LAW OF CONTRACT-II Unit IV:

PAPER – I:

LAW OF CONTRACT-II

Unit IV:

1. Discuss the rules relating to the transfer of ownership (property) in a contract of sale. When does the property in goods pass from seller to buyer?

In a contract of sale, one of the most important aspects is the transfer of ownership (property) from the seller to the buyer. The time at which the ownership of goods passes has legal significance because risk follows ownership, and the rights and liabilities of the parties depend upon it.

The Sale of Goods Act, 1930 lays down specific rules for determining when the property in goods passes from seller to buyer, especially in Sections 18 to 25.

1. Importance of Transfer of Property

Determines who bears the risk of loss.
Determines who has the right to sue in case of damage or breach.
Ownership determines the right to re-sell, pledge, or dispose of goods.

2. Classification of Goods for Purpose of Transfer

The rules vary based on the type of goods:

(i) Specific or Ascertained Goods

(Sec. 19–22)

These are goods identified and agreed upon at the time of contract.
Property passes when the parties intend it to pass, which can be inferred from:
- Terms of the contract,
- Conduct of the parties, and
- Circumstances of the case.

Rules under Section 20 to 22:

Section 20: Where there is an unconditional contract for sale of specific goods in a deliverable state, the property passes at the time the contract is made.
Section 21: If the goods are not in a deliverable state, property does not pass until the seller has put them into a deliverable state and the buyer is notified.
Section 22: If something is to be done to ascertain the price (e.g., weighing), property passes after such act and notification to the buyer.

(ii) Unascertained or Future Goods

(Sec. 18 & 23)

Property does not pass until the goods are ascertained.
Section 23: When goods are unascertained, property passes only when:
- The goods are unconditionally appropriated to the contract by either party with the other’s assent.
- This includes delivery to a carrier without reserving the right of disposal.

3. Goods Sent on Approval or Sale or Return Basis

(Sec. 24)

Property passes:
- When the buyer signifies his approval or acceptance;
- When he retains goods beyond the agreed period without rejection;
- If no time is fixed, after a reasonable time.

4. Reservation of Right of Disposal

(Sec. 25)

Even if goods are delivered to the buyer or carrier, the seller may reserve the right of disposal until conditions are fulfilled (e.g., payment).
In such cases, property passes only when those conditions are met.

5. Risk and Transfer of Property

(Sec. 26)

Risk follows ownership unless otherwise agreed.
If ownership has passed, the buyer bears the risk even if goods are not yet delivered.
If ownership hasn’t passed, the seller bears the risk.

Conclusion

The transfer of property is governed not just by the physical delivery of goods but by the intention of the parties, the nature of the goods, and contractual conditions. The Sale of Goods Act ensures that ownership is transferred in a structured manner to protect the interests of both buyer and seller. Understanding the exact time when ownership passes is essential for determining liabilities, remedies, and rights under the law.

2. Explain the rule of ‘Nemo dat quod non habet’. What are the exceptions to this rule under the Sale of Goods Act?

The Latin maxim “Nemo dat quod non habet” means “no one can give what they do not have.” This is a fundamental principle of the Sale of Goods Act, 1930, particularly found in Section 27, which governs the transfer of title by a person who is not the owner.

Meaning of the Rule

The rule implies that a person who does not own the goods (or does not have the authority of the owner) cannot transfer a better title than he himself possesses.
For example, if a thief sells stolen goods to an innocent buyer, the buyer does not get ownership, and the true owner can reclaim the goods.

This principle is intended to protect the rights of the true owner of the goods and uphold the sanctity of ownership.

Statutory Provision: Section 27 of the Sale of Goods Act

“Where goods are sold by a person who is not the owner thereof, and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had.”

Rationale Behind the Rule

To prevent fraud and theft.
To protect the interest of the rightful owner.
To maintain confidence in the law of property and ownership.

Exceptions to the Rule under the Sale of Goods Act

Despite the strict nature of this rule, the Act recognizes certain exceptions where even a non-owner can transfer good title to the buyer:

1. Sale by a Mercantile Agent (Section 27 Exception)

If a mercantile agent is in possession of goods with the owner’s consent and sells them in the ordinary course of business, a buyer acting in good faith and without notice of the agent’s lack of authority gets a good title.

2. Sale by One of Several Joint Owners (Section 28)

If one joint owner is in sole possession of goods with the consent of the co-owners, a sale made by him to a buyer in good faith gives a valid title.

3. Sale by Person in Possession Under a Voidable Contract (Section 29)

If the seller obtained the goods under a voidable contract (e.g., by fraud or coercion), and the contract has not yet been rescinded, a buyer who purchases in good faith and without notice of the defect gets a good title.

4. Sale by Seller in Possession After Sale (Section 30(1))

If a seller, after selling the goods, remains in possession of them and delivers them to a second buyer who purchases in good faith and without notice of the earlier sale, the second buyer gets a good title.

5. Sale by Buyer in Possession After Agreement to Buy (Section 30(2))

If a buyer, who has agreed to buy but not yet acquired ownership, obtains possession of the goods and sells them to a third party who buys in good faith and without notice of the original seller’s rights, the third party gets a valid title.

6. Estoppel

If the owner by his conduct or representation leads the buyer to believe that the seller has authority to sell, he is estopped (legally prevented) from denying the seller’s authority. In such a case, the buyer gets a good title.

7. Sale by an Unpaid Seller Exercising Right of Lien or Stoppage (Section 54(3))

When an unpaid seller resumes possession of goods using his right of lien or stoppage in transit, and then resells the goods, the new buyer gets a good title, even though the original buyer had some ownership claim.

Conclusion

The rule of “Nemo dat quod non habet” protects the interests of the true owner by ensuring that only rightful owners or their authorized agents can transfer ownership. However, the exceptions under the Sale of Goods Act strike a balance by protecting innocent third-party purchasers in certain circumstances. These exceptions are based on principles of equity, estoppel, and commercial convenience, ensuring fairness in the market while maintaining legal order.

3. Describe the legal position and effects of sale by a non-owner. Under what circumstances is a sale by a non-owner valid?

In the law of sale of goods, the general rule is that only the owner of goods can transfer ownership. This is based on the legal maxim “Nemo dat quod non habet”, which means “no one can give what they do not have.” Therefore, a person who is not the owner (i.e., a non-owner), or who does not have the authority of the owner, cannot confer a better title on the buyer.

This rule is primarily codified under Section 27 of the Sale of Goods Act, 1930, which states:

“Where goods are sold by a person who is not the owner thereof, and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had.”

Legal Position of Sale by a Non-Owner

General Rule:
- A buyer purchasing goods from a person who is not the owner, and who has no authority from the owner to sell, does not get any ownership of the goods.
- The true owner can recover the goods from such a buyer.
Purpose of the Rule:
- To protect the interest of the rightful owner of the goods.
- To ensure that no one can transfer better rights than he possesses.
Effect on Buyer:
- The buyer receives no title, even if he has acted in good faith and paid full value for the goods.
- The buyer may have a remedy only against the seller (non-owner), but not against the true owner.

Exceptions: When is a Sale by a Non-Owner Valid?

The Sale of Goods Act recognizes certain exceptions where even a non-owner can convey good title to a buyer. These exceptions aim to protect bona fide buyers (buyers in good faith without notice of defect in title).

1. Sale by a Mercantile Agent (Section 27 Exception)

If a mercantile agent is in possession of goods with the owner’s consent and sells them in the ordinary course of business, the sale is valid if the buyer acts in good faith and without notice of any lack of authority.

2. Sale by a Co-owner (Section 28)

If one of several joint owners of goods is in sole possession with the consent of the co-owners, and he sells the goods, a buyer who purchases in good faith gets a valid title.

3. Sale under Voidable Contract (Section 29)

If a person obtains possession of goods under a voidable contract (e.g., induced by fraud or coercion), and sells them before the contract is rescinded, the buyer who acts in good faith and without notice of the seller’s defect in title gets a good title.

4. Sale by Seller in Possession After Sale (Section 30(1))

When a seller, after selling the goods, continues to possess them and sells them again to a second buyer, the second buyer gets a good title, provided:

He acts in good faith, and
Has no notice of the previous sale.

5. Sale by Buyer in Possession After Agreement to Buy (Section 30(2))

Where a buyer who has agreed to buy the goods (but ownership has not yet passed) obtains possession and resells them to a third party who buys in good faith and without notice of the original seller’s rights, the third party gets good title.

6. Sale under Estoppel

If the true owner by his conduct or representation allows a buyer to believe that the seller had authority to sell, he is estopped from denying the seller’s authority. This protects a buyer who relies on the owner’s conduct and buys in good faith.

7. Sale by an Unpaid Seller Reselling Goods (Section 54(3))

If an unpaid seller exercises his right of lien or stoppage in transit and resells the goods, the second buyer gets a valid title, even against the first buyer.

Conclusion

While the general principle under the Sale of Goods Act is that a non-owner cannot pass good title, the law recognizes practical exceptions to protect the rights of honest and good faith buyers. These exceptions ensure a balance between the rights of the true owner and the commercial security of transactions. Courts interpret these provisions carefully to prevent fraud while promoting honest trade practices.

4. What are the rules relating to the delivery of goods under the Sale of Goods Act, 1930? How is valid delivery made and what are the consequences of wrongful delivery?

Delivery of goods is an essential component of a contract of sale under the Sale of Goods Act, 1930. The Act lays down detailed rules regarding how and when delivery should be made, and the consequences if it is not made properly. The objective of delivery is the voluntary transfer of possession from the seller to the buyer.

Meaning of Delivery

According to Section 2(2) of the Act:

“Delivery means voluntary transfer of possession from one person to another.”

Thus, delivery is not just the handing over of goods, but it must be voluntary and intended to transfer possession.

Types of Delivery

Under Section 33, delivery may be made in any of the following ways:

Actual Delivery:
The physical handing over of goods to the buyer.
Symbolic Delivery:
Delivery made by giving a symbol of the goods (e.g., handing over keys of a warehouse).
Constructive Delivery:
When a third party holding the goods acknowledges to the buyer that he now holds the goods on behalf of the buyer.

Rules Relating to Delivery of Goods (Sections 33 to 39)

1. Delivery must be Voluntary (Section 2(2))

It must be an intentional act by the seller to transfer possession.

2. Delivery must have the Effect of Putting the Buyer in Possession (Section 33)

The goods must be placed under the control of the buyer.

3. Time of Delivery (Section 38(1))

If no time is fixed, delivery must be made within a reasonable time, depending on the nature of the goods and circumstances.

4. Place of Delivery (Section 36(1))

If not agreed otherwise, goods are to be delivered at the place where they are at the time of sale.

5. Goods in Possession of a Third Party (Section 36(3))

Delivery is not complete until the third party acknowledges holding goods on behalf of the buyer.

6. Demand for Delivery (Section 36(4))

The buyer must demand delivery unless the contract states otherwise.

7. Expenses of Delivery (Section 36(5))

Unless agreed otherwise, the seller bears the cost of putting goods in a deliverable state, and the buyer bears the cost of receiving them.

8. Part Delivery (Section 34)

Delivery of part of the goods may be considered delivery of the whole only if it is made in progress of the whole delivery and not intended to separate it.

9. Delivery by Installments (Section 38)

Unless agreed, the buyer is not bound to accept delivery by installments.

10. Delivery to Carrier (Section 39)

If goods are delivered to a carrier or wharfinger for transmission to the buyer, it is treated as delivery to the buyer, provided the seller does not reserve the right of disposal.

Valid Delivery

A valid delivery must satisfy the following conditions:

It must be voluntary and authorized.
The goods must be in a deliverable state.
It must be in accordance with contract terms regarding time, place, and quantity.
It must enable the buyer to take possession.

Consequences of Wrongful Delivery

Wrongful delivery occurs when the seller:

Delivers goods not conforming to contract,
Delivers goods late or at the wrong place,
Delivers different quantity, or
Refuses to deliver altogether.

Legal consequences include:

Right to Reject:
The buyer can reject the goods if the delivery is not according to the contract.
Right to Damages:
The buyer can claim damages for non-delivery or late delivery (Section 56 & 57).
Repudiation of Contract:
If delivery by installments was agreed and the seller fails substantially, the buyer may rescind the contract.
Suit for Specific Performance:
If the goods are specific or ascertained, the buyer can seek specific performance under Section 58.

Conclusion

The delivery of goods is a crucial legal act in the contract of sale, as it marks the transition from contract to performance. The Sale of Goods Act ensures that delivery is fair, timely, and according to the contract. If the seller fails to deliver properly, the buyer is given adequate legal remedies to protect his rights. The rules regarding delivery safeguard both parties and promote certainty in commercial transactions.

5. Discuss the rights and duties of the seller and the buyer before and after the sale of goods.

The Sale of Goods Act, 1930 governs the rights and duties of both the seller and the buyer in a contract of sale. These rights and duties arise both before and after the sale of goods is completed, and they form the core responsibilities of the parties in ensuring a fair and enforceable transaction.

✅ Rights and Duties of the Seller

A. Before the Sale

1. Duty to Deliver the Goods

The seller must deliver the goods as per the terms of the contract (Section 31).
Delivery must be in agreed time, place, and manner.

2. Duty to Put Goods in Deliverable State

As per Section 36(1), if goods are not in a deliverable state, the seller must take necessary steps to make them so.

3. Duty to Pass Good Title

The seller must ensure that he has ownership and legal right to sell the goods (Section 14(a)).

4. Duty Not to Commit Breach of Conditions

The seller must comply with express and implied conditions related to description, quality, or fitness of goods.

5. Duty to Notify Buyer (if necessary)

The seller should inform the buyer when the goods are ready for delivery, especially when the buyer must take delivery himself.

B. After the Sale

1. Right to Payment

After delivering the goods, the seller has the right to receive the price as per the contract.

2. Rights of an Unpaid Seller (Section 45–54)

If the buyer fails to pay:

Right of lien (retain goods till payment)
Right of stoppage in transit
Right of resale
Right to sue for the price

3. Duty to Deliver Correct Quantity and Quality

The goods must correspond to sample or description (if applicable).
If goods do not conform, the buyer has the right to reject them.

✅ Rights and Duties of the Buyer

A. Before the Sale

1. Duty to Accept Delivery

The buyer must accept the goods when delivered as per the contract (Section 31).

2. Duty to Pay for the Goods

The buyer is obliged to pay the agreed price in the manner and time specified (Section 32).

3. Right to Examine Goods

Under Section 41, the buyer has the right to inspect the goods before accepting them.

4. Right to Reject Non-conforming Goods

The buyer can reject goods if they do not conform to sample, description, or implied conditions.

5. Duty to Apply for Delivery (Section 35)

Unless agreed otherwise, the buyer must demand delivery; the seller is not bound to deliver until such demand is made.

B. After the Sale

1. Right to Obtain Possession

After paying the price, the buyer is entitled to take possession of goods.

2. Right to Sue for Non-Delivery (Section 57)

If the seller refuses or fails to deliver, the buyer can sue for damages.

3. Right to Sue for Specific Performance (Section 58)

If the goods are specific and unique, the buyer may seek specific performance from the court.

4. Duty to Take Delivery

The buyer must take delivery of goods within a reasonable time and bear the cost of taking delivery (Section 44).

5. Duty to Pay Damages for Refusal to Accept

If the buyer wrongfully refuses to accept the goods, the seller can claim damages for non-acceptance (Section 56).

✅ Conclusion

The mutual rights and duties of the seller and buyer are essential for the successful execution of a sale contract. The seller’s primary duty is to deliver goods as per the contract, while the buyer’s primary duty is to accept and pay for them. After the sale, both parties gain specific rights, such as the seller’s right to payment and the buyer’s right to possession. The Sale of Goods Act, 1930 ensures that fairness and accountability are maintained in commercial dealings through these reciprocal duties and protections.

6. Who is an Unpaid Seller? What are the Rights of an Unpaid Seller under the Sale of Goods Act, 1930?

The Sale of Goods Act, 1930 protects the interest of a seller who has not received the payment for the goods sold. Such a seller is known as an “unpaid seller”, and the Act confers on him certain statutory rights and remedies, both against the goods and the buyer personally.

✅ Definition of Unpaid Seller (Section 45 of the Act)

According to Section 45(1), a seller of goods is deemed to be an unpaid seller:

When the whole price has not been paid or tendered, or
When a bill of exchange or other negotiable instrument received as conditional payment has been dishonoured.

📌 Note: The seller remains unpaid even if part of the price is outstanding.

✅ Essentials of an Unpaid Seller

There must be a valid contract of sale.
The ownership may or may not have passed to the buyer.
The price is either not paid at all or partly unpaid.
Dishonour of a negotiable instrument like a cheque or bill qualifies the seller as unpaid.

✅ Rights of an Unpaid Seller

The rights of an unpaid seller are divided into two categories:

🔹 A. Rights Against the Goods

These rights are available only when the ownership of the goods has not yet passed to the buyer, or when he has retained possession.

1. Right of Lien (Section 47–49)

The unpaid seller has the right to retain possession of goods until the full price is paid.

Conditions:

The seller must be in possession of goods.
Goods must have been sold without any credit, or the credit term has expired, or the buyer has become insolvent.

➡️ Lien is lost when:

The seller delivers the goods to a carrier without reserving right of disposal.
The buyer or his agent lawfully obtains possession.
The seller waives his right of lien.

2. Right of Stoppage in Transit (Section 50–52)

If the buyer becomes insolvent, the unpaid seller can stop the goods in transit and resume possession.

Conditions:

Goods must be in transit (not yet delivered to the buyer).
Buyer must be insolvent.
Seller must give notice to the carrier or bailee in possession of the goods.

➡️ Right ends when:

The buyer or his agent takes delivery.
The carrier acknowledges holding goods on buyer’s behalf.

3. Right of Resale (Section 54)

The unpaid seller can resell the goods under the following situations:

If goods are perishable.
After giving notice of resale to the buyer.
If the seller expressly reserves the right to resell in case of default.

Effect of Resale:

If resale is properly conducted, the seller can recover loss or retain any surplus.
If resale is without notice, seller cannot claim any loss, but must return the profit to the buyer.

🔹 B. Rights Against the Buyer Personally

These rights are available even if the property in goods has passed to the buyer.

1. Suit for Price (Section 55)

If property has passed to the buyer and he wrongfully refuses to pay, the seller can sue for the price.

2. Suit for Damages for Non-Acceptance (Section 56)

If the buyer refuses to accept and pay for the goods, the seller can claim compensation for the loss suffered.

3. Suit for Interest (Section 61)

The seller can claim interest on the price from the date of due payment, depending on the agreement or usage of trade.

✅ Conclusion

An unpaid seller enjoys several rights under the Sale of Goods Act, 1930 to safeguard his interest in case of non-payment. His rights against the goods—lien, stoppage in transit, and resale—provide strong remedies, while rights against the buyer personally allow him to recover the price or damages through legal action. These provisions strike a fair balance between commercial justice and contractual responsibility.

7. What remedies are available to the buyer and the seller in case of breach of a contract of sale of goods? Explain with reference to relevant provisions.

The Sale of Goods Act, 1930 lays down specific remedies for both the buyer and the seller in case of breach of contract. A breach may occur due to non-delivery, non-payment, refusal to accept goods, defective goods, or repudiation of contract. The remedies aim to compensate the aggrieved party and protect commercial interests.

✅ I. Remedies Available to the Seller

1. Suit for Price (Section 55)

If the property in goods has passed to the buyer and he refuses to pay, the seller may file a suit for the price of goods.

If payment is due on a certain date, and the buyer fails to pay, the seller can sue even if goods are not delivered.

2. Suit for Damages for Non-Acceptance (Section 56)

If the buyer wrongfully refuses to accept and pay for the goods, the seller may claim compensation for the loss.

📌 Damages are based on the difference between the contract price and the market price on the date of breach.

3. Right of Resale (Section 54)

If the buyer defaults, the seller may resell the goods:

With notice to the buyer: Seller can recover losses or keep profit.
Without notice: Seller cannot claim loss but must return any gain to buyer.

4. Right to Withhold Delivery / Lien (Section 47–49)

If the buyer has not paid, the seller can withhold goods using the right of lien.

5. Right of Stoppage in Transit (Section 50–52)

If the buyer becomes insolvent, the seller can stop the goods in transit and regain possession.

6. Suit for Interest (Section 61)

The seller may recover interest on unpaid price from the due date, subject to the terms of contract or trade usage.

✅ II. Remedies Available to the Buyer

1. Suit for Damages for Non-Delivery (Section 57)

If the seller fails to deliver the goods as per the contract, the buyer may sue for damages.

📌 Damages are based on the difference between the contract price and the market price at the time of breach.

2. Suit for Specific Performance (Section 58)

If the goods are specific or ascertained, and monetary damages are not sufficient, the buyer may obtain a court order compelling delivery.

⚖️ This is an equitable remedy granted at the discretion of the court.

3. Suit for Breach of Warranty (Section 59)

If goods do not conform to the warranty, the buyer can:

Set off the breach against the price, or
Sue for damages, but cannot reject the goods (unlike breach of condition).

4. Suit for Repudiation of Contract (Section 60)

If either party repudiates the contract before the due date (anticipatory breach), the other may:

Treat the contract as rescinded, or
Wait until the due date and then sue for breach.

5. Right to Recover Price Paid

If the buyer has paid in advance and the seller fails to deliver, the buyer can recover the price paid, along with damages, if applicable.

6. Right to Reject Goods

If goods do not conform to description, sample, or quality, the buyer may reject them, especially if the breach is of a condition.

✅ Conclusion

The Sale of Goods Act, 1930 provides a well-structured framework of remedies for both buyers and sellers in the event of breach. These remedies—such as damages, specific performance, right of resale, lien, and recovery of price—are designed to uphold the principles of commercial justice, fairness, and contractual obligation. The Act ensures that both parties are adequately protected and have legal recourse in the event of non-performance.