CONTRACT II

contract of Indemnity
Indian contract Act 1872 makes the scope narrower by defining the contract of indemnity as
follows:

Section 124 - A contract by which one party promises to save the other from loss caused to
him by the conduct of the promisor himself or by the conduct of any other person is a "contract
of Indemnity".
Illustration - A contracts to indemnify B against the consequences of any proceedings which C
may take against B in respect of a certain sum of Rs 200. This is a contract of indemnity.

This definition provides the following essential elements -

1. There must be a loss.
2. The loss must be caused either by the promisor or by any other person.
3. Indemnifier is liable only for the loss.
Thus, it is clear that this contract is contingent in nature and is enforceable only when the loss
occurs.

Rights of the indemnity holder

Section 125, defines the rights of an indemnity holder. These are as follows -
The promisee in a contract of indemnity, acting within the scope of his authority, is entitled to
recover from the promisor -
i. Right of recovering Damages -
ii. Right of recovering Costs -
iii. Right of recovering Sums –

Commencement of liability
In general, as per the definition given in section 124, it looks like an idemnity holder cannot hold
the indemnifier liable untill he has suffered an actual loss. This is a great disadvantage to the
indemnity holder in cases where the loss is imminent and he is not in the position to bear the
loss.
contract of Guarantee.
Section 126 of Indian Contract Act 1872 defines a contract of guarantee as follows :
"A contract of guarantee is a contract to perform the promise, or to discharge the liabilities of
a third person in case of his default. The person who gives the guarantee is called Surety, the
person in respect of whose default the guarantee is given is called Principal Debtor, and the
person to whom the guarantee is given is called Creditor. A Guarantee may be either oral or
written."

A contract of guarantee has the following essential elements -

1. Existance of Creditor, Surety, and Principal Debtor –
2. Distinct promise of surety –
3. Liability must be legally enforceable –
4. Consideration -
5. It should be without mispresentation or concealment -
Continuing Guarantee
As per section 129, a guarantee which extends to a series of transactions is called a continuing
guarantee.
Illustrations - A, in consideration that B will employ C for the collection of rents of B's zamindari,
promises B to be responsible to the amount of 5000/- for due collection and payment by C of
those rents. This is a continuing guarantee.

Revocation of Continuing Guarantee

1. As per section 130, a continuing guarantee can be revoked at any time by the surety by
notice to the creditor.
Once the guarantee is revoked, the surety is not liable for any future transaction however he is
liable for all the transactions that happened before the notice was given.

Rights of the Surety

A contract of guarantee being a contract, all rights that are available to the parties of a contract
are available to a surety as well. The following are the rights specific to a contract of guarantee
that are available to the surety.

Rights against principal debtor

1. Right of Subrogation

2. Right to Indemnity

Rights against creditor

1. Right to securities

2. Right of set off

Rights against co-sureties

1. Effect of releasing a surety

2. Right to contribution

Discharge of Surety
A surety is said to be discharged from liability when his liability comes to an end. Indian Contract
Act 1872 specifies the following conditions in which a surety is discharged of his liability -

1. Section 130 - By a notice of revocation -

2. Section 131 - By death of surety -
3. Section 133 - By variance in terms of contract -
4. Section 134 - By discharge of principal debtor –
5. Section 135 - By composition, extension of time, or promise not to sue –
6. Section 139 - By imparing surety's remedy - If the creditor does any act that is inconsistent
with the rights of the surety or omits to do an act which his duty to surety requires him to do, and
the eventual remedy of the surety himself against the principal debtor is thereby impaired, the
surety is discharged.
Extent of Surety's Liability
As per section 128, the liability of a surety is co-extensive with that of the principal debtor,
unless it is otherwise provided in the contract.
Illustration - A guaratees the payment of a bill by B to C. The bill becomes due and B fails to
pay. A is liable to C not only for the amount of the bill but also for the interest.

This basically means that although the liability of the surety is co-extensive with that of the
principal debtor, he may place a limit on it in the contract. Co-extensive implies the maximum
extent possible. He is liable for the whole of the amount of the debt or the promises. However,
when part of a debt was recovered by disposing off certain goods, the liability of the surety is
also reduced by the same amount. This was held in the case of Harigopal Agarwal vs State
Bank of India AIR 1956.

The surety can also place conditions on his guarantee. Section 144 says that where a person
gives guarantee upon a contract that the creditor shall not act upon it untill another person has
joined it as co-surety, the guarantee is not valid if the co-surety does not join. In the case
of National Provincial Bank of England vs Brakenbury 1906, the defendant signed a
guarantee which was supposed to be signed by three other co-surities. One of them did not sign
and so the defendant was not held liable.

Similarly, a surety may specify in the contract that his liability cannot exceed a certain amount.
However, where the liability is unconditional, the court cannot introduce any conditions.

Bailment.
Bailment is a kind of activity in which the property of one person temporarily goes into the
possession of another. The ownership of the property remains with the giver, while only the
possession goes to another. Several situations in day to day life such as giving a vehicle for
repair, or parking a scooter in a parking lot, giving a cloth to a tailor for stitching, are examples
of bailment. Section 148 of Indian Contract Act 1872, defines bailment as follows -

According to this definition the following are the essential elements of bailment -

1. Delivery of goods
The possession of goods must transfer from one person to another.
Types of Delivery - As per section 149, two types of delivery –
Actual and Constructive delivery
In actual delivery, the physical possession of the goods is handed over to the bailee while in
constructive delivery the possession of the goods remains with the bailor upon authorization
of the bailee. In other words, the bailee authorizes the person to keep possession of the goods.

2. Delivery upon contract

For a valid bailment, the delivery must be done upon a contract that the goods will be returned
when the purpose is accomplished. If the goods are given without any contract, there is no
bailment.
3. Conditional Delivery
The delivery of goods is not permanent. The possession is given to the bailee only on the
condition that he will either return the goods or dispose them according to the wishes of the
bailer after the purpose for which the goods were given.
Duties of a Bailor or Right of bailee
1. Duty to pay necessary expenses (Section 158)
2. Duty to compensation (Section 164)
3. Duty to take back the goods
4. Duty to disclose the defects
5. Duty to indemnify in case of premature termination of bailment
6. Duty to indemnify in case of defective title

Duties/Responsibilities of a Bailee or right of bailor

1. Duty to take reasonable care
2. Duty not to make unauthorized use (Section 154)
3. Duty not to mix (Section 155-157)
4. Duty to return (Section 160)
5. Duty to return increase (Section 163)
6. Duty not to set up adverse tital (Section 166)

Right of Lien (Section 170-171)

In general, Lien means the right to keep the possession of the property of a person until that
person clear the debts. In case of bailment, the bailee has the right to keep the possession of
the property of the bailor until the bailor pays lawful charges to the bailee. Thus, right of Lien is
probably the most important of rights of a bailee because it gives the bailee the power to get
paid for his services.

Lien is of two kinds - Particular and General.

Particular Lien
This means that the lien holder has a right to keep possession of only that particular property for
which the charges are owed. For example, A gives a horse and a bicycle to B. A agrees to pay
B charges for training the horse and no charges for keeping the bicycle. Now, if A fails to pay
charges for the horse, B is entitled to keep possession only of the horse and not of the bicycle.
He must return the bicycle.

Conditions for Particular Lien -

1. Exercise of labor or skill

2. Labor or skill exercised must be in respect of the goods.

General Lien -
As opposed to Particular Lien, General Lien gives a right to the bailee to keep the possession of
any goods for any amount due in respect of any goods. Section 171 says that, bankers, factors,
wharfingers, attorneys of a High Court, and policy brokers may, in the absence of a contract to
the contrary, retain as a security for a general balance of account, any goods bailed to them; but
no other persons have a right to retain, as a security for such balance, goods bailed to them,
unless there is an express contract to that effect.
Rights of finder of goods
If a person finds something, he does not automatically become the owner of that thing. He, in
fact, becomes a special kind of a baliee in the sense that he has to keep the thing until the
owner is found. He should take care of the thing just like a bailee. Section 168 and 169 describe
the rights of such finder of goods.
1. Duty to take reasonable care
2. Duty not to make unauthorized use (Section 154)
3. Duty not to mix (Section 155-157)
4. Duty to return (Section 160)
5. Duty to return increase (Section 163)
6. Duty not to set up adverse tital (Section 166)
7. Duty to find true owner

Pledge
Pledge is a special kind of bailment in which a person transfers the possession of his property to
another for securing the loan taken from the other. It only differs from bailment in the matter of
purpose. When the purpose of the bailment is to secure a loan or a promise, it is called a
pledge. Section 172 of Indian Contract Act 1872 defines Pledge as follows -

The following are essential ingredients of a pledge -

1. Delivery of possession - As in bailment, the delivery of possession is essential in a pledge.

2. In return of a loan or a promise - The delivery must be in return of a loan or of acceptance
of a promise to perform something.
3. In pursuance of a contract - The delivery must be done under a contract though it is not
necessary that the delivery and the payment of loan be at the same time. Delivery can be made
even after the loan is received.
Rights of a Pawnee
1. Right of retainer (Section 173- 174) -.
2. Right to extra ordinary expenses (Section 175) -
3. Right of sale (Section 176) -.

Pawnor's Right to Redeem (Section 177)

Section 177 provides a very important right to the pawnor. It allows the pawnor to redeem his
property even if he has defaulted. It says that if a time is stipulated for the payment of a debt or
performance of the promise for which the pledge is made, and the pawnor make default in
payment of the debt or performance of the promise at the stipulated time, he may redeem the
goods pledged at any subsequent time before the actual sale of them; but he must, in that case,
pay, in addition, any expense which have arisen from his [Link] pawnor also has a right to
take back any increase in the property.
Pledge made by non-owner of the goods
Ordinarily goods may be pledged by the owner or by any person with the consent of the owner.
A pledge made by any other person is not valid. However, in many situations it is equally
important to allow trade and commerces and so there are some situations where a person
having the possession of the goods by owner's consent, is entitled to pledge those goods even
without owner's consent for the pledge. These situations are discussed below -

1. Pledge by Mercantile agent (Section 178)

2. Pledge by a person in possession under voidable contract (Section 178 A)
[Link] by person with limited interest (Section 179)
[Link] by coowner
5. Pledge by seller who is in possession of goods after sale
6. Pledge by buyer who is in possession of goods before sale

Partnership
In common parlance, partnership is a business owned and managed by two or more people. To
form a partnership, each partner normally contributes money, valuable property or labor in
exchange for a partnership share, which reflects the amount contributed. Section 4 of Indian
Partnership Act 1932 defines Partnership as follows -

Section 4 - Partnership is the relationship between persons who have agreed to share the
profits of a business carried on by all or any of them acting for all. Persons who have entered
into partnership with one another are individually called partners and collectively called a firm
and the name under which their business is carried on is called firm name.

Examples -

1. A and B buy 100 bales of cotton to sell later on profit which they agree to share equally.
A and B are partners in respect of such cotton.
2. A and B buy 100 bales of cotton together for personal use. There is no partnership
between A and B.

Section 5 of IPA 1932 says that the relation of partnership arises from contract and not from
status. Thus, if there is no specific contract, there can be no partnership. As per Section 6, to
determine whether a partnership exists between a group of persons, we have to look at the real
relation between them as shown by all relevant facts taken together. It further says that sharing
of profits or of gross returns arising from a property owned jointly by them does not by itself
makes them partners.

These three aspects can be discussed under four heads-

1. Agreement - There has to be an agreement between two or more people to enter into
partnership.
2. Business - They must intend to start or do a business.
3. Sharing of profits - the partners must agree to share the profits according to their
investment. Here, profits include losses as well.
4. Mutual Agency - The firm must be managed by the partners and thus when any partner
acts, he acts on behalf of the firm .

Duty/Liabilities of the partners:

1. General Duties –
2. Duty to indemnify for loss caused by fraud –
3. Duties imposed by contract –
4. Duty relating to the conduct of business –
5. Duty to contribute equally to the losses –
6. Duty to indemnify for loss caused by his willful neglect –
 7. Duty in respect of application of property of the firm –
8. Duty in respect of personal profits –
9. Duty not to compete with the firm –

Rights of the partners

The partners of the firm have following rights -

Rights given by contract - As per Section11 any special rights, such as right to
remunerationmay be given by the contract between the partners.

1. Right to take part in the conduct of business -

2. Right to have access to and inspect and copy books of the firm -
3. Right to share in profit -
4. Right to receive interest on the capital subscribed –
5. Right to indemnity in respect of payments made and liabilities incurred

Implied authority of a partner

As held in Cox vs Hickman 1860, if two or more agree to carry on a business, each of
them is a principal and each is an agent for the other. Further, each is bound by the
other's contract in carrying on the trade as much as a single principal would be bound by
the act of an agent. This principle has been incorporated in section 18 of IPA 1932. It
says that a partner is the agent of the firm for the purposes of the firm. Its complimentary
principle is incorporated in section 25 which says that every partner is liable jointly with
all other partners and also severally for all acts of the firm done while he is a partner.

The following essential conditions are required for the exercise of Implied Authority to
bind the firm -

1. Usual way - The act must be done to carry on the business in the usual way.
2. Mode of doing act to bind firm - Section 22 specifies that in order to bind the firm, the act
must be done in firm's name or in any manner expressing or implying the intention to bind
the firm.

3. Power of implied authority also has the following restrictions -

There are two kinds of restrictions - Statutory restrictions, as imposed by section 19 (2) and
Restrictions imposed by partnership deed and those imposed by the agreement between
the partners. Statutory restrictions are binding upon all the partners whether they know them
or not, while the second type of restrictions are applicable only when the partners have
knowledge about them.

Statutory restrictions - In the absence of any usage or custom of trade to the contrary, a
partner is not allowed to -

1. Refer a dispute to arbitration.

2. open a banking account on behalf of the firm in his own name.
3. compromise or relinquish any claim or portion of the claim by the firm.
4. withdraw a suit or proceeding filed on behalf of the firm.
 5. admit any liability in a suit or proceeding against the firm.
6. acquire immovable property on behalf of the firm.
7. transfer immovable property belonging to the firm.
8. enter into partnership on behalf of the firm.

Contractual Restrictions - As per section 20, Partners may, by contract, put additional
restrictions or give additional powers to the partners. However, any act which falls under the
implied authority but is restricted by the contract, will bind the firm unless certain conditions are
satisfied. A firm can avoid its liability in such case, if the person dealing with the partner knows
the restriction or the person dealing with the partner does not know or does not believe that the
partner is a partner in the firm.

Admission of Partners (Section 23)

Since a partner is an agent of the firm and can bind the firm by his acts, an admission or
representation by him concerning the affairs of the firm, is evidence against the firm. This is
incorporated in section 23, which says that an admission or representation made by a partner
concerning the affairs of the firm is evidence against the firm if it is made in ordinary course of
business.
The key factor in this is that the admission or representation must be made in ordinary course of
business. This will also not include the representation by which a partner increases his scope of
authority. For example, if a partner executes a bill of exchange for payment of his personal
debts and on inquiry he makes a false statement that the other partners have authorized him,
the said bill of exchange will not bind the firm.

Incoming partners
The mutual relations of the partners is based on the principle that they have to be just and fair to
each other and are bound to carry on the business of the firm to the greatest common
advantage. Thus, it is important for each partner to have trust in each other. Therefore, section
31 lays down a general principle that a partner cannot be introduced into a firm without the
consent of all the existing partners. However, the existing partners may, by contract, authorize a
partner to introduce a new partner. A contract may also be made that upon death of a partner, a
new partner may be nominated in his place. If there are only two partners and one of them dies,
there is no question of nominating a new partner because the partnership ends as soon as the
partner dies.
Also, a new partner is not liable for any act of the firm done before he became a partner.

Outgoing partners
In many situations, a partner may have to leave the partnership. A partner may leave in the
following ways -

1. With the consent of all other partners -

2. With an express agreement by partners -
3. By giving notice to all other partners in case of partnership at will -
4. By Expulsion (Can a partner be removed? How?) - According to section 33 (1) a
partner may not be expelled by any majority of the partners, save in exercise of good
faith of powers conferred by contract between the partners. Thus, to expel a partner by
majority of the partners, the following two conditions must be satisfied -
1. Such a power must be conferred by contract between the partners. This means,
the contract of partnership must clearly give this power to the partners otherwise,
a partner cannot be expelled.
 2. The power to expel a partner conferred under the contract must be exercised in
good faith. Thus, if majority of the partners try to expel a partner with evil
intention and without any reasonable cause, it is not possible.

On insolvency of a partner -

5. By Death –

Liability of a retired partner

The liability of a retired partner may be of two types - For acts done before retirement and for
acts done after retirement.

1. Acts before retirement - The general rule is that a partner is liable for all acts done
before retirement even after he is retired. However, a retiring partner may be discharged
of his liabilities for act before retirement by an agreement between the retiring partner
and the remaining partners.
2. Acts after retirement - The general principle is that a retired partner is not liable for the
acts of the firm done after his retirement. However, he must give a public notice of his
retirement to escape liabilities.

Partnership with a minor

By virtue of section 10 and 11 of Indian Contract Act 1872, a minor is not considered capable of
giving consent and thus any contract with a minor is void ab initio. Therefore, a contract of
partnership with a minor is also void. In other words, a partnership cannot be done with a minor
and a minor cannot become a partner of a firm. However, a minor can be admitted to the
benefits of the partnership as per section 30 (1), by the consent of all the partners.
Rights and Liabilities of a minor
He has the following rights -

1. to such share of the property and of the profits of the the firm as may be agreed upon.
2. to access, copy, and inspect the records of the firm.
3. his share is liable for the acts of the firm but he is not personally liable for them.
4. may sue the partners for his share of profits of the firms when severing his connection
with the firm.
5. As per Section 30(5), he has a right of election to become or not to become the partner
of the firm after becoming a major. Upon attaining the age of majority, the minor can,
within six months , give public notice that he has elected to become or not to become a
partner of the firm. If he fails to give such notice, he will be become partner of the firm at
the expiry of six months.

Registration of a firm
Chapter 7 of IPA 1932 deals with the registration of firms. Under this act, registration of
firms is not compulsory. There is no penalty for not registering. However, the effects of
non-registration are so severe that usually firms opt to register.
Consequences of not registering

1. Suits between partners and Firm - A per Section 69 (1) unless a firm is registered and
the party is shown as a partner, no suit can be filed by or on behalf of any partner
against the firm
 2. Suit between firm and third parties - Until the firm is registered, no suit can be filed by
the firm against third parties.
3. Bar to claim set off and other proceedings - According to section 69(3), suit cannot
be filed for claim of set off or other proceedings to enforce a right arising from a
contract.

Exception
According to section 69(3)(a), the provisions of section 61(1) and (2) shall not affect the
enforcement of any right to sue for the dissolution of the firm, or for accounts of the dissolved
firm or any right or power to realize the property of dissolved firm. Thus, a partner of a
dissolved firm can sue a third party for releasing the property of the firm.

Procedure for registration

As per section 58, registration of a firm can be done any time by sending a statement in
prescribed form by post or delivering to the registrar of the area in which any place of business
of the firm is situated or proposed to be situated. The form should also be accompanied with
the prescribed fee. The form must contain -

1. the firm name

2. place or principal place of the business of the firm.
3. the names of any places where the firm carries on business.
4. the date when each partner joined the firm.
5. the names in full and permanent address of the partners.
6. the duration of the firm.

The statement must be signed by all of the partners or by their agents specially authorized in
this behalf. Each person signing the statement shall also verify it in the manner prescribed.
There is a restriction on the name of the firm that it cannot contain certain words such as Crown,
Emperor, Empress, King etc. that give an impression that the firm is associated with the govt.

When the registrar is satisfied that the provisions of section 58 have been fulfilled, he shall
record an entry in the Register of Firms and shall file the statement.

Dissolution of the firm

As per section 39, the dissolution of the partnership between all the partners of a firm is called
the dissolution of the firm. The firm is dissolved when all the partners stop carrying on the
partnership business. It is possible that some partners may decide to disassociate from the firm
while others carry on the business. In this case the partnership is not dissolved.
After dissolution of the firm, the partnership between the partners does not completely end. It
continues for the purpose of realization of assets or properties of the firm. Also, after the
dissolution, the right and power of the partners of the firm to bind the firm exists as is necessary
to wind up the operation and for the acts that started before the dissolution but have not yet
ended.

Modes of dissolution
 1. Dissolution by agreement –
2. Compulsory Dissolution - According to section 41, a firm will be compulsorily
dissolved if
1. all the partners or all but one of the partners become insolvent.
2. If the business of the firm becomes unlawful.
3. Dissolution upon contingencies - According to section 42, subject to the contract, a
firm is dissolved on the happening of following contingencies -
1. By Expiry of fixed term.
2. On completion of adventures or undertakings.
3. By the death of a partner.
4. By the adjudication of a partner as an insolvent
4. Dissolution by notice of partnership at will.

[Link] by court –

1. a partner becomes of unsound mind -

2. a partner becomes permanently incapable –
3. a partner is guilty of conduct likely to affect prejudicially the carrying on of
business –
4. willful or persistent breach of agreements relating to the business or
management of the affairs of the firm -
5. transfer of the whole interest in the firm by a partner to a third party –
6. perpetual loss
7. Just and Equitable cause

Consequences of Dissolution

1. Liabilities of the partners for acts done after dissolution –

2. Right of partners to have business wound up after dissolutions –
 3. Continuing authority of partners for purpose of winding - Each partner continues to
enjoy implied authority but for the acts done in the process of winding up of the
business.
4. Settlement of accounts
5. Payment of debts –
6. Restrain the use of name of the firm –
7. Restrain in trade –

The Sales Of Goods

INTRODUCTION:
Till 1930, transactions relating to sale and purchase of goods were regulated by the Indian
Contract Act, 1872. In 1930, Sections 76 to 123 of the Indian Contract Act, 1872 were repealed
and a separate Act called „The Indian Sale of Goods Act, 1930 was

passed. It came into force on 1st July, 1930. With effect from 22nd September, 1963, the word
„Indian‟ was also removed. Now, the present Act is called „The Sale of Good Act, 1930‟. This Act
extends to the whole of India except the State.

According to Section 3, the provisions of the Indian Contract Act, 1872, still continue to apply to
contracts for the sale of goods except where „The Sale of Goods Act‟, 1930 provides for the
contrary.
Meaning of contract of Sale:
According to Section 4(1) of the Sale of Goods Act, 1930, “Contract of sale of goods is a
contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for
a price”. „Contract of Sale‟ is a generic term which includes both a sale as well as an agreement
to sell.
Essential Elements of Contract of Sale:
The aforesaid definition clearly indicates the essential elements shown below.

Essential Elements of Contract of Sale

(a) Seller (b) Goods (c) Transfer of (d) Price (e) Essential
and General Elements of
Buyer Property a valid
contract

There must be a seller as well as a buyer.

 „Buyer‟ means a person who buys or agrees to buy goods [Section 2(1)].
 „Seller‟ means a person who sells or agrees to sell goods [Section 2(13)].
 „Good‟ means every kind of movable property other than actionable claims and money.
Property means the General property in goods, and not [Section 2(11)]. General
property in goods means ownership of the goods. There must be a price.
 Price here means the money consideration for a sale of goods [Section 2(10)]. When
the consideration is only goods, it amount to a „barter‟ and not sale.
  In addition to the aforesaid specific essential elements, all the essential elements of a
valid contract as specified under Section 10 of Indian Contract Act, 1872 must also be
present.

DISTINCTION BETWEEN SALE AND AGREEMENT TO SELL

What does ‘Contract of Sale’ Include.
The term „Contract of Sale‟ includes both a „sale‟ and „agreement to sell‟ as shown below.

When doesAgreement to Sell become Sale [Section 4(4)].

An Agreement to sell becomes a sale when the time elapses or the conditions are fulfilled
subject to which the ownership in the goods, is to be transferred.

Distinction between Sale and Agreement to Sell

A „Sale‟ and an „Agreement to Sell‟ can be distinguished as under:

Basis of distinction Sale Agreement to sell

Transfer of ownership takes Transfer of ownership of Transfer of ownership of
place immediately. goods. goods is to take place at a
future time or subject to
fulfillment of some condition.
2. Executed contract or It is an executed contract It is an executory contract
Executory contract because nothing remains to because something remains
be done. to be
done
3. Conveyance of property Buyer gets a right to enjoy the Buyer does not get such right
goods against the whole world to enjoy the goods. It only
including seller. There fore, a creates jus in personam
sale creates jus in rem (Right (Right against the
against property). person).

4. Transfer of risk Transfer of risk of loss of Transfer of risk of loss of

. goods takes place goods does not take place
immediately because because ownership is not
ownership is transferred. As a transferred. As a result, in
result, in case of destruction case of destruction of
of goods, the loss shall be goods, the loss shall be borne
borne by the buyer even by the seller even though the
though the goods are in the goods are in the possession
possession of the seller. of thebuyer

5. Rights of seller against Seller can sue the buyer for Seller can sue the buyer for
the buyer‟s breach the price even though the damages even though the
goods are in his possession. goods are in the possession
of thebuyer.

6. Rights of buyer against Buyer can sue the seller for Buyer can sue the seller for
the seller‟s breach. damaged and can sue the damages only.
third party who bought those
goods, forgoods
7. Effect of insolvency of Buyer can claim the goods Buyer cannot claim the goods
seller having possession of from the official receiver or even when he has paid the
goods assignee because the price because the ownership
ownership of goodshas has nottransferred to the
transferred to the buyer. buyer. Thebuyer who has paid
the price can only claim
rateable dividend.

8. Effect of insolvency of the Seller must deliver the goods Seller can refuse to deliver the
buyer before paying the to the official receiver or goods unless he is paid full
price assignee because the price of the goods because
ownership of goodshas theownership has not
transferred to the buyer. He transferred tothe buyer.
can only claim rate able
dividend for the unpaid price.

Meaning of Goods [Section 2(7)]

Goods means every kind of movable property other than actionable claims and money, and
includes the following:
(a) Stock and shares
(b) Growing crops, grass and thing attached to or forming part of the land which are agreed to
be served before sale or under the Contract of Sale.

Kinds of Goods:

GOODS
(A)Exiting Goods (B) Future Goods (C)Contingent Goods
(a)Specific Goods
(b) Ascertained Goods
(c) Unascertained Goods

CONDITIONS AND WARRANTIES

Meaning of Condition [Section 12(2)]

A condition is a stipulation
(a) Which is essential to the main purpose of the contract, and
(b) The breach of which gives the aggrieved party a right to terminate the contract.
Meaning of Warranty [Section 12(3)]
A warranty is a stipulation( Term)
(a) Which is collateral to the main purpose of the contract, and
(b) The breach of which gives the aggrieved party a right to claim damages but not right to reject
goods and to terminate the contract.
When condition to be treated as warranty [Section 13]
In the following three case, a breach of a condition is treated as a breach of a warranty:
(a) Where the buyer waives a condition: once the buyer waives a condition, he cannot insist one
its fulfillment e.g. accepting defective goods or beyond the stipulated time amounts to waiving a
condition.
(b) Where the buyer elects to treat breach of the condition as a breach of warranty; e.g. where
he claims damages instead of repudiating the contract.

(c) Where the contract is not severable and the buyer has accepted the goods or part thereof,
the breach of any condition by the seller can only be treated as a breach of warranty. It can not
be treated as a ground for rejecting the goods unless otherwise specified in the contract. Thus,
where the buyer after purchasing the goods finds that some condition is not fulfilled, he cannot
reject the goods. He has to retain the goods entitling him to claim damages.

Express and implied conditions and warranties:

In a contract of sale of goods, conditions and warranties may be express or implied.
(a) Express Conditions and Warranties These are expressly provided in the contract. For
example, a buyer desires to buy a SONY TV Model No. 2062. Here, model no. is an express
condition. In an advertisement for Khaitan fans, guarantee for 5 years is an express warranty.
(b) Implied Conditions and Warranties These are implied by law in every contract of sale of
goods unless a contrary intention appears from the terms of the contract. The various implied
conditions and warranties have been shown below.

Implied Conditions and Warranties

Implied Conditions Implied Warranties
a)Condition as to Title{Sec 14(a)}:There is an implied (a) Warranty as to Quiet Possession [Section
condition on the part of the seller that (i) in the case of a 14(b)] There is an implied warranty that the buyer
sale, he has a right to sell the goods, and (ii) in the case shall have and enjoy quiet possession of the
of an agreement to sell, he will have a right to sell the goods. The reach of this warranty gives buyer a
goods at the time when the property is to pass. right to claim damages from the seller.
(b) Sale by Description:Where there is a contract of (b) Warranty of Freedom from Encumbrances
sale of goods by description, there is an implied [Section 14(c)] There is an implied warranty that
condition that the goods shall correspond with the goods are free from any charge or
description. The main idea is that the goods supplied encumbrance in favour of any third person if the
must be same as were described by the seller. Sale of buyer is not aware of such charge orencumbrance.
goods by description include many situations as under: The breach of this warranty gives buyer a right to
claim damages from the seller.
(c) Sale by sample (c) Warranty as to Quality or Fitness for Particular
;A contract of sale is contract for sale by sample when Purpose which may be Annexed by the Usage of
there is a term in the contract, express or implied, to Trade[Section 16(3)]
that effect. Such sale by sample is subject to the
following three conditions.
(i) The goods must correspond with the sample in
quality.
(ii) The buyer must have a reasonable opportunity of
comparing the bulk with the sample.
(iii) The goods must be free from any defect which
renders them unmerchantable and which would not be
apparent on reasonable examination of the sample.
d) Sale by sample & Description : (d) Warranty to Disclose Dangerous Nature of
If the sale is by sample as well as by description, the Goods: In case of goods of dangerous nature the
goods must correspond with the sample as well as the seller must disclose or warn the buyer of the
description. probably danger. If the seller fails to do so, the
buyer may make him liable for breach of implied
warranty.
(e) Condition as to Quality or Fitness:There is no
implied condition as to the quality or fitness for any
particular purpose of goods supplied under a contract of
sale. In other words, the buyer must satisfy himself
about the quality as well as the suitability of the goods.
This is expressed by the maxim caveat emptor (let
thebuyer beware).
(f)Condition as a Merchantable Quality: Where the
goods are bought by description from a seller who deals
in goods of that description (whether he is the
manufacturer or producer or not),there is an implied
condition that the goods shall be of merchantable
quality.
(g)Conditions as to Wholesomeness:In case of
eatables or provisions or foodstuffs, there is an implied
condition as to wholesomeness. Condition as to
wholesomeness means that the goods shall be fit for
human consumption.
(h)Condition Implied by Custom : Condition as to
quality or fitness for a particular purpose may be
annexed by the usage of trade.

Meaning of the Doctrine of Caveat Emptor [Section 16]

The expression „Caveat Emptor‟ means „let the buyer beware‟. The doctrine of caveat emptor has been
given inthe first para of Section 16 which reads as under:

“Subject to the provisions of this Act and any other la for the time being in force, there is no implied
warranty orcondition as to the quality or fitness for ny particular purpose of good supplied under a
contract of sale”.
In other words, it is not part of the seller‟s duty to point out defects of the goods which he offers for sale,
rather it is the duty of the buyer to satisfy himself about the quality as well as the suitability of the goods.

Exceptions to the Doctrine of Caveat Emptor:

The doctrine of caveat emptor is subject to the following exceptions shown.

Exceptions to the Doctrine of Caveat Emptor

(a) (b)In case of (c)In case (d)In case (e)In case (f) Fitness (g)
In case of concealment of sale by of sale by of sale by for a Merchantable
misrepresentation of latent description sample description particular quality
by seller defects by & sample purpose
seller

(a) In Case of Misrepresentation by the Seller Where the seller makes a misrepresentation and the
buyer relieson that representation.
(b) In Case of Concealment of Latent Defect Where the seller knowingly conceals a defect which would
not bediscovered on a reasonable examination.
(c) In Case of Sale by Description [Section 15] Where the goods are sold by description and the goods
suppliedby the seller do not correspond to the description.
(d) In Case of Sale by Sample [Section 17] Where the goods are sold by sample and the goods
supplied by theseller do not correspond with the sample.
(e) In Case of Sale by Sample as well as Description [Section 15] Where the goods are sold by
sample aswell as description and the goods supplied do not correspond with sample as well as
description.
(f) Fitness for a Particular Purpose [Section 16(1)] Where the seller or a manufacturer is a dealer of
the type ofgoods sole by him and the buyer has disclosed the purpose for which goods are required and
relied upon theseller‟s skill or judgement.
(g) Merchantable Quality [Section 16(2)] Where the goods are bought by description from a seller who
deals ingoods of that description (whether he is the manufacturer or producer or not), there is an implied
condition thatgoods shall be of merchantable quality.

SALE BY NON-OWNERS

Meaning of General Rule

The general rule is expressed by the latin maxim “Namo dat quod non habet”, which means that “no one
can givewhat he does not himself possess”. If the seller‟s title to the goods is defective, the buyer‟s title
will also be defectivebecause the buyer acquires his title to the goods from the seller. Hence, the seller
cannot give a better title to the buyerthan he himself has.

Exceptions to the General Rule:

The circumstances under which a seller can give a better title than what he himself has, have been
[Link] us discuss these exceptions one by one.

Exceptions to the General Rule:

(a) Sale (b) Sale (c) Sale by (d) Sale by (e) Sale by (f) An (g) Sale (h) Sale (i) Sale by (j) Sale
by a by one of a person in seller in a buyer in unpaid by a by a Official by owner
mercantile the joint possession possession possession seller Finder of pawnee Receiver by
agent ownes under after sale before [Section Goods or or estoppel
[Section [Section voidable [Section the 54(3)] [Section pledgee Assignee
27] 280] contract 30(1)] transfer of 169 of or
ownership Indian Liquidator
[Section Contract
30(2)] Act 1872]

The various exceptions of the general rule and the conditions for their application are summarised below:
Exception to the general rule Conditions to be fulfilled before a buyer gets a good title to the
goods
(a) Sale by a mercantile agent [Section (i) The agent must be in possession of goods of a document title (e.g.,
27] Railway receipt, Bill of Lading) to the goods with the consent of the owner.
(ii) The agent must have sold the goods in the ordinarycourse of business as
a mercantile agent.
(iii) The buyer must have acted in good faith.
(iv) The buyer must have no knowledge that the seller had no authority to sell.
(b) Sale by one of the joint owners (i) The joint owner must be in the sole possession
[Section 280] (ii) The buyer must have bought the goods in good faith.
(iii) The buyer must have no knowledge that the seller had no authority to sell.
(c) Sale by a person in possession under (i) The seller must be in possession of goods under a contract voidable u/s 19
voidable contract or 19A of Indian Contract. Act, 1872 on ground of coercion, undue influence,
misrepresentation of fraud.
(ii) The goods must have been sold before the contract isrescinded.
(iii) The buyer must have bought the goods in goods faith.
(iv) The buyer must have no knowledge that the seller‟s title is defective.
(d) Sale by seller in possession after sale (i) The seller must be in possession of goods or of a document of title to the
[Section 30(1)] goods, in the capacity of a seller and not in any other capacity such as bailee.
(ii) The buyer must have bought the goods in good faith.
(iii) The buyer must have no knowledge about the previousSale.
(e) Sale by a buyer in possession before (i) The buyer must be in possession of the goods or a document of title to the
the transfer of ownership [Section 30(2)] goods, with the consent of the original seller and must have bought or agreed
to buy the goods.
(ii) The new buyer must have bought the goods in good faith.
(iii) The new buyer must have no knowledge about any lien or other right of
the original seller in respect of good.
(f) An unpaid seller [Section 54(3)] An unpaid seller must have exercised his right of lien or stoppage in transit.

(g) Sale by a Finder of Goods [Section (i) The owner cannot be found with reasonable diligence; or
169 of Indian Contract Act 1872] (ii) The owner, if found refuse to pay the lawful charges of finder; or
(iii) If the goods are in danger of perishing or of losing the greater part of its
value; or
(iv) If the lawful charges of the finder in respect of the thingfound amounts to
two third of its value.
(h) Sale by a pawnee or pledgee (i) The pawnor or pledger must have made a default in the payment of the
debt or the performance of the promise at the stipulated time.
(ii) The pawnee or pledgee must have given a reasonablenotice to the
pawnor or pledger.
(i) Sale by Official Receiver or Assignee The involvement person must be the owner of goods.
or Liquidator
(j) Sale by owner by estoppels The owner of the goods b his statement or conduct must have lead the buyer
to believe that the seller has the authority to sell.