of the parties as to when they intend to transfer the property in
goods regard shall be had to the terms of the contract, the conduct of the parties, and
circumstances of the case.

Rules provided from sec 20-24 help in the ascertainment of the intention as to the time at which
the property is supposed to be passed in the absence of any contrary intention of the parties.

Parties are free to decide the time of passing off property

Sec.20 Specific goods in a deliverable state: This section provides that under the contract of
sale specific goods are subject matter and in the deliverable state and there is no other condition
attached by the parties with respect to the transfer of property in goods, then by default the
property in goods shall be transferred to the buyer at the time when contract is made.

This section applies even if the time of payment of price or delivery of goods is postponed, that is
the transfer of property is independent of payment of price or delivery.

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This section exclusively applies upon those goods that are identified and agreed at the time
when the contract is made so that the contract attaches to those goods since inception.

Sec. 21 Specific goods to be put into a deliverable state: This section applies to the goods
which are specific and to be put into a deliverable state by the seller, the rule is that the property
does not pass until such thing is done by the seller which is required to put them into deliverable
state and the buyer is notified about it.

The risk should not be transferred to the buyer without notice of the fact that the seller has done
what was required on his part, in such cases the property transfers only when the buyer has
noticed and the risk follows the property in general.

Rugg v. Minnet

In this case, there was a contract of sale of the entire content of oil in a tank, it was agreed that
the oil was to be put in wooden containers and then taken away by the buyer some of the
containers were filled in the presence of the buyer but before any of them could be removed the
fire destroyed entire oil. The buyer had to bear the loss of the oil which was put in the containers
in his presence and the seller had to bear the loss of the remainder.

Laxhmi nivas rice mills v. Ram nivas

In this case, the appellants agreed to sell rice to the respondents under the contract the
appellant had to bag the rice, book it on railways, dispatch it through wagons, and then deliver
the railway receipt to the respondent. The rice was accordingly bagged and stocked in appellants
godown but no wagon became available with-in a reasonable time it was held that this was
appellants responsibility to get wagons and this was a necessary condition to put the goods in a
deliverable state and therefore the appellants could not recover the price

Sec. 22 Specific goods in a deliverable state, when the seller has to do anything thereto
in order to ascertain price:

Section 22 deals with the specific goods in a deliverable state and the seller is required to do
anything for the ascertainment of price. The rule is that the property shall not pass until such act
or thing is done.

Ingredients:

● Goods must be specific

● It must be in determinable state

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 ● The seller is bound to weigh, measure, test or do some other thing in order to acertain
price.
● The property shall not pass until that thing is done
● The buyer is notified

Simmons v. swift

In this case, there was the sale of stock of bark which was supposed to be weighed by the seller's
agent. A part of the stock was weighed and taken away by the buyer and the remaining was not
weighed and destroyed by flood. The loss of the part not weighed fell upon the seller.

● Where anything remains to be done for the purpose of ascertaining price, the
performance of those things are condition precedent for the transfer of property
though the goods may be specified and in that state in which the buyer agreed for
delivery.

Sec. 23 Sale of unascertained goods and appropriation:

1. To constitute appropriation of the goods towards the contract, the parties must have the
intention to attach the contract to only those goods and to no others.
2. The selection of goods by one party and adoption of the act by other converts and
agreement to sell into the actual sale and the property is deemed to be passed.
3. Where the goods are delivered to a courier or a bailee for the purpose of transmission to
the buyer, the courier is presumed to be the buyer's agent and if the seller does not
reserve the right to disposal, it will be deemed that he has unconditionally appropriated
the goods and the property shall pass.
4. If the seller reserves the right of disposal no final appropriation takes place and
ultimately the property shall not pass by mere delivery.
5. Unconditional appropriation is one of the means to transfer property in goods by
establishing identity and attaching a contract to them.

Rohde v. Thwaits

In this case, there was a contract of sale of 20 bags of sugar, the seller filled four bags which were
taken away by the buyer he filled the remaining 16 bags out of the larger quantity, informed the
buyer, and asked him to come and take it away, the buyer promised to take them after being
informed. The property is passed to the buyer because by promising to take has assented to the
appropriation done by the seller.

Sec. 24 Goods sent on approval or “on sale or return” :

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The person described in this section does not necessarily fall within the definition of buyer
provided in sec 2.

In such cases there is generally no complete sale until the buyer has:
1. Signified his approval expressly or impliedly
2. Dealt with the goods(pleged or agreed to sell to someone else)
3. Kept the goods until lapse of prescribed time or resonable time without returning them
4. Made return impossibe by his own act or default. Ex- letting the goods destroyed or
spoiled

The burden of proving that loss or damage to the goods occurred without his fault will lie upon
the person who holds such goods.

Sec. 25 Reservation of right of disposal:

The title to the goods shall remain vested in the seller and shall not pass to the buyer until the
purchase price for the goods is payed in full by the buyer and recived by the seller.

The seller may provide in the terms of the contract that he reserves the right of disposal until
certain conditions are fulfilled. In such cases irrespective of the delivery to the buyer or to a
carrier or a bailee, which is done for a purpose of transmission to the buyer, the property shall
not pass until such conditions are fulfilled.

Romalpa clauses- Under these type of clauses a seller can retain ownership of goods until they
are paid for or other conditions are fulfilled. However the buyer may be allowed to take delivery
of the goods(retention of title clauses or reservation of title clauses).

You can draft a clause if question comes in exam

Sec 26 Risk prima facie passes with property:

The parties may agree that the risk shall pass at some time or upon some conditions which are
not necessarily simultaneous with the passing off property and the ownership may be separated
by the parties from risk.

If the property has passed and the goods remain in the possession of seller and are accidentally
destroyed without his fault and then again he would not be liable for the breach of contract for
not delivering the goods.

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The accession(addition to the goods or profit to the goods) to the goods when risk and property
with different persons normally be regarded as belonging to the owner of the goods rather than
with the person who is in possession or have risk.

EX- buyer is owner of cow and risk is with seller then the calf born will belong to buyer

The seller is duty bound to take reasonable care of the goods even if the goods remains with him
at buyer’s risk and where possession of goods is given to the buyer, the buyer must take
reasonable care even if the property has not passed and the risk remains with the seller.

Demby hamilton and company v. Barden

In this case the defendant contracted to purchase 30 tons of apple juice. The plaintiff crushed
apples, packed it in a container and kept it for delivery, the defendant delayed in taking delivery
and due to his default it got perished. The defendant was liable to pay full price irrespective of
the fact that the risk and the property remains with the seller because the buyer defaulted.

Sec 27 Sale by person not the owner:

This section embodies the general doctrine “nemo dat cuad non habet” which means no one can
give a better title than he himself has and if a person deals with goods belonging to other person
without any authority, the transaction is not valid in law.

This rule is subject to certain exceptions. Ex - The pledgee may sell the pledged article in case of
non-payment of money advanced as a loan and he is accountable to the pledger for surplus of
proceeds of sale.

Section 27 provides that the owner is precluded from disputing the validity of the transaction
that is he may be estopped from setting up his title against the buyer. One example is when the
owner gives ostensible authority to deal with his goods in the ordinary course of his business.

Estoppel may also arise in other case for example by the owner assisting in the sale or by not
objecting etc…

Section 27 provides statutory exception to this rule when the sale is by the mercantile agent, who
is in possession of goods or document of title with the consent of the owner any seller made by
him acting in the ordinary course of action shall be valid if the buyer acts in good faith and he
has not at the time of the contract notice of the fact that a seller has no authority to sell.

Condition for application of proviso:

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 1. The agent must be a mercantile agent(see definition under sec 2) and a sale done by a
clerk or servant is not covered in this section.
2. Mercantile agent must be in possession of goods or have document of title with consent
of owner(consent here means free consent as defined sec 14 of ICA)

Ex- X falsly representing that he authorised to purchase and take delivery of certain goods on Y’s
behalf obatains possession fron Z, he re sells the goods to “A”(here “A” shall not acquired title of
goods against “Z”)

A mercantile agent is a person who is appointed by a principal in his business on his behalf or
represent him in dealing with third person.

Sec 28 Sale by one of joint owners:

Ingredients-

1. One joint owner has sole possession with permission of others

2. If it is sold by him
3. If the buyer acts in good faith and has no notice of the fact that he is not authorized to
sell
4. Property shall transfer

Sec 29 Sale by person in possession under voidable contract:

When the seller obtains the possession of the goods voidable under section 19 or 19A of ICA and
the contract is not rescinded at the time of sale, the buyer acquires a good title if he has acted in
good faith and without notice of seller's defective title.

The seller may transfer a better than he himself has even if he is not in possession of goods with
free consent.

This possession must be obtained in pursuant of a contract which is voidable that is the consent
obtained is vitiated by factors mentioned in ICA.

The seller in possession of goods under a voidable contract may do so before the contract is
rescinded.

Sec 30 Seller or buyer in possession after sale:

Seller in possession after the sale- If the seller who has completed the sale in favour of the buyer
and is in possession of the goods or document of title, the delivery or transfer of such goods or

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document of title by him or mercantile agent under any sale, pledge etc.. the transaction shall be
valid as if he was expressly authorized by the owner and the subsequent buyer acts in good faith.

Buyer in possession after sale- If a person who has bought the goods or agreed to buy obtains
possession of goods or document of title, any delivery or transfer made by him or his mercantile
agent of such goods or document of tile under sale,pledge or other disposition, the transaction
shall be valid as if any lien or other right never existed with respect to those goods subject to
condition that the buyer acts in good faith and has no notice of lien or any other right.

Staff mortars guarantee ltd v. british wagon company

“X” was dealing in motor vehicles he sold a car to the defendants who lent it back to “X” on the
hire purchase agreement. Subsequent to this x sold the car to plaintiffs. The plaintiff were not
aware of the transaction between X and the defendant it was held that X was not the person who
having sold the goods and continues in the possession of goods but he was having possession as
a bailee under hire purchase agreement and therefore the transfer of property in vehicle was not
valid.

SALE AND PURCHASE AGREEMENT

This agreement is executed on_______ and______ between the parties as under:

X, s/o_______(hereinafter referred to as seller)
And
Y, s/o_______(hereinafter referred to as buyer)

Whereas, the seller is the manufacturer and distributor of the goods(give description)
And
Whereas, the buyer is desirous to purchase the above-mentioned goods from the seller
according to the terms agreed and set forth in this agreement.

Now, therefore the parties hereto mutually agree as follows:

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The seller agrees to sell goods to the buyer in consideration of INR- XXX via ____ mode of
payment. It shall be the responsibility of the seller to ship the goods, where the shipping cost,
insurance expenses and any other expenses during shipment.

The seller shall also provide relevant documents including an Invoice to the buyer at the time of
delivery.

The buyer shall pay the agreed amount within______ days from delivery and if the buyer fails
he shall be liable to pay an additional amount of _______ per day until agreed payment is
done.

After the delivery is complete the buyer shall be responsible for any further payments including
taxes or third-party expenses with respect to the goods.

The seller shall deliver goods to the buyer at ______ on ______. and it shall constitute a valid
and complete delivery only when the buyer gives acceptance at the above-mentioned location.

In the event of risk of loss of the goods during shipment, the seller shall bear the cost and once
the delivery is accepted by the buyer the risk of loss shall be borne by the buyer.

The buyer shall have the right to examine and return the goods within 5 days of delivery of
goods if he/she is not satisfied, shall have the right to reject and return the goods within 5
working days.

In case of any question of dispute or disagreement arise between the parties. Parties hereby
agree to

In witness whereoff the parties hereto have signed this agreement on ______

Signature of party 1_________ witness 1________

Signature of party 2_________ witness 2________

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Sec 31 Duties, of seller and buyer:

It is duty of the seller to deliver goods and give possession to the buyer and the buyer should
accept and pay for it.

If the buyer unjustifiably rejects the goods there will be a breach of duty on his part
Acceptance may be given even without taking actual delivery

Sec 32 Payment and delivery are concurrent conditions:

The seller is not bound to deliver the goods if the buyer is not ready and willing to pay the price
upon delivery and the buyer is not bound to pay the price unless the seller is not ready and
willing to give the goods on demand.

Readiness and willingness include capacity. For Ex- If the buyer has become insolvent it will be
deemed that he is not ready and willing to pay.

This rule applies where there is no agreement showing the contrary intention of the parties. For
Ex- sale on Credit.

Sec 33 Delivery:

The parties are free to decide the mode of delivery.

Any act which has the effect of putting the goods in possession of the buyer or any person
authorised by him shall constitute delivery.

Delivery can be symbolic. Ex- keys of godown

Marvin v. Wallis

There was a sale of a horse. The seller asked the buyer to keep the horse and pay rent Buyer
agreed and Left the horse in the custody of the seller. It was held to be a valid delivery of horse.

Edan v. Dudfield

In this case the buyer was already holding the goods as the seller's Bailee and the seller agrees
with him that he shall hold them as owner, the character of possession is changed accordingly.
The buyer ceases to hold the goods as Bailee and brings to hold them as owner. It's a valid
delivery.

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Sec 34 Effect of part delivery:

Delivery of part operates as delivery of whole for the purpose of passing of property but the
delivery of part with the intention of severing it from the whole does not operate as delivery of
the remainder. Ex-goods are sold and kept in a godown the seller instructs the caretaker of the
godown to deliver the goods to the buyer who has already paid the price, the buyer weighs them
and takes away a part of it. This will be deemed to be the delivery of the whole because there
appears to be no intention to sever it from the whole

Where ‘X’ sold 5 packets of goods to ‘Y’ to be paid on delivery. ‘Y’ received and paid for 1 packet
and refused to pay for others for not being according to the description there will be no deemed
delivery of the whole because there is intention to sever it from the whole.

Sec 35 Buyer to apply for delivery:

The buyer has no cause of action against the seller if he has not applied for delivery.

When the buyer applies for delivery and the seller fails to deliver,he shall be guilty of breach of
contract.

Sec 36 Rules relating to delivery:

This provision fixes the place of delivery and the rule under sub-section 1 applies subject to
express or implied contract.

Generally in the contract of sale conditions related to delivery are essence, a breach of which
gives right to the buyer to reject the goods.

Sub-sec 3 talks about delivery by attonment in which the third party has possession must
acknowledge that he keeps the goods for the buyer.

The demand of delivery by the buyer and tender of delivery by the seller must be made at a
reasonable hour and the expenses to make goods deliverable fall upon the seller.

Philips v. Blair Martin

In this case there was an agreement to buy rum, seller delayed the delivery and government
banned it and it was held that seller was liable for non delivery because goods were not delivered
within reasonable time.

Sec 37 Delivery of wrong quantity:

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If the seller delivers less quantity the buyer may reject or may accept and pay at the contract
rate.

If the seller delivers a larger quantity the buyer may accept the whole or reject the whole or
reject the excess and pay according to the contract rate.

If the seller delivers goods that he has contracted mixed with goods of different descriptions, the
buyer may accept the goods that are contracted and reject the rest or may reject the whole.

The rules provided in section 37 are subject to any usage of trade, special agreement between the
parties, or course dealing.

De minimus non qusat lex applies here which means that a slight deficiency in the quantity will
not entitle the buyer to reject the goods or claim damages because some flexability in such a
contract is unavoidable.

Under sub-section 2 buyer is not bound to accept the access nor is bound to put himself in
trouble of separating the goods.

Where the buyer receives mixed goods, he is not bound to separate them however easy it may
be.

Forest Corporation laborers v. m.s Mohammed Syed and Ors

In this case, there was a contract of sale for the delivery of a specific quantity of charcoal, when it
was delivered it was 30%-35% less than what was agreed at the time of auction. It was held that
it is not a slight variation and de minimus did not apply.

Sec 38 Installment deliveries:

Neither the buyer nor the seller can demand or tender delivery by installment until they have
agreed to do so, this agreement may be expressed or implied or may be inferred from the
circumstances of the case.

A contract may provide for delivery by installment and payment for each installment separately.
Here the circumstances are such that each delivery is done under a separate contract and paid
separately.

A contract is severable or divisible if liability under it accrues from time to time as the
performance of a part of the contract.

Sec 39: Delivery to carrier or wharfinger

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When under the contract of sale the seller is authorised or required to send the goods to carriers
for the purpose of transmission to the buyer or the delivery of goods to the wharfinger for
custody is prima facie deemed to be delivery to the buyer

The seller is duty bound to make such contract with the carrier or the wharfinger as may be
reasonable having regards to the nature of goods and other circumstances of the case. If the
seller omits to do so and goods are lost or damaged during transit/custody, the buyer may
decline to treat the delivery to the carrier or to the warfinger as delivery to himself or may hold
the seller responsible for damages. The purpose of this section is to impose a duty upon the
seller to secure a reasonable contract of carriage, to enable the buyer to sue the carriers in case
the goods are lost or damaged.

Clarke v. Hutchins

In this case, the carrier to whom the goods were delivered required a notice that the goods were
over a certain value otherwise the carrier shall not be liable for the loss. The seller failed to give
such notice and it was held that he failed in his duty to make a reasonable contract and therefore
liable for the loss.

Thomas Young & sons v. Hobson & partners

In this case 14 machines were sold and it was agreed that they shall be carried by railways, the
seller dispatched them at the “owners risk” and not at “company risk”. There was a slight
difference in freight charges and before accepting at the company's risk, the company would
have inspected their packaging and would have required the machines to be packed and
properly secured during transportation. However at the owner risk the railway did not bother
about these things, the machine were kept loose in the wagon and got damaged. It was held that
the seller had not secured a contract which was reasonably required and the buyers were allowed
to reject the goods and not liable to pay the price.

Under sub-section 3 it is provided that when goods are sent by sea transit and the insurance is
usual, the seller should give to the buyer such notice which will enable him to get the goods
insured. If the seller fails to do so the goods shall remain at his risk during transit.

Sec 40: Risk where goods are delivered at distant place

Under sec 40 if the seller agrees to deliver the goods at a place other than the place where they
are sold the goods shall be at his risk unless otherwise agreed

Sec 41: Buyer’s right of examining the goods

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Sec 41 provides that if the goods are delivered to the buyer which he has not previously
examined he is not deemed to have accepted them unless he is given a reasonable opportunity to
examine them and the seller is bound to give such opportunity unless agreed otherwise.

Sec 42: Acceptance

Sec 42 provides that the buyer should accept the goods in certain conditions:
1. When he intimates to the seller he has accepted.
2. When he does an inconsistent with the ownership of the seller.
3. He retains the goods after the lapse of reasonable time.

Sec 43: Buyer not bound to return rejected goods

Sec 43 provides that the buyer is not bound to return the rejected goods.

Sec 44: Liability of buyer for neglecting or refusing delivery of goods

Under sec 44 if the buyer neglects or refuses to take delivery of the goods even after the request
is liable to compensate the seller for the damages for the loss occasion for such neglect in taking
delivery.

Shahmohanlal manilal v. firm

In this case buyer and seller contracted to a specific type of coal. The goods were delivered and
the buyer without examining them delivered some part of it to a sub-purchase on the same day,
the sub-purchaser complained that the goods were not in conformity with the description. The
buyer stopped payment via cheque and tried to terminate the contract which was not
allowed(refer to Sec. 41 and 42).

Sec. 45 “Unpaid seller” defined:

A seller is unpaid so long he has not received the whole of the price, also if the buyer has given
him the bill of exchange or other negotiable instrument which is dishonoured will be deemed to
be an unpaid seller.

A seller who is partly unpaid stands at par with one who is wholly unpaid.

It means the person who has sold or agreed to sell for price and the payment has not been made.

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The term unpaid seller includes the person who is in the position of the seller. For ex- an agent
of the seller, in whose name the bill of lading has been induced, or a consignor or an agent who
has himself paid the price.

A Bill of lading here is a document that is issued by a carrier or agent to acknowledge receiving
of cargo of a shipment, it legally implies that the carrier has received the cargo and is under the
obligation to deliver the goods to a person who is authorised to receive that.

A Bill of lading is a document of title and it authorises the buyer to receive the goods but if the
agents name is endorsed upon it he has the right to receive them and may act as an unpaid seller
if other conditions are fulfilled.

A Bill of exchange is a document that is written in order to pay a sum of money to a particular
person on a particular day.

In the case of surety for a buyer who has paid the price has the right to stand in the seller's place
and can act as an unpaid seller under this act.

Sec 46 Unpaid seller’s sights:

The unpaid seller has by implications of law notwithstanding that property has passed to the
buyer the following rights available:

1. A lien on the goods while he still has possession.

2. If the buyer becomes insolvent before payment a right to stop the goods in transit after
he has parted with the possession.
3. Right of resale as provided in the act.

The term ‘Lien’ implies that property in goods has vested in the buyer because no man can have
a lien on his own goods and he cannot possess a right of lien on his own property which is in
nature of distress over the property of another.

According to black’s Law Dictionary right of lien is a legal right or interest that a creditor has in
another’s property lasting usually until the debt or duty that is secured is satisfied.

The right of Lien is exercised when the payment becomes due and the seller is unpaid, it doesn’t
matter whether the buyer is insolvent or not.

The right of stoppage in transit arises only when the buyer has become insolvent and the seller
has parted with the possession of the goods.

Sub-section 2 provides for a situation where the property has not passed to the buyer and he
becomes insolvent before the price is paid, here the seller being still the owner cannot have a

28
right of lien on his own goods but he has the right to withhold the delivery of the goods until the
price is paid.

This right is analogous to the right of lien and sometimes called as quasi-lien.

Sec. 47 Seller’s lien:

Sub-section 1 provides that the seller can retain possession in the following cases:
1. Where goods have been sold without any stipulations as to credit
2. Where goods are sold on credit but the terms of credit expire
3. Where the buyer becomes insolvent, whether the term of credit has expired or not

● Right of lien can be exercised even if the seller has possession of goods as a bailee or
agent.
● The seller's lien is a particular lien arising in precise circumstances provided under the
act and not a general lien.
● Particular lien means retaining possession of those goods the price for which is not paid.
● A sale is on credit when the seller agrees to accept the payment at a future date and there
is nothing to show that the buyer is not entitled for immediate delivery.
● Sale on credit implies that the seller is prepared to deliver the goods without payment
and the seller shall have no lien during the currency of the credit period, the lien will
revive after the period is expired.
● If the buyer becomes Insolvent before the price is paid and the seller is in possession of
the goods, he is entitled to retain the sale if the goods are sold on credit or the term of
credit has not expired.

Sec. 48 Part delivery:

It clarifies that when an unpaid seller has partly delivered the goods he is entitled to retain the
possession of the remainder unless there is a waiver.

Even where the contract is for delivery and payment by distinct installments and the seller
remains unpaid he is entitled to refuse to deliver any further installments until he is paid the due
amount.

If under the contract separate payment is to be made for each delivery and it is agreed that each
delivery shall be treated as a separate contract, the seller will have no lien for any further
installments.

Ex- “A” agrees to sell goods to “B” in 5 monthly installments, 3 installments were delivered and
paid for. The fourth installment was delivered but not paid. A is entitled to retain the possession
of the 5th installment until he is paid for 4th and 5th.

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Sec. 49 Termination of lien:

The unpaid seller loses his lien if he delivers goods to the carrier or a bailee for the purpose of
transmission to the buyer without reserving the right of disposal or if the buyer obtains
possession lawfully or by waiver(ex- goods on credit).

The unpaid seller's right of lien is not affected by the fact that he has obtained a decree for the
price of goods.

When the property is passed and the goods have reached the actual possession of the buyer, the
seller's sole remedy is a personal claim against the buyer, he stands in the position of any other
creditor to whom the buyer may owe the debt and all the special remedies in his favour are lost.

A seller cannot enforce his right for the price of goods by seizing the goods from a buyer who has
both property and possession.

If the buyer by some wrongful act obtains possession of the goods the seller may take them back
and if the buyer refuses to give them back the seller may sue the buyer for recovery of
possession.

Where the person has sold the goods on credit, he is deemed to have waived his lien during
currency of credit.

The seller may reserve the right of disposal and will not loose lien even if he delivers the goods to
carriers.

When he reserves right of disposal the carrier acts as his agent.

The seller may also waive his right to retain possession by expressly have the term for contract of
sale.

Valpy v. Gibson

In this case the goods were sold and sent by the seller at the request of the buyer to shipping
agents of the buyer and were put on board by those agents in a ship. Subsequent to this the
goods were sent back to the seller for the purpose of repacking and while they were still in
possession of the goods the buyer became insolvent. Thereupon the seller refused to deliver
them back except upon payment of the price. It was held that the seller has lost his lien by
delivering goods to the shipping agent and the refusal was wrongful.

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 Eduljee v. john brothers

In this case a second hand refrigerator was sold and delivered to the buyer but latter on two
parts of the refrigerator were taken away by the seller for repair there after the seller refused to
deliver the parts back to the buyer on grounds that cost has not been fully paid. It was held that
seller has no lien and refusal was wrongful.

Sec. 50 Right of stoppage in transit:

Subject to provision of this act when the buyer becomes insolvent,the seller who has parted with
the possession of the goods has right to stop them in transit, that is he may resume possession
and retake it as long as price is not paid or tendered.

After delivery the seller losses his right of lien. However, he may exercise his right of stoppage in
transit if the buyer becomes insolvent and the goods are still in transit.

If the buyer is not insolvent the goods shall ultimately be delivered.

The exercise of the right of stopping the goods in transit does not mean that the seller cancels
the sale or the property revests in him, the seller just gets right to reposes them.

After repossesing the seller is bound to deliver the goods if the price is tendered or paid.

lien Stoppage in transit

Goal is to retain possession Goal is to regain possession

It can be used even when buyer is not It can be used only when buyer is insolvent
insolvent

When it ends SIT begans It begins when lien ends

Goods are in sellers possession Possession has parted

Sec 51. How stoppage in transit is effected:

The moment the goods are delivered by the seller to a carrier to be carried to the purchaser the
transit begins and when the goods arrive at there destination and delivered to the buyer,the
transit ends or when the carrier holds them as agent for the purchaser the transit ends by
acknowledgement.

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The transit also ends when the buyer is ready and willing to take delivery but the carrier
wrongfully refuses to deliver.

If the buyer or his agents take the delivery before appointed destination the transit ends.

If the goods are rejected by the buyer the transit is not at the end.

Sec 52: How stopppage in transit is affected:

The Unpaid seller may exercise his right of stopppage in transit by either taking actual
possession or by giving notice to carrier/bailee having possession. The notice may also be given
to the principal of the carrier or other bailee.

When the notice is given by the seller to carrier or bailee, he’s under the obligation to redeliver it
to, or according to the directions of the seller. The expenses of redelivery falls upon the seller.

This section doesn’t prescribe any specific mode and form of notice and therefore, it maybe
either in oral or in writing or maybe given to a person having actual possession or to his
principal.

When the notice is given to the principal, then it must be given in advance so as to enable him to
communicate it effectively to the person having actual possession.

Once, the notice is received, the carrier has no other option but to comply with the directions
and if he fails he maybe sued by the seller.

Hypothetical: X is a grain merchant who carries on his business in Delhi. Y orders 10 bags of
grain from X. Accordingly X handed over 10 bags to Z to be carried to Bhopal. Here Z was a
carrier appointed by Y. The goods arrived at Bhopal and placed by Z upon Y’s request in Z’s
warehouse. While the goods were still in possession of Z, Y became insolvent. Thereafter, X
instructed Z and directed him not to deliver the goods to Y because the price was not paid. Even
after his direction, Z handed over the goods to Y.

Ques 1: Whether X can retake possession?

Ques 2: Whether X can sue Z for the loss sustained by him due to delivery?
Ques 3: Identify issues argued from both side and predict likely outcome.

Section 53 Effect of sub-sale or pledge by buyer:

It deals with the situation where the buyer, without paying the price, sells the goods or makes
other disposition, and under subsection 1 it is provided that neither the right of stoppage in

32
transit, nor the right of lien is affected by sub-sale or pledge by the buyer, unless the seller
assents to it.

It also contemplates the situation where the seller has issued or lawfully transferred the document
of title to the buyer, and the buyer transfers that document by way of sale, pledge, to a person
who takes them in good faith for consideration. If there is a sale and document of title is
involved, then unpaid sellers lien or stoppage in transit is lost, and if it was by way of pledge,
then the right of lien or stoppage in transit is not completely lost, which means he may still keep
the possession, subject to the debt given by the pledgee (transferee) is satisfied, if not, then he
will be bound to deliver it back to the pledgee because his right prevails.

Subsection (2) clarifies that where the pledgee has other securities besides the goods comprised
in the document of title, the unpaid seller may insist him to resort to those securities before
resorting to the goods covered under the document of title.

U.S. Steel Products & Co. v. GWR Railways Co.

In this case, the railway company was in possession of goods as carrier. The seller gave notice of
stoppage of transit to the carrier. A sum was due to be paid by the buyer to the company. The
company was not entitled to set up in priority to the sellers right of stoppage in transit, a general
lien exercisable by the company against the buyer as owners of the goods.

Sec 54: Sale not generally rescinded by lien or stoppage in transit

There is no recession of contract of sale upon exercise of lien or stoppage in transit which means
that the contract of sale is not terminated, and it does not come to an end.

It is also provided that the unpaid seller can resale the goods if the buyer fails to pay the price
under following circumstances :

● Where the goods are perishable

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 ● When the unpaid seller has exercised his right of lien or stoppage in transit and gives a
notice to the buyer of intention to resell the goods,
● He expressly reserves his right of resale

When the seller expressly reserves the right of resale, he’s not required to give notice and he’s
entitled to recover damages without notice.

When he exercises right of lien or stoppage in transit, and there is no express reservation of right
of resale, in such a case, if he gives notice, and the buyer doesn’t pay the price, the seller may
resale the goods and also entitled to

● Recover the difference between the contract price and resale price as damages
● Retain profit if the resale price is higher

However, if the goods are resold by the seller without giving notice to the buyer, the seller
cannot recover the loss suffered on resale. Moreover if there is any profit he cannbot keep
surplus with him.

The word recited in this section mens treated as discharge by the seller or terminated by the
seller. Even upon the buyer’s insolvency the contract is not rescinded because the benifit vests in
the official assigne and it may still be possible to complete the contract for the benifit of creditor.

Sec 55: Suit for price

It provides that where the property in goods is passed irrespective of delivery, the seller may sue
for price. It involves two cases:

1. Suit for pricce of goods sold and delivered

2. Suit for price of goods bargained and sold but not delivered

The term wrongfully uses must be determined from the terms of the contract. For ex- if the
buyer refuses to pay before the expirey of perid to pay it cannot be considerd as wrongful uses.

Sub-section 2 provides that where under the contract of sale the price is payble on a day certain
irrespective delivery and the buyer wrongfully neglects or refuses to payb the price, the seller

34
may sue him for the price although the property in goods has not passed and the goods have not
been appropriated towards the contract.

This is not the repudiation of the contract and it still survives which means the seller should still
be bound to supply the goods if the payment is made.

Sec 56: Damages for non-acceptance

It provides that where the buyer wrongfully neglects or refuses to accept and pay the price, the
seller may sue him for the damages for non acceptance.

This section is silent as to measure of damages as it is dealt in section 73 of the Indian contract
act.

The general intention is to place the non defaulter in a position he would have been if the
contract would have been performed. In all the case where the contract is breached the injured
party is entitled to get from the party in default the compensation for the damages caused to him
thereby which naturally arises in ususal course of things.

Refer- hadley v. bexendale

Where there is an available market for goods the measure of damages is prima facie to be
acertained by the difference between the contract price and market price at the date of breach.

Where the no market price is available it is the estimated loss directly otr naturally resultin in
the ordinary courese of event from the breach of the contract.

Where the time for the performance but it is extended and another date susituted byb the
agreement between the parties the substituted date must be taken as the date for ascertaining
the damages.

Suresh kumar rajendra kumar v. koya and sons

In this case the plaintiff sold goods to the defendant who wrongfully rejected it, while doing so
the plaintiff took all the necessary measure to sell the goods urgently. It was held the the plaintiff
was entitled to claim the difference between price at which the goods were supposed to be sold
to the defendant and the price at which it was finally sold(date at which market price is to be
acertained is the day on which the contract was supposed to be performed by delivery and
acceptance as fixed by the contract.

Sec 57 Damages for non-delivery: Buyers remedy read it

35
Sec 58 Specific performance:

This is the only section in the act which deals with the equitable rights and provides remedy to
the buyer, there is no co-relative right to the seller.

It is only upon the application of the buyer, when suing as plaintiff the contract shall be
specifically performed and this section is limited to specific and acertained goods.

The discretion shall be exercised in cases where the goods in question are of some peculiar value
and the court shall not interfere where the goods are article of commerce readily available in the
market.

The remedy of specific performance is generally granted where the compensation in money
would not afford the buyer adequate relief for the loss of goods and it also applies to cases where
it is extremely difficult to ascertain actual damage caused by the loss of goods.

The rule provided in this section gives effect to the discretionary power of the civil court for
passing a decree for specific performance,that is for delivery and this section applies to such
cases where money is not adequate relief or it is hard to ascertain loss and therefore in such
cases are very less.

The court has descrition to impose condition while passing decree. For ex- while allowing
specific performance the court mayimpose upon a buyer a condition that he must pay intrest on
the price otherwise he will not get the goods delivered.

Dominion coal company v. dominion iron and steel

There was a contract of all coal that may be required for buyer’s steel work. In this case the
buyer asked for specific performance which was not allowed on the ground that goods were not
specific or ascertained.

Sec 59 Remedy for breach of warranty:

It provides that if there is a breach of warranty by the seller or buyer elects or is compelled to
treat the breach of condition as the breach of warranty then the buyer should not be entitled to
reject the goods only because of that reason but he may setup against the seller the breach of
warranty in diminution or extinction of the price when the loss is less or equal to the price and
he may also sue the seller for damages for the breach of warranty.

If the buyer has setup a breach of warranty in diminution or extinction of the price this will not
prevent him from suing for the same breach of warranty if he has suffered further loss.

36
Refer section 14-17 with cases

A breach of condition entitles a buyer to reject the goods but he may elect to treat this breach as
breach of warranty and he will be allowed remedy under this section.

If the buyer has already accepted the goods, the breach of condition can only be treated as
breach of warranty.

In a suit for price by a seller the buyer may take defence under this section by pleading that he
will not pay the entire price or pay the less price and if the damages exceeds the amount of price
he may counter claim for the excess or bring an independent claim for it and he may also pay
price and take distinct action for any damage sustained due to sellers breach.

Section 60 Anticipatory breach of contract of sale:

This provides that if before the date of delivery, either party repudiates the contract, the other
may treat is subsisting or may rescind and sue for damages for the breach.

This section gives an option to the promisee to wait till the date of performance or may rescind.

If he treats the contract as subsisting, then the contract shall be alive for benefit of the other
party, as well as his own benefit, which enables the other party not only to complete the
contract, irrespective of previous repudiation, but also can take advantage of supervening
(beyond control) events, which would justify him in declining of performance.

If the party accepts repudiation, he must minimise the loss (mitigation).

Frost v. Knight

Measure of damages - Section 73 applies.

Sec 61: Interest by way of damages and special damages

37
Section 73 and 74 of ICA applies here and it provides that wherever the interest or special
damages are available the court may allow it.

The parties may agree to pay intrest incase of default and if there is no agreed rate then the court
may award interest as it may deem fit.

Sec 64 Auction sale:

Whenever there is sale by action and the goods are putup for sale in different lots it will be prima
facie deemed to be subject to separate lots.

The bidder may withdrew his bid anytime before the sale by auction and auctioneer may
announce such completion by fall of hammer or any other custoumary manner(offer and
invitation to offer).

The seller my reserve the right to bid expreselly in an auction and if the sale is not notified
subject to the right of bid by the seller such sale will be treated as fraudulent by the buyer. The
seller my reserve the upset/base price and it my be conditional upon reaching that minimum
price.

If by any manner the seller makes use of pretended bidding to stiffle fair competition in the
bidding process such sale is voidable at the option of the buyer.

Bid rigging/knockout agreements etc

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SALE OF GOODS ENDS HERE

39
Sec 124 “Contract of indemnity” defined:

Section 124 defines the contract of indemnity whereby one party promises to save the other from
loss occurred to him due to conduct of the promisor or any other person.

Ex: A promises to deliver certain goods to B for Rs. 2,000 every month. C comes in and
promises to indemnify B's losses if A fails to deliver the goods. This is how B and C will enter
into contractual obligations of indemnity.

The term indemnity generally means to compensate for the loss.

Indemnifier is a person who gives indemnity and indemnified/ indemnity holder is a person for
whose protection such promise is given.

The definition is limited to the cases where there is a promise to indemnify loss caused due to:

1. By promiser
2. By conduct of any other person

Definition excludes cases where loss happens due to other factors like fire, earthquake etc( sec.
31 contingent contract). Contingent contracts have wider scope than indemnity contracts.

Loss must be caused by some human agency.

English law is wide enough to include a promise of indemnity against loss arising out of any
cause whatsoever. Ex- loss caused due to fire or other accidents.

Adamson v. Jarvis

In this case the plaintiff was an auctioneer and upon instruction of the defendant he sold cattle
in the market. It turned out that it did not belong to the defendant and the owner made the
auctioneer liable and thereafter the auctioneer sued the defendant for the loss he had suffered by
action upon the direction of the defendant. It was held that the plaintiff was entitled for the
compensation for the loss he has suffered and he was allowed to recover.

40
Essentials:

1. Two parties Involved

2. Protection of loss due to conduct of promiser or any person
3. General contract applies
4. Where there is only one contract that is between indemnifier and indemnified

Gajanan Moreshwar Parelkar v. Moreshwar Madan Mantri

In this case the court deviated from English rule that one must be demnified before he can be
indemnified. It was held that once the liability of the holder becomes may be directed to pay the
amount or deposit in the court.

Praful kumar v. oriental insurance company ltd

A motor vehicle was lost and the assurer immediately lodged F.I.R under the insurance contract
he was required to give notice of such loss to the company immediately. It was held that the
assured acted promptly, lodged F.I.R which shows his good faith and the claim cannot be denied
only on the basis that he has not given notice immediately after notice.

Sec 125 Rights of indemnity-holder when sued:

Right to recover damages (Section 125(1)): The indemnity holder has the right to claim
reimbursement for the damages suffered.

Right to recover costs incurred (Section 125(2)): The indemnity holder is entitled to recover the
costs incurred in relation to the legal proceedings associated with the matter.

Right to recover sums paid during compromise (Section 125(3)): The indemnity holder has the
right to seek reimbursement for any amounts paid as part of a compromise to settle the dispute.

Sec 126 “Contract of guarantee”, “surety”, “principal debtor” and “creditor”:

It is a collateral Under-taking for being liable in case of default of another person. Any
independent liability not connected with the default will not be covered under sec 126.

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There is no direct consideration to surety however anything done or any promise made for the
benefit of the principal debtor is deemed to be sufficient consideration for surety.

Contract of guarantee is not a contract of utmost good faith but if there is any misrepresentation
or concealment amounting to misrepresentation upon the surety then the contract is invalid.

The surety’s liability is co-extensive with that of principal debtor which means that whatever
liability falls upon principal debtor will be covered under the contract of guarantee and
guarantor shall be liable for the same.

Coextensive shows the maximum responsibility which may be reduced by the contract

Bank of Bihar v. Damodar prasad

In this case defendants guaranteed a bank loan. A default took place and he was sued by the
bank and the trial court directed that the bank should enforce all the remedies against the
principal debtor first and then may proceed against the surety. The supreme court overruled it
and it was held that the basic object of guarantee is defeated if the creditor is asked to postpone
his remedies against the principal debtor.

Union of India v. Manku Narayan

In this case it was held that the creditor must proceed against the mortgaged property before
proceeding against surety for balance.

State bank of India v. Index board ltd.

It was held that it is not necessary for the creditor before proceeding against the surety to
request the principal debtor to pay or sue him although he is solvent unless it is expressly
stipulated in the agreement

A suit against the surety alone without impleading the principal debtor as defendant is
maintainable

Surety can limit his liability or put conditions on it.

Bank guarantee: An agreement made by the bank or other financial organisations to pay a
debt if the person or any company who owes it cannot pay.

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A bank guarantee is an absolute undertaking to pay the amount whenever demanded by the
guarantee holder and it has nothing to do with the state of relation between the guarantee
holder and the person on whose behalf guarantee was given.

Maharashtra state electricity board v. Official liquidator

A bank gave a guarantee for a sum not exceeding 50K within 48 hours of demand. The
guarantee was issued on the behalf of a supplier who has deposited with the bank sufficient
securities. The only condition was that the bank shall pay on demand, the payment was
demanded by the guarantee holder and the liquidator tried to prevent it, that is to stop the bank
from paying it. No such action was allowed and it was held that the guarantee holder had the
right to enforce the payment of guarantee and the bank had the right to reimburse it from
securities.

Banwari lal v. punjab state corporation ltd

It was held that scrutiny if commenced in respect of underlying contract the autonomy and
independence of absolute guarantee would be lost and the enforcement of it would depend upon
the result of the inquiry relating to underlying contract. This would defeat the purpose of bank
guarantee.

Hindustan steel works corporation ltd v. tarapore and company

In this case supreme court laid down following rules

1. Bank guarantee is an independent and distinct contract between the bank and
beneficiary and is not qualified by underlying transaction and the primary contract
between the person at whose instance the bank guarantee is given and the beneficiary.

2. In case of unconditional bank guarantee the nature of obligation of bank is absolute and
it does not depend upon the dispute te between the person at whose instance the bank
guarantee was given and the beneficiary

3. The commitment of bank must be honored free from interference from the court and it is
only in exceptional cases that is incase of fraud or in case where irretrievable injustice
would be done

UP Cooperative federation v. Singh consultant

UCM Investments v. Royal Bank(foreign case)

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The commercial purpose for which the system of irrevocable documentary credit is developed in
international trade is to give the seller an assurance that he will be paid before he parts with the
control of goods and does not permit any dispute with the buyer as to the performance of the
contract of sale being used as a ground for non payment or reduction or deferment of payment.

Centax(India ltd) v. vinmar impex corporation

In this case the supreme court clarified that commitment of banks must be honoured free from
interference of courts otherwise trust in international commerce would be irreparably damaged.

A guarantee has to be enforced with a period of limitation from the date of execution of bank
guarantee.

Rights of surety:

Surety has following rights against principal debtor:

● Subrogation
● Right of indemnity

Upon payment or performance of a guaranteed debt or the promise the surety steps into the
shoes of the creditor that is subrogation and he is invested with all the rights which the creditor
has against the principal debtor.

Amrit lal Govardhan lal v. state bank of travancore

Investing of rights and said that sec 140 makes it clear that even without necessity of transfer the
law vests all the rights in surety even if there is no stipulation in that effect.

Mamta ghosh v. united industrial bank

It was held that if any suit it is proved that principal debtor threatens or is about to remove or
dispose of his property with the intent to defraud his creditors the court may grant temporary
injunction to prevent such removal and disposal.

Right to indemnity:

In every contract of guarantee there is an implied promise by the principal debtor that he will
indemnify surety.

This right enables surety to recover rightfully paid amount from principal debtor
Read illustration A and C

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Rights against creditors: Under section 141 surety has the right to benefit from every
security which the creditor has against the principal debtor irrespective of whether such surety
knows the existence of such security. If the creditor loses without the consent of such surety or
parts with such security, the surety is discharged to extent of value of security.( read illustration)

Industrial finance corporation of India v. canaore mills ltd

In this case it was held that the surety is entitled to every security which the creditor has to get
enforced in his favour.

State of Madhya pradesh v. kaluram

It was held that security includes all rights. In this case the state sold a specific lot of felled trees
to a person for a fixed price payable in 4 equal installments. The payment was guaranteed by the
defendant; the contract provided that if a default is made in payment the state has the right to
prevent removal and has the right to sell remaining timber for realization of the price. The buyer
defaulted but still the state allowed the removal. The surety was sued but not held liable.

Right to setoff

Right against co-surety:

If one surety is discharged from liability it does not mean that he is discharged from liability
towards another surety.

Section 148 - defines contract of bailment - delivery (not mere transferring custody) of goods
from one person to another, upon a contract - bailor delivers goods and bailee is a receiver- There
has to be a contract of bailment

State of Gujrat v. Mohammad

In this case State authority took custody of goods and vehicles belonging to the person, after
taking custody goods were left unattended and hence they were lost. Court said that state is under
obligation to take care of the goods due to a bailment contract. State contended that there was no
contract and that they had the custody due to customs act. The court said that this particular
ingredient is usual, but even w/o a contract it can be there

45
Money has different characteristics and cannot be treated as goods.

Duties of bailor and bailee and their rights

Types of bailor:

● Whosoever is acting without consideration - duties less than those acting for reward -
even if knowing defect if you give it, you’ll be liable for loss, but if you aren’t aware +
are not taking consideration, then you will not be liable
● In case of consideration - irrespective of awareness of defect, you shall be liable

Reed v. Dean

No contract to the effect that we shall be responsible if you suffer loss. Court said that since
you're compensated, you will be liable. (a motor launch was hired by the plaintiff for the
holidays on the river Thames. Unfortunately, the launch caught fire and as the fire-fighting
equipment was out of order, the fire could not be put down. Consequently, the plaintiffs were
injured and suffered loss. It was held that there was an implied undertaking that the launch was
as safe for the purpose it was hired, if used with reasonable care and skill. The defendant was
accordingly held liable.)

Sec 151 Duties of bailee:

Duty of reasonable care- no uniform standard- degree of care which a man of ordinary prudence
would take of his own goods.

Gopal Singh v. Punjab national bank

It was held in this case that no cast iron standard can be laid down for measure of care due from
a bailee and it varies with posture of each case.

Burden of proof is upon bailee

Union of India v. New India Insurance company ltd

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In this case plaintiffs car was lost in fire in garage- delevired for repairs-bailee could not lead any
evidence as to how incident took place and they acted resonably and bailee was held liable.

Duty not to make unauthorized dues(154)

Alias v. K.M Paul

In this case car was delivered for repairs and bailee allowed unlicenced driver to take it and
accident happened and caused death and bailee was held liable to compensate deceased family
also bailor.

Duty not to mix(155-158)

Duty to return(160-165)

The bailee is not entitled to setup against the bailor of jus terti that is goods belong to the third
person.

Duty to return increase within section 163

Standard charter bank v. custodian

In this case shares and securities were pledged and bank received bonus- held that bank could
not be compelled to return increase unless pledged securities were redeemed.

Finder of Goods(168 and 169)

Duty to take reasonable care- finder can retail the goods until he receives compensation for
trouble and expenses. If there is specific reward finder may sue for it and may retail the goods
until award is received.

He may sell the goods in following situations:

1. when the goods are in danger of perishing.

2. If the lawful charges exceed two third of its value.

Compensation(164)

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Necessary expenses or remuneration under section 158- lein can be excercised so long as he is
having possession and the right to charges remain alive even after he has parted with the
possession.

Surya v. State trading corp.

STC hired plaintiff oil tanke for oil storage dispute arose when corporate appointed special
officer to take charge of tank and delivered its contents to others as directed. Plaintiff lost the
possession of oil but were allowed to recover compensation because bailor took their service.

Bailee- Particular lien

Conditions:

Bailee must have rendered services in respect of goods by excercise of labour or skill.
It must have been excercised for the purpose of bailment
Only those goods can be retained upon which bailee has excercised skill or labour.

Edulgee v. John Brothers

Purchase of old refrigrator- vender agreed for repair- repair was done and work was satisfactory-
delivered- part of repair charges unpaid- machine broke down again- vender carried another
part for repair and claimed lien on these part for outstanding charges- held that once the
possession was lost lien ended which the repairor had for outstanding charges of repair and
cannot be revived.

General lien(171)- available to bankers,warfinger,attornies and factors

1. Right to sue provided in section 180 and 181

2. Securing a payment of debt or performance of promise
3. Delivery of goods and transfer of possession

Mercantile bank v. Union of India(172)

Goods were condigned with railways and railway reciept was endorsed in favour of bank for
advance of 20k but goods were lost in transit and bank as endorsee/pledge sued railway. Trail
court rejected, high court allowed limited recovery but the supreme court said that delivery of
railway reciept is same thing as delivery of goods and pledge is valid and action was allowed.

Essential:

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 1. Pledge must be done in pursuance of contract

Rights of pawnee(173and174)

Lien may be excercised not only for the amount as debt or performance of promise but also for
the interest and the necessary expenses that is particular lien.

Right of extra-ordinary expenses(175)

Right to sell(176)

Until the amount is recovered the pledgee may retain

Lallan prasad v. Rahmat ali

In this case defendant borrowed 20k and gave promissory note and gave good for security and
plaintiff sued for repayment but could not produce security and in this case action was not
allowed.

Right of redemption(178)

Pledge by mercantile agent is valid

Essential

1. Pledge must be consented

2. Agent must act in ordinary course of action
3. Good faith

Pledge by a person who obtained possession under voidable contract is valid before recession
provided there is good faith and no notice of defect in title

Philips v. brook
In this case fraudulent person received a ring from the plaintiff and gave him a cheque before
the contract could be rescinded. The ring was pledged with the defendent and the pledge was
held valid.

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Pledge by pledgee(179)

It is valid only to the extent of his intrest, that is the amount of security.

Agency

It is defined in sec 182- agent is a person who is employed to do any act for another or to
represent another in dealing with third person.

Every person who acts for another is not an agent. Ex- servent It is only when he acts as
representative of the other is business negotiations that is in creation, modification or
termination of contractual obligations between that other and third person.

Agency being an employment contract in which a principle gets entered into legal relations with
third parties, it is a prerequsite that principal should be competent to contract.(read sec 183)

But the agent need not to be competent to contract that is as between the principal and the third
person anyone can become agent but the agent who is incompetent will not be responsible
towards his principal.(read sec )

No consideration is necessary to create agency. Generally agent is compensated by way of

commission and therefore immediate consideration is not required at the time of appointment(
sec 185)

Laxminarayan ramgopal v. govt of hyderabad

In this case it was held that:

1. Agent has authority to act on behalf of principal and to create contractual relationship
between third party and principal and this kind of power is not enjoyed by the servant.
2. A principal has right to direct what the agent has to do but the master also has right to
direct how it has to be done
3. A mode of remuneration in agency is commission but when a servent is employed it is
way of salary.
4. A master is liable for wrongs of his servant during course of employment however
principal is liable for his agents wrongful act which is done within the scope of his
authority.

Kinds of agent:

● Factor- Entrusted with possession- Purpose is to sell- He is a mercantile agent

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 ● Broker- Appointed to negotiate and make contract to sell and purchase property-No
possession.
● Del credere agent- Such agent undertakes to be liable to the principal for failure of third
party for non performance, he may be sued or he may sue if required- extra commission

Creation of agency:

1. Express agreement- Agent is expressly appointed to act( add example)

2. Implied agencies- Arises from conduct situation or relationships. Where principal by his
voluntary act places an agent in such a situation that a person of ordinary prudence
convergent with the business usages and nature of that business and is justified in
presuming that the agent has the authority to do such act and deals with him, In such a
situation the principal should be estopped from denying agents work.
3. Agency of necessities-When agent is justified in assuming extraordinary power due to
necessity and acts for him it is binding upon the principal for example unforeseen
situations generally arises in marine adventures/voyage and the goods or the property is
exposed to perils, the master of the ship may act what every is necessary and it shall be
binding upon the principal(consigner).

Sims and company v. maitland railway authority

Butter was consigned with railways- delayed due to strike- there was threat of loss of goods
being perishable- company sold it and the action was allowed by the court.

When a person acts as an agent in case of medical emergencies

Matheson v. smile

In this case the surgeon was allowed to recover remuneration from a deceased estate for the
services he provided.

Conditions for applications

Inability to communicate with the principal. Ex- When the master of the ship is not able to
communicate with the owner of the ship he can act and sell the goods. When the omnibus was
driven by agent was stopped by police very near the principal’s place. Agents asked the passerby
to take the vehicle to the principal- communication was easily possible and principal shold not
be liable for the accident which happened due to negligence of the passerby.

The acts must be necessary.

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 Prager v. bastpiel ltd

In this case during the WWI purchased for plaintiff as their agents a quantity of fur skin but
later it became impossible to ship in the last year before returning peace they sold it in market.
The defendant pleaded agency of necessity in response to the claims for return of goods by
plaintiff. It was held that there was no necessity and goods were not likely to deteriorate.

In addition to this an agent must also prove before the court that he was acting in goods faith

Pickering v. buck

In this case a wife living with the husband has an implied authority to buy articles for household
necessities.

Condition:
1. Article must be necessary
2. If husband makes reasonable allowance to the wife he should not be liable

Ratification:

It comes into play when a person has done an act on behalf of another without his knowledge or
consent- This doctrine gives option to that person to adopt it or refuse it.( read sec 196)

Effects- Will be same as if the act has been performed under authority.

Conditions for ratification:

1. Act must be done on the behalf of person who wants to ratify.

2. It relates back to the date when the act was originally done.
3. Act must be lawful.

State of U.P v. Murarilal

No ratification of government contract made in contravention of art. 299.

4. There must be full knowledge to the principal of the act which is to be ratified.
5. Ratification in part not effective.

Doctrine of relation back:

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Ratification relates back to the date on which the agent contracted or the act was done.

Duties of agent:
1. To carryout mandate and follow instructions- failure will make him liable towards
principal.
Pannalal jankidas v. mohanlal

A commission purchased purchased goods, stored them in a godown pending dispatch but he
failed to ensure goods lost in explosion- agent liable to compensate.

Lily v. doubletay

Agent was instructed to keep the goods at wharehouse, he placed part of them at named place
and part was kept at a place different from what was instructed, goods were destroyed and there
was no negligence on part of agent but still held liable.

2. Resonable care and skill(sec 211)

3. Duty to avoid conflict of intrest( sec 215)- Ex- company apointing agent to sell a ship and
agent himself brought it and did not disclose and war broke out and ships were in
demand, he sold them at high price and company was allowed to recover profit.
4. Duty not to make secret profit(sec 216)- Ex- should not divulge secret information or
trade secret etc.

5. Duty to maintain accounts( sec 213)

1. Duty not to deligate(sec 190)- Agent cannot delegate except in the following
circumstances:
a. Where there is implied or express consent of principal
b. Where by ordinary custom of trade sub-agent may be appointed
c. Where the nature of agency is such that the appointment of sub agent is
necessary

Proper delegation- Principal is represented by sub-agent- agent is responsible to principle for

the acts of sub-agent- sub agent is not directly responsible except in fraud or willful wrong.

Improper delegation- When not authorised or does not fall with in exceptional situations.

Rights of agents:

1. Agreed renumeration or resonable renumeration(sec 219) case green v. bartlet- agent

was appointed to sell a house- failed after holding auction- one person recived

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 information from him and directly contacted principal and purchased house- held that
agent entitled to renumeration.
2. Right of lein(sec 221)- Conditions: 1. Agent must be lawfully entitled 2. Agent’s
possession must be lawful 3. Property must belong to principal 4. Particular lein( gopal
das v. thakur das- it was held that agents lien does not gives him unrestriced authority
that is he can retain but not sell unless there is a contract or consent.

3. Right to Indemnity- case adamson v. jarvis

4. Right to compensation in respect of injury when acting under direction of principal(SEC
225)

Personal liability of agent

In absence of contract the agent is not personally liable that is he cannot personally enforce
contract nor he is personally bound except in following:

1. When there are foreign principal

2. Undisclosed principal
3. Pretended agents

Determination of agency:

1. By revocation by principal- It operates prospectively. If agency is for fixed period than

notice must be given before revocation
2. By renunciation- sec 206 If done without insufficient cause agent must compensate
principal.
3. Completion of business
4. Death or Insanity of principal or agent
5. Principal’s Insolvency
6. Expiry of time

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 Partnership

Sec 4 defines partnership as relation between persons who have agreed to share profit of a
business carried on by all or any of them acting for them.

Essentials:

1. Agreement- It is created by contract not by inheritance, succession etc.

Formal agreement is not necessary, it may arise from the conduct of the parties.

K.T Abdul v. Century wood Industries

In this case two brothers inherited a property did not divide and sold it and invested the sum in
a business. It was held that it is partnership even without agreement because they intended to
share profit and there was a business.

2. Business- It includes every trade,occupation and refers to any activity which if successful
will result in profit. Joint operation for gaining profit, society for charitable purpose are
not partnership.

3. Sharing of profit-
Cox v. Hickman

Benjamin Smith and Josiah Timmis Smith carried on business as iron specialists and corn
vendors under the name of B Smith & Son. They were obligated to pay a lot of money to the
creditors as they had taken loan earlier. So, a meeting took place, amongst whom were Cox and
Wheatcroft. An arrangement deed was executed by more than six-sevenths in number and value
of the creditors. The trusts were identified and the rent was fixed at 21 years. They were to carry
on business under the name of “The Stanton Iron Company”. The deed likewise contained a
condition which kept them from suing the Smiths for existing obligations. Cox never went about
as trustee, and Wheatcroft surrendered following a month and a half after which no trustee was
appointed. he issue was whether or not the defendants (creditors) including Cox and Wheatcroft
are liable to the Hickman?. It was held by the House of Lords that there exists no partnership
and hence Cox was not liable. Lord Cranworth stated that- “Participation in profits is not the
decisive test of a partnership”. The court also said that the deed was just to pay the creditors out

55
of the existing profits and the profits that the business would earn in future. Thus, this
relationship is not enough to constitute a principle- agency relationship.

4. Mutual Agency- Partners stand in position of principal and agent.

Sec 6: It helps in determining of the question as to whether group of person is a partnership firm
or not and whetheror not a person is a partner or not which is dependent on the real relation
between the parties.

Mere sharing of profit or loss return arising from a property shall not make the persons holding
joint or common interest in the property by itself partners.

Mere sharing of profit of a business does not by itself make a person partner. Ex- The lender of
money receiving share in profit, widow or child of deceased partner, servent or agent determing
renumeraation abd the seller of goodwill reciving share.

This list is not exhaustive and real relation has to be seen.

Joint ownership is not a business and therefore the joint owners of a property who just share
profit or loss arising out of property do not become partners.

Govind niar v. Maga

Two persons purchased a tea shop- incurred expenses to make it better and then leased it out it
was held that nothing more is done by parties than utilising a common property and a return out
of it.

Batley v. Consolidated bank

A money lender enabled the contractor to do business with railways. It was agreed that the
moneylender shall receive 10% profit. There was no intention to show a relationship of
partnership. They were held not to be partner.

Duration of firm: Where no provision is laid by the partner under a contract for the duration of
their partnership then the partnership would be as long as the members are willing to continue
to act as firm.

Duties of Partners:

1. Good faith(sec. 9)

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Secure maximum profit- should not make secret profit- fiduciary relationship towards each
other.
Bently v. Craven

A partner was allowed by the firm to purchase goods. He supplied it from the stock without
disclosing. He charged higher prices, made profit. The co-partner sued him to recover that profit
which he made. This action was allowed by the honourable court.

2. Not to compete(sec. 16(b)

3. Duty to Indemnity(sec. 10)
4. Duty to make full disclosure and render accounts(sec. 9)
5. Due diligence 12b and 13f

Willful neglect is different from error of judgement- partner shall not be liable if there is mere
error of judgement.

Cragg v. ford

Plaintiff and defendent where partners- where partnership was about to dissolve- defendant was
managing partner for dissolution- plaintiff advised him to sell goods immediately- defendant
decided to sell at the end of association. When goods were sold prices went down drastically. It
was held that there was willful neglect- owning to circumstances of case he could not have
anticipated sudden fall in prices.

6.

Sec. 16: The property of the firm should be used by the partners.

7. Duries to account for personal profits.

1. Right to take part in Business: This is subject to agreement- it must be excercised to

promote business not to harm.

Suresh kumar v. amrit kumar

In this case injunction was allowed when the act was harming reputation.

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 2. Access to books(12D): Here books refers to accounts, inflow outflow and other papers
of the firm

3. Righ to express opinions(12C):

● Ordinary matters: In this case majority prevails.

● Matters of fundamental nature: In this case consent of all is required. Ex- change in
business and induction of new partners.

4. Right to profit(12B): According to the agreement bound to contribute equally in loss

as well.

Relation of parties with third parties:

Jointly and severely liable to third parties: they can be individually sued or sued together.

Acts done after partner ceases to be a partner- Not liable except in holding out.

Holding out(sec 28): It provides rules relating to when someone represents firm as partner
and firm receives credit on such representation. The person is liable as a partner.

A.R Porter v. Incel

In this case defendant gave credit to a firm- represented himself as partner and used his
influence to persuade third parties to give a premises and credit to a firm. He was held liable as a
partner.

Dissolution of Partnership firm:

1. By agreement/consent(sec. 40):
2. Compulsory dissolution of partnership firm(sec. 41):
a. When partners have become insolvent
b. When the business becomes unlawful

Dissolution by court(Sec 44)

Courts can dissolve partnership in the following circumstances:

1. Insanity
2. Permanent incapacity mental or physical
3. Misconduct- it should be of such a nature it affects reputation of the business

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 Snow v. Myford

In this case a partner was in a adultery relationship and other partners went to court. Court
refused to dissolve

Essel v. Haywood

Breach of trust by partner a ground for dissolution.

Registration(Sec. 58):
Upon application to the registrar with full particulars firm can be registered. However,
registration is not compulsory and there is no penalty for registration but sec 69 limits the
ability of unregistered firm to sue third party.

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 Limited liability partnership

1. LLP is a form of partnership where liability of a partner is limited and any party should
not be held liable for the acts of another.
2. In this case registration is mandatory.
3. Partners by agreement can define their liability if not the act applies

It has a status of body corporate under the act as a separate legal entity from its partners and
also has perpetual succession.

Incorporation:

Effects:

1. It acquires ability to sue or be sued

2. It acquired ability to acquire property

Binding up and dissolution(sec. 64)

1. Where LLP decides so

2. Where number of partner is decreased
3. Where unable to pay debt
4. Default in filing statement of account or any other ground.

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 Section Wise Case list:

Sec 2: Definition clause and goods

1. Anand Behera v State of Orissa
2. State of Madras v Gannon Dunkerely
3. Gopal krishnpallai v KM Mani
4. Central Inland Transportation Co v Brojonath Ganguly
5. Karnataka Power Transmission Corporation v Ashok Iron Works

Sec 4: Definition of COS

1. C. E. B. Draper v Edward Turner
2. Hindustan Shipyard Ltd v State of Andhra Pradesh
3. State of Tamil Nadu v Anandam Vishwanathan
4. Northern India Caterers v Lt. Governer of Delhi

Sec 6: Existing and Future Goods

1. Ram Narayan v State of MP

Sec 7: Goods perishing before COS

1. Barrow Lane v Philip and Company

Sec 11 stipulation as to time

1. Martindale v Smith

Sec 14: Implied undertaking as to title

1. Niblet Ltd. v Confectioners Materials Ltd.
2. Rowland v Diwall

Sec 15: Sale by description

1. Wallace v Prattet
2. Nichol v Godis
Sec 16: Implied stipulations as to quality or fitness
1. Baldry v Marshall
2. Jones v Padgett
2. Jones v Just
3. Thornett v Beers and Sons
4. Jones v Bowden

Sec 17: sale by sample

1. Lorymer v Smith

Sec 18: Goods must be ascertained

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1. State of Karnataka v West Coast Paper Mill

Sec 21: Specific goods to be put into a deliverable state

1. Rugg v Minnet
2. Laxmi Nivas Rice Mills v Ram Nivas

Sec 22: Goods to be put in a deliverable state required to do something

1. Simmons v swift

Sec 23: Sale of uncertained goods and appropriation

1. Rhodes v Thwaits

Sec 26: Risk prima facie passes with the property

1. Demby Hamiliton and company v Barden

Sec 30: Seller or buyer in possession after sale

1. Staff Motors guarantee v british wagon company v British wagon company

Sec 33: Delivery

1. Marvin v Wallis
2. Edan v Dudfield

Sec 36:
1. Philips v Blair Martin

Sec 39: Delivery to carrier Or wharfinger

1. Clarke v Hutchins
2. Thomas Young And Sons v Hobson & Partners

Sec 41 and 42: buyers right of examining the goods and acceptance
1. Shahmohamlal Mani Lal v Firm

Sequence for attempting hypothetical questions:

1. Material facts
2. Questions of law
3. Arguments from both sides(if asked)
4. Substantive analysis including legal provisions and cases
5. Probable outcome/decision of the case
6. Critical analysis by the author

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